Sunday, 16 September 2012

NBN: Digital Convergence and Economic Reform

In the context of the NBN debate and the Coalition's policy, some fundamentals need to be restated.

"Digital Convergence", all Telecommunications services carried digitally, especially when combined with computers, was always going to change the world of the consumer/user.

This was obvious around 1980-85.

What wasn't obvious, is that it was always going to change the landscape for providers.

Telcos around the world are having to face the reality of this restructuring of their business and the consequential Economic Reforms that will be forced on them: especially no longer being price setters, being able to pursue "Traditional Pricing", what the market will bear, not the more usual cost-plus-margin.

We see a National Broadband Network, providers see all their services collapsing into a single link to the customer and a box of electronic magic with their excessive profit margins in fast retreat.

Broadband has become "wallpaper": ubiquitous, standard and unremarkable. It cannot be sold, or priced, anymore as a premium service, but a basic utility.

Remember NEC and it's slogan for Converged Communications? "Computers and Communications"

This page sets a date of 1977 for NEC announcing its "C&C" policy/slogan.
[13-Mar-2013]. This biography of NEC President Akinobu Kanasugi places the genesis much earlier (1950's), but confirms the 1997 launch of the policy/slogan

In the 1950s Kobayashi instilled two beliefs at NEC: first, that long-term convergence in communication and computing technology would inevitably make the two fields inseparable, and second, that by mastering the necessary competencies in those two core areas, NEC would be guaranteed a crucial global market share. Together the two beliefs comprised NEC's "computing and communication"—or C&C—vision.
In a rational world, the 2005 Telstra ADSL2 FTTN was a no-brainer... It would've been an ideal stepping stone to an FTTP, built incrementally, just like the Copper Customer Access Network (CAN) was.

Telstra have followed "Mother England" and tried to wring every cent they can out of the PSTN. British Telecom moved to universally "timed calls"... Nothing is untimed.

But ARPU's (Average Revenue Per User) are necessarily limited for voice:
each person has just one mouth and set of ears.
Instead of going the American route of pre-paying for a selected region (up to whole country), Telstra wanted to go into timed calls, attempting this with ISDN.

But look at the APRU's for mobile, mobile data and fixed-line data:
beyond the wildest dreams of PSTN.

It comes down to a really simple charging formula: access cost + price/bit by time-of-day.

Premium services can be sold with lower-latency, symmetric speeds, lower packet-loss or wider reach. Generally, pay for better 'quality of service', however that's viewed.

Smartphones and video calling demonstrate we've reached price-points where users are prepared to buy these services in spades...

But they are predicated on a single price/bit.
  • And in that world, what does a voice-call cost?
  • Next to nothing... So VoIP costs here are dominated by the PSTN interconnect fee.
The lesson here.

The Telstra management culture followed the British in not just "milking the cash cow", but "killing off competitors". Unkindly, the approach Microsoft took that's seen it stagnate for a decade now.

Whereas a simple analysis that took into account the Silicon Revolution and Moores' Law would've informed an approach like Apple's:
Be prepared to let go of the current Sacred Cow and embrace the next evolutionary step.
With the caveat, 'hold your convictions lightly', be prepared for your Next Great Hope to fail in the marketplace, and if it does, tweak your new thing and invent something else.
Proof: Palm, Blackberry and now Apple...

Palm discovered the consumer price-point and form-factor that Psion and later Symbian missed for a decade.
Blackberry discovered first with business people, then with residential customers, that fully mobile messaging in a compact form-factor was a game changer.
Apple, with the iPod, Macbook Air, iPhone and iPad have been redefining the converged world of connected mobile computing for more than a decade.

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I was involved in the G3 fax + Telex replacement, Teletex (not text), in 1985. Sank without a trace within 5-7 years, along with G4 fax over ISDN... While G3 fax and Telex are still plodding along, 25 years later.

Typical Telstra marketing stuff-up:
  • they didn't just price it as a 'premium' service,
  • they priced it (well) above the existing service when the input costs were substantially lower.
Which is why we got the retail Internet via voice modems, not ISDN nor direct digital links.
The Internet arrived despite of, not because of, Telcos.
And why we've had to go via ADSL to fast broadband, over the copper used for telephones.

This was the same way that we got G3 fax into business...
I was at OTC in 1984, the year G3 broke-through internationally. The constant tones killed the Circuit Multiplication Equipment (CME) they used for voice, which is why they need to create another access number (0014).

G3 fax @ 9.6kbps, half-duplex, should've been a bonanza for International Telco's if they cooperated by installing digital mux/demux equipment at either end, but this was a user-initiated revolution that took the Telcos by surprise.

On a single full-duplex 64kbps cct, they would've been able to carry 12 simultaneous fax calls, with a little room to spare. Or on a 2Mbps ctt, 425 (14 times) fax calls without compression. Maybe 30%-50% more with some compression. All the useful parts of the G4 standard (compression, CRC's/retransmit, colour?) were pulled back into the G3 standard.

And with that 0014 access number, they could've also charged a 10-20% price premium because they could guarantee both a higher connection speed and lower noise. Something that users would work out pretty quickly - cheaper total cost per page.

This is the model that Telstra needed to adopt in 1986 for the "Fax killer", Teletex. Cost-plus-margin pricing, not "Traditional premium pricing".

Recently I asked a mate who works from home if a fax equivalent to VoIP would be interesting to him. NO!!! Just use email. G3 fax is being finally killed by email, not any of the CCITT/ITU-T replacement standards.

Not because those standards weren't
 a) good
 b) at exactly the right time or
 c) provided what the market needed,
but because the Telcos with their excessive pricing models killed them.

The Internet won through because of voice modems and the ISP charging model: cost plus margin.

This is a necessary economic reform in a world of Digital Convergence:
where the networks for Computers and Communications are ubiquitous, permanent ('always on') and standard. A bit is a bit is a bit, modulo the quality-of-service parameters for the connection type.
Secondly, the reason the PC killed the Apple II/III and everyone else:
the 'open' bus, ISA, and now PCI/PCIe. And why IBM's proprietary MCA died.

They co-operated with OEM's and hardware accessory manufacturers, didn't try to compete with everyone and lock all customers into their proprietary universe.
This is the fundamental change needed in the Telco business,
economic reform to "cost plus margin" and "open access".
The network is a common utility service, not a premium-price product,
since 1996 when the retail Internet exploded, and 2007 when smartphones redefined the world of Mobile Internet.
NBN Co with a single, wholesale end-to-end IP network is the end of the Traditional Telco model.
Companies like Telstra will fight tooth and claw to preserve their "birthright", but the world has moved on. They can either catch-up or become irrelevant and die.

Our Regulators and Politicians need to legislate and respond to this new world, not to yesteryear.

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