Friday, 19 July 2013

NBN: Telcos last commercial challenge: Fibre Customer Access Network or not?

Since the introduction in 1925 of self-dial telephones, not a lot has changed at the customer end. It's perhaps the ultimate "backwards compatibility". CPE, Customer Premises Equipment, from 1925 will still work as well as it ever did, but maybe the connector has changed (to RJ-12, modular plug).

The last major technical change was "tone dialling" (DTMF) and depending on how you count it, CND - Calling Number Display. Business customers, with PABX's (Private Automatic Branch Exchanges), have seen other changes to do with ISDN and associated signalling standards.

In Telco's internal networks, there have been many evolutions of technology used for Transmission and Switching systems. The last major internal change for most Telcos was not just moving to Optical Fibre, but adopting IP (Internet Protocol) and direct Ethernet access to Fibre.

What's driven the entirety of change since ~1965 is the Silicon (transistor) Revolution. Optical Fibre isn't the Big Deal, it's the electronics that get the digital signals on & off the fibre that's "magic". Moore's Law has been driving link speeds for decades - doubling them at least every 12-18 months.

Changing the Customer Access Network, CAN, from Copper and its 1925 technical specifications to 20th (not 21st) Century Fibre is both necessary and inevitable. There is now a monumental speed/capacity mismatch between Telcos internal networks and DSL speeds on the copper CAN. [In Engineering, the term "impedance mismatch" might be used.]

But within I.T./computing, technology revolutions, and the attendant "Fall of Giants" and "Spectacular Rise of New Giants" is nothing new, more the norm.

This "generational change" isn't new nor confined to I.T. & Communications.
Two archetypal disruptive technologies were the "Spinning Jenny" and Ford's "production line". Nothing was the same after. Competitors had to adopt the new technology & methods or get out of the business.

Trains went from Steam to Diesel to Diesel-Electric to 600V- DC Electric to 11KV AC to Very High Speed (we're not there yet in Oz).

And glass container manufacturers. Jeremy Clarkson turns out to be a descendant of a long-running, very profitable family business, inventors of the Kilner Jar. After around 100 years of solid business, they failed very quickly, selling up in 1937. The company couldn't afford the money to upgrade to the latest, bigger, more expensive, machines from the USA.

The effects of predictable trends on business in I.T./Computing is well documented.

In the Beginning, 1950/1, the first Commercial computer was made and the fun/competition started.
The UNIVAC 1, in the USA, was the commercial derivative of the 1947 Government/Military ENIAC.
Meanwhile in the UK, Lyons built the LEO to sell and run it's Systems Research Office.
In Germany, Konrad Zuse released his Z4.

Within 15 years, IBM had become the dominant player, surrounded by "The Seven Dwarves" and later "The BUNCH" - Burroughs, Univac, NCR, Control Data and Honeywell. RCA and General Electric were the other "Dwarves". IBM, with it's 360-series, had bet the company on a line of computers that all ran the same instruction set, Operating System and programs. They ran both "Scientific" (Floating Point) and "Commercial" applications (exact decimals). The descendants of IBM's mainframes (Z-series) are still a major, if invisible, force in Business I.T.

The makers of the fastest machines of the time, Control Data, designed by Seymour Cray, have since faded, succumbing to the effects of Moore's Law and Volume Production & manufacturing "Learning Curves". In fact, only vestigial pieces remain of The BUNCH: Unisys formed in 1987 by the merger of Burroughs and Sperry-Univac, still makes/sells their mainframes, but are one-twentieth the size.

Things didn't go swimmingly for IBM forever. During the 1970's and 80's it had an estimated 60% by dollars, of whole turnover and continued to declare record profits every year. Right up until 1991 & 1992 when it declared the largest losses in US Corporate history. Louis Gerstner was brought in to turn around and save the company. Amazingly, he did.

Gordon Bell, one of stars at DEC, Digital Equipment Corporation, who's VAX line of mini-computers were instrumental in the loss of dominance of mainframes and the demise of their manufacturers, coined "Bell's Law", based on the effects of the Silicon Revolution and Volume Production. [Sources, at end].

PC's came along an killed DEC, workstations and the VAX.

Now mobile devices, smartphones and tablets, are killing the PC. Consolidation of PC manufacturers is on-going and far from resolved. Hewlett-Packard and Dell are both in trouble and looking to reorganise. IBM, the originator of the common PC, sold its business to Lenovo nearly a decade ago.

These examples are to show that:

  • Disruptive change is the norm in Technology-based businesses.
  • Technologies driven by the Silicon Revolution haven't slowed the pace of change and disruption in 50 years.
  • Even, or especially, dominant and "untouchable" players crash in time.
    • They don't see the crash coming.
    • The end is usually swift.
    • But IBM, as usual, is the exception to prove the rule. Both they and their mainframe business survived. Albeit after "transforming" themselves.
The historical lesson for Traditional Telco's bound to a copper CAN is stark:
  • Adapt or Die.

I can't yet phrase the Economics, but this is being driven by Compound Growth in Internet Data Volumes and Moore's Law driving the marginal cost of increased speeds (on Fibre) hundreds, or thousands of times below all other competitors. As Einstein said: "Compound Interest is the most powerful force in the Universe".

Anyone who believes the market will be satisfied for long with capped speeds, be it 12Mbps, 25Mbps, 100Mbps or 1Gbps, hasn't read or learnt our recent history of I.T.

I've pointed out elsewhere, that the Internet Data Download market is highly-skewed. There is constant demand for "more everything" from the top-end, who are willing to pay a premium and who dominate the market to an extent unusual, I believe, in commodity markets. ISP's & Telcos could drop 60% of their customers and potentially increase profits: not your traditional mass market.

Bell, 2007, describing Bells Law

Bell, 2007, history of computing classes

Jim Gray, 1998, tracking price for constant size

Jim Gray, 1998.

Jim Gray, 1998, best description. smartphone/tablets 10 yrs off.

Jim Gray, 1998. contrasting Price and Volume Sales.

The cycle repeats:
The Rise and Fall of PC's and their Software Ecosystem.

Horace Dediu, Asymco, 2012. PC's dominance ends.

Horace Dediu, Asymco, 2012. Rapid decline in PC market share since 2005

Horace Dediu, Asymco, 2012. Microsoft vs Apple. Effect of collapse in PC marketshare.

Jim Gray, "(16) Laws of Cyberspace" (Powerpoint slides):

Gordon Bell's Law of Computing Classes, or "Bell’s Law for the birth and death of computer classes: A theory of the computer’s evolution" Microsoft Technical Report MSR-TR-2007-146

Horace Dediu of Asymco released a series of articles in 2012 illustrating the rise and fall of the PC and the fate of Microsoft, tied to the one platform.

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