The Internet is Not the Answer

Internet is Not the AnswerLast week a new book, The Internet is Not the Answer came out by Andrew Keen. This book looks in detail at some of the negative consequences of the Internet, and there are many. Following are a few examples of the themes of the book:

  • The Internet is creating immense wealth for a few, but not the jobs that go with it. Examples are WeChat that is worth $19 billion and employs 55 people. Airbnb was valued at over $10 billion last year with 700 employees compared to Hilton that is worth half as much and employs 152,000.
  • Rather than creating a transparent society, the Internet is allowing businesses and governments to spy on us full-time.
  • Rather than creating a cultural renaissance the Internet and on-line piracy have destroyed the music, newspaper, photography and book industries.
  • Rather than promoting democracy, the Internet allows anonymous bullying and the rule of the mob on social media and on sites like 4Chan and Reddit. Social media had created a pandemic of racism and sexism.
  • Rather than create wealth the Internet is contributing to the wealth gap and is helping to make the average person poorer. Multi-billion dollar start-ups are widening the chasm between rich and poor.
  • Online data services like Pinterest and Tumblr are getting wealthy by having the public build databases for free.

When you first read Keen’s arguments you find yourself agreeing with most of them (and there are many more than the ones listed above). But as I read I realized that there are pretty powerful counterarguments for most, but not all of his arguments.

I certainly am as puzzled as Keen about why some of these Internet start-ups are worth billions. But then I think back to the other tech booms during my life – supercomputers in the 70’s and telecom and dot.com companies in the 90s and I remember that we’ve seen this before. And I also know that over time the market gets over its exuberance for start-ups and overvalued companies eventually get right-valued. Let’s face it, Uber is a taxi service and there is nothing more brick-and-mortar than that. Airbnb is a giant rental agent, not much else. Eventually these companies are going to get valued according to the revenues and cash flow that they generate, just as happened in the past to Cray Computers, Control Data, NextTel, and all of the CLECs of the late 90s.

I think everybody shares Keen’s concern about lack of privacy. Right now there doesn’t look to be a solution to that, but one can hope that over time that somebody will find some spy-proof ways for us to websurf and communicate. Whoever does that is going to get very rich.

But some of his concerns such as the death of the music and newspaper businesses feel a bit reactionary. Every major new technology kills off old technology businesses. It’s inevitable and frankly a necessary part of modernization. Keen spends a lot of time lamenting the death of Kodak, but they were dead at the first release of a digital camera and not from anything the Internet did. And I have trouble lamenting the slow death of large news organizations that were gobbled up a decade ago by large corporations and that quickly stopped taking stances that went against their owner’s interest. And newspapers were largely supported from ads. Does anybody really miss newspaper ads compared to the Internet?

I actually got a chuckle at his complaint against 4Chan. This is a website that is largely populated by teens, and mostly teenage boys. That is an age when being obnoxious is normal and if you have never been to 4Chan, it’s everything you can imagine hordes of anonymous teenage boys can be. It’s raunchy, sleazy, sex-driven and obnoxious. I went there once, shuddered and moved on. But I bet that nobody reading this blog has ever been harmed in any way by 4Chan. It is its own little sleazy neighborhood on the web where teen angst, grossness and testosterone rule the day. Teenagers are never going to be politically correct, so I’m actually glad they have their own niche.

I am puzzled about his rant against sexism and racism on social sites. Certainly anybody is free to say what they want on Facebook and other social media, but there is generally a big lash-back against overt nastiness. Certainly folks of the same ilk tend to hang out together on these sites and so no doubt there are pockets of racism and sexism and every other ism hidden inside social media. But social media also has a lot to do with trends in the opposite direction. I think a lot of the reason there is more acceptance of the LBGT community and issues like marriage equality has been the social media world assuring people that it’s the right thing to do.

The Internet certainly has made new billionaires. But there were just as many billionaires made in the generation before the Internet. Wall street has been making billionaires out of the selected few who have been able to take companies public for several generations now. The Internet didn’t make billionaires out of the Walton clan from Walmart or Martha Stewart. There are a whole lot of reasons that the rich have been getting richer and I can’t see this being pinned solely on the Internet. Cutting tax rates and creating tax loopholes for the wealthy has probably had more to do with our wealth disparity than anything the Internet has done.

I definitely recommend the book. Anti-technology folks will have a field day with the book since it lists everything they might imagine is wrong with the Internet. But the books is well written and for the rest of us it gives us reason to pause and think about the issues Keen raises. Some of his concerns like privacy are shared by many and perhaps books like this will add to the cry to fix some of these issues. But I doubt if many will share his overall concerns about the Internet, because for every negative impact there are also very positive ones. And even Keen is not entirely pessimistic in the end and he sees some hope for the Internet, even with all the ugliness that he sees in it.

Jobs that Can be Replaced by Robots Now

robbyI’ve written a few blogs before about how robots are going to take over many repetitive jobs over the next few decades. Certainly robots have had a role in manufacturing for some time now, to the point that we have a name for them, steel-collar workers. But we are on the verge of seeing automation pop up in places that you might not have suspected. Following are some examples of trials of robots that are happening in the world today.

Pharmacist. The vast majority of prescriptions that are filled are very routine. There are still medicines that require a pharmacist using a mortar and pestle, but most drugs come ready-made from the manufacturer and just need to be packaged for a given patient. The UCSF Medical Center launched a trial of a robotic pharmacist at two of its hospitals. The robots pick, package and dispense prescriptions and last year prepared 350,000 prescriptions without error. Further, a robot at bedside is being tested that will scan drugs and verify that each patient is being given the right medication.

Hospital Orderly. At any given time in a hospital, one major daily task is wheeling patents from one place to the next. Last year Abacus Global Technology tested a motorized orderly system in Singapore’s Khoo Teck Puat Hospital. These motorized hospital beds can move patients from place to place at a safe speed and are smart enough to deal with changes in terrain (like something laying on the floor or traffic congestion. While these won’t replace orderlies who do many other tasks, they will allow a hospital top reduce the number of needed orderlies.

Paralegals. One of the most gruesome task anymore in a law suit is reading the mountains or documents that are produced during discovery. One tactic of defendants is to produce so many documents that they overwhelm their opponents. Law firms bill huge sums to have people read these piles of paper and people get tired, make mistakes and might miss the key piece of evidence. Blackstone Discovery of Palo Alto California provided software for a recent lawsuit that was able to scan and process 1.5 million documents for a cost of $100,000, a huge savings. This is good news for defendants and bad news for law firms.

Cleaning. In a world that is battling ebola and other deadly diseases there is a need for somebody to thoroughly clean areas and kill every germ. Xenex Disinfection Service has developed a robot that will kill every germ in a room with UV light. Of course, this same technology could be brought to hotels and even to germ-phobic households.

Store Clerks. A lot of store clerks have already been eliminated due to self-checkout. The next robot innovation is being tested by Lowes at its Orchard Supply Store subsidiary. The robot, called OSHbot has a complete map of the store in memory plus access to current inventory and will lead customers to the right place in the store to find what they want.

Hotel Concierge. Last year the Aloft Hotel in Cupertino California tested a robot concierge. Named SaviOne, trials have shown the robot to be as helpful as a human concierge. The robot leads you to your room at check-in (without expecting a tip). It was able to provide restaurant recommendations and reservations, hail a cab and handle a lot of routine customer service tasks.

Rescuers. There are several robots being tested to help in emergencies. Scientist at Tohoku University in Sendai Japan have developed a robot that can be used to enter tight spaces such as with a building collapse. The snakelike robot can enter tight spaces and can identify movement while also sending back camera images to the operator. There are other robots being used that listen for faint noises in these situations helping to find trapped people.

Babysitter. Aeon, a major Japanese retail store is using robots to babysit children while their parents shop. The robots come in various styles, such as a Hello Kitty robot. NEC also has a robot called PaPeRo that can amuse kids by telling jokes, giving quizzes and which can keep track of kids using an RFID chip.

Soldier. This one is scary to anybody who shudders when they watch the future scenes in the Terminator movies, but there are a host of defense contractors working on field combat robots. Early versions of some of these robots have been tested in Iraq, but the technologies are improving rapidly to the point where robots might be used to go into harm’s way before people.

Sportswriter. Narrative Science, using software developed by Northwestern University is using software to write sports stories from data supplied by box scores. Fox Sports is already using this software to write stories about baseball and softball games. It’s said that the stories are informative and about the same as what would be written by a human sportswriter. When somebody comes out with robot blog writer I guess I’ll go back to watering my plants and drinking an extra cup of tea in the mornings. It will be interesting to see if they can find a robot as opinionated as me!

What’s Wrong with Title II Regulation?

FCC_New_LogoI’ve read a lot of the comments of the big carriers and their associations that explain why Title II regulation is a terrible thing. Today’s blog will discuss some of their bigger complaints.

Rate Regulation. Many commenters say they fear rate regulation, meaning that the FCC could become involved in setting their rates. I can’t see any merit in this argument. The FCC and state commissions have relaxed regulation on telephone service over the years and in many states have deregulated rates. There has never been any rate regulation on competitive telephone companies (CLECs) or VoIP providers who are free to charge anything they want. The FCC also brought cellular voice under Title II in 2007 and there has been no regulation of those rates. Basically the FCC’s philosophy is to let the free market and competition set rates whenever possible and this has been true everywhere in the industry. The FCC only steps in when there is blatant abuse, such as when unscrupulous payphone providers were were billing people many dollars per minute.

I think the real fear of the carriers is having the FCC get involved in disputes of the charges between the large ISPs and companies like Netflix. On that count I think they are right, but that is the whole idea behind net neutrality – to not let carriers use their market power to pick winners and losers among web content providers. This is not exactly rate regulation in the historic sense, but its very likely that under Title II that the FCC will be asked to mediate differences between carriers.

Taxes. Several opponents of Title II have floated the idea that putting Internet service under regulation will mean a whole new host of taxes. At least in the short term that claim has no merit. Congress has been excluding the Internet from taxation for fifteen years and just recently renewed the law that stops states and localities from taxing Internet service. This is not to say that Internet service under Title II will never be taxed, because politicians everywhere are always looking for a new tax base. But the fact that Congress has felt the need to pass and renew this law means that taxing the Internet doesn’t require Title II regulation. States and localities have found ways to tax almost everything over the years and will tax the Internet if Congress allows it, with or without Title II.

There probably is a legitimate concern that Internet service would become subject to the Universal Service Charge. But since that FCC has frozen the size of the USF Fund, any new USF taxes on Internet service would mean lower taxes on other telecom services with no net change in tax to the public. Frankly, since the USF funding is now being used to expand broadband coverage, Internet users ought to help pay for it.

Increased Regulatory Burden. The big companies say that being under Title II will increase regulatory burden. It’s hard to say what exactly that might mean, but they are probably right because regulators like to regulate. Interestingly, the large ISPs make this argument on behalf of small ISPs and not for themselves. And here I thought they didn’t like the small ISPs that compete with them!

Pole Attachments. Cable companies fear that being under Title II will mean an increase in the rates they pay to attach to poles. Apparently today they often get cheaper attachment rates then some regulated companies. I have a hard time sympathizing with this. Cable companies love to raise the issue of level playing field when they have to compete with a municipality. But that same level playing field concept would say that every company that leases space on a pole ought to pay the same rate. They are arguing to maintain an un-level playing field that happens to be in their favor.

Tariffs. Regulated telephone companies, including the CLECs must file tariffs. These documents define the terms and conditions under which the companies will sell service to the public. In the tariff a company must define things like their policies for disconnecting a customer who doesn’t pay their bill. I suspect that many states would use Title II as a reason to impose tariffs on cable companies. And I suspect that cable companies would get dragged into some state laws that require certain levels of customer service. Considering how crappy the cable companies treat the public I suspect the public would be in favor of this.

Uncertainty. The large companies complain that requiring them to be under Title II means many years of uncertainty until all of the consequences of such a ruling are worked out. That is certainly true, but that is not a reason not to not impose net neutrality. There is a huge amount of uncertainty in the cable industry already. I am sure that Google introducing gigabit broadband into their markets, or Dish Networks launching of an OTT product that includes ESPN are causing a lot more uncertainty inside cable boardrooms than concerns about complying with regulatory rules. I really can’t picture cable company Boards spending a lot of time worrying about net neutrality.

When Our Cars Get Smart

Tribrid_CarWe are just entering a time when our cars are becoming smart. Cars are now taking their place in the Internet of Things and they are connecting to smartphones, wearables, the smart home and other vehicles around them. They are interfacing with drivers in much the same way as a smartphone. And they are starting to drive and park themselves. For the first time in years I find myself in a town that has a lot of parallel parking and I will be thrilled if my F150 pickup can fit itself into and out of tight parking spaces.

But along with all of these smarts in your vehicle comes a lot of new privacy concerns and worries about intrusions like hacking. People have a good reason to worry about privacy. Most people are not aware that new cars now are equipped with a black box that is similar to the black box on airplanes. The black box records your driving behavior – how fast you go, how hard you brake, if you are wearing your seatbelt, what exactly happens during an accident when the airbags deploy. The black box data can probably be used to identify when you are driving in a manner that indicates you’ve been drinking. If the black box also records GPS data, and there is no reason to think that it doesn’t, then your car manufacturer also knows everywhere you’ve driven.

All of this data is available at any time to the car manufacturer, and by inference to law enforcement and the government. Nobody has the slightest idea of what they are doing with it, but you can assume that they are creating a very detailed profile of you as a driver. They know who drives cautiously and recklessly. They know who commutes on a schedule and who is out at 4:00 in the morning. Your driving habits say a lot about you and your manufacturer may know more you than you do since they can compare your behavior to millions of other drivers.

One can imagine them using this data when marketing a new vehicle to you. Knowing how you drive means they know the car you probably really want. But this data would also be invaluable to insurance companies and one can envision the day when your insurance rates are based upon your black box driving data. One can envision the ads, “Give us your black box data and save $500 a year”.

Law enforcement agencies are already starting to subpoena the black box data after an accident. The black box is going to tell them the truth about how fast you were going and if you were driving erratically before an accident. They will know if you were talking to somebody on cellular. And, if nothing else, with the GPS data will tell them that you were definitely at the scene of the accident. Perhaps car manufacturers can use the collective black box data to identify everybody that was close to the scene of a crime or accident. And the paranoid me says that the government can access this data to always know where and when everybody drives.

The black box is another invasion of our privacy, but this is not the only concern. Your car is going to have the same sort of smarts as your cellphone. You are going to soon be able to talk to your car much easier than how you talk to Siri today as voice interface software gets a lot better. People are likely to use their car smarts as a substitute for their cellphone when driving. They can use their car to make calls, to find nearby restaurants, to shop on the web or to do many of the things that we do on our smartphones.

So marketers are going to be very interested in what people do while driving. In fact, places like restaurants and brick and mortar stores will find this data more valuable than normal cellphone data because they will be hoping to find ways to lure you to stop and shop while you are in their vicinity.

Last month the industry’s biggest trade groups, the Alliance of Automobile Manufacturers and the Association of Global Automakers agreed on a series of privacy commitments designed to make you feel comfortable using the smarter cars. I am guessing that they don’t want hordes of people turning off the black boxes. The new privacy rules take effect on January 2, 2016.

They first agreed that they would only give this data to law enforcement with a subpoena, but subpoenas for this information will probably become routine. They also agreed to provide what we in the telecom industry think of as terms of service. For the first time they are going to disclose to people exactly what data they collect about you. Of course, they are going to put this disclosure into the owners’ manual, which nobody reads, and which is about as effective as the little boxes you check without reading every time you upgrade software.

These groups agreed that getting people’s trust is essential if people are to accept the new technologies. But they are not offering any privacy, just disclosure that they are spying on you. That isn’t going to make anybody feel secure. I think they are barking up the wrong tree. If the technology in cars is easy to use and makes people’s lives easier, people will accept it like we accepted the smartphone.

But the black box is a whole different issue. Most people are going to remain blissfully unaware of how much data the car manufacturers are collecting about them. But all it will take to make the black box an issue is a few cases where this data is abused and that abuse is splashed over social media to prompt America to wake up and start disconnecting the black boxes.

I think the day will come when there will be backlash against the black boxes. There is nothing legally requiring people to give access to this kind of data. I can’t blame the car manufacturers from using this as a way to join the world of big data. Black box data en masse will tell them more about how people really drive than they have ever known before. But they must also be prepared for a public backlash at some point. The purpose of the black box is to spy on us and I can’t see how they can call it anything else. I’m all for using technology to make my driving experience better, but I can’t think of one reason why telling Ford how I drive my truck helps me. Smart cars – yes, spying vehicles – no.

You Want a Piece of the $9 Billion CAF Fund?

USACI have been asked by several clients if they will be eligible to go after the new CAF II universal service funding that will be disbursed by the Connect America Fund. Over the next 5 – 7 years the fund will be paying out over $9 billion in support of rural broadband. And the answer to them all is – maybe. It’s somewhat complicated and also involves waiting a while to see how certain events play out.

The first issue to consider is who the incumbent telephone area is in the area you might want to compete. Rate of return carriers, meaning all of the small independent telephone companies, are going to continue to receive CAF funding, although the amounts they get are going to be severely phased down over the next five years. But competitors cannot go after the CAF funds in areas served by these rate of return carriers.

So the only places where CAF funding might be available is in areas served by the price cap carriers. That is AT&T, Verizon, CenturyLink, Cincinnati Bell, Consolidated Communications, Fairpoint, Frontier, Windstream and the phone companies in the US territories like Puerto Rico. So if you want to compete in one of these areas there is a chance of getting the funding.

But first, each of these large carriers gets a chance to say that they will take the CAF funding. If they do, then they have to upgrade their rural areas to have broadband that delivers at least 10 Mbps download and 1 Mbps upload to everyone in the supported areas. They have to meet milestones of completing percentages of the construction each year or lose the funding. They are also going to have to do speed tests to verify the upgrades.

The large carriers can take funding for a whole state or just for certain census blocks within the state. The amount of CAF funding that is available by census block is summarized on a CAF map published by the FCC. This shows each area that is eligible for CAF and the amount of money that will be available for that block. These amounts were determined by the use of a very complicated and controversial cost model that purported to calculate the cost of providing service in every part of the country. It considers things like population density, geography and regional labor costs.

So the large incumbents are considering which areas of their service territory they are willing to upgrade through the help of the money available through the CAF models. These subsidies are not intended to pay for the entire cost of upgrading, but rather to be enough to entice the big carriers to make the needed investments.

So if you are interested in the funds, you will need to wait a few months until the big carriers announce their intentions. They will get all of the funding listed on the map for any area they decide to upgrade.

The CAF funding for areas where the price cap carriers elect to not upgrade will then be available to other companies. As you would expect the process to get those funds is complicated. You must be willing to meet or beat the 10/1 data speeds. In addition to data you must provide voice service. You must be willing to serve every customer in a census block where you are getting the CAF funding, not just the ones that are easy to reach. And you must become an Eligible Telecommunications Carrier (ETC) and for areas where you get CAF you become the carrier of last resort.

Competitors will win the ability to do this through what is being called a reverse auction. If more than one carrier files for a given census block, then the one willing to take the least amount of funding will be awarded the CAF funding. But it’s not an auction where you repeatedly bid against each other. Instead you submit a bid once and the low one wins.

Like any federal money this money then comes with a lot of strings. First, you don’t get the money in a lump sum up front to help pay for the construction. Instead you will collect it spread over the five years. Second, like any federal money there will be a mountain of paperwork both before and after taking the money and your project is going to get audited multiple times. There also might be requirements for such things as doing environmental impact studies or complying with prevailing wage laws. These details have not yet been announced.

Going after CAF funds is not going to be an easy choice for most companies. When you look at rural census blocks they generally include a decent percentage of residences that are remote and hard to reach. By taking the funding you will be agreeing to become the carrier of last resort for all of the farms and rural homes in a given census block. That alone is a scary obligation, so before you go after the funds you ought to determine exactly what your state expects these days out of a carrier of last resort. Do you have to build to anybody who builds a new home in your areas regardless of the cost, or are there limits on who you must serve?

Dial-up is Still Around

aol-dial-up-630x354Since most people in the country can get some form of broadband many people think that dial-up is dead. We all remember those days of trying to get a connection to a modem and then listening for the beeps and boops. But I looked and found there is still a significant dial-up business in this country.

At the end of 2014 AOL still claims to have 2.3 million paying dial-up customers. That is obviously way down from their peak when they had 126 million customers, but it’s still a very impressive number. AOL said those customers account for $155 million in revenue, which still exceeds the company’s next biggest revenue source which is advertising at $144 million.

AOL is not the only one still in the business. Some other big names from the past are still around like EarthLink and NetZero. EarthLink advertises that it has the most dial-in numbers in major markets like 50 in Miami and 45 in San Diego. And then there are dial-up companies that you probably never have heard of including Basic ISP, Toast.net, Turbo USA and Copper.net. Finally, many telephone companies like AT&T still offer dial-up. A surprising number of my smaller telco clients also still operate small pockets of dial-up customers.

It’s hard to get industry figures since most of these companies don’t publish their customer counts, but if AOL still has 2.3 million customer then nationwide there must be more than 4 million households still using dial-up. The FCC says that about 2% of households are still on dial-up, but AOL alone is slightly more than 2%.

Dial-up has gotten better than what most of us remember due to the use of compression techniques where the ISP will compress whatever is being sent to the dial-up customer. But it’s still agonizingly slow compared to other broadband and the realized speed of dial-up is still capped at 56 kbps on good copper. And much of the copper that is left is not very good. With compression techniques dial-up can appear to be twice that base speed.

The low speeds keep dial-up customers relegated to using very basic Internet functions such as email. Browsing the web can be incredibly slow since many website now include advertising and video and take a long time to open. Since shopping on the web is now very image oriented that can also be too slow for dial-up speeds. And obviously dial-up households can’t get streaming video of any kind since it requires anywhere from  steady 1 Mbps at the lowest quality up to 6 – 8 Mbps for the new 4K HD video.

So who is still using dial-up? It appears that there are three distinct communities. First are people everywhere who barely use the Internet and want the cheapest connection possible. Such people don’t do a lot more than check email and do basic tasks. Second is in immigrant communities where one would suppose that the low price is also important.

Finally are rural people who have no other alternative except maybe satellite. For those who have never used it, satellite broadband is not a great product. It’s very expensive with base plans between $60 and $80 per month. It is faster than dial-up, but it still has latency issues which make it hard to use for any real time purposes such as web voice or streaming video. It also comes with low and strict ceilings on monthly data usage. WildBlue has a monthly cap of 17 GB in total downloads, HughesNet is 20 GB, Exede is 25 GB and Dish is 30 GB.

One would think that if AT&T is really able to cut down millions of rural copper lines like they want that a lot of dial-up customers will disappear. All of those rural houses that use dial-up today as their most affordable option will end up with either satellite or cellphone data plans.

Writing this blog made me pause to marvel at how fast our technologies change and grow. The heyday of dial-up was only twenty years ago, and we have come so far since then. We think of dial-up as something ancient and yet twenty years is nothing in terms of mankind’s history. But in that very short time we have grown from having over half of the country on dial-up to seeing some cities connected with gigabit speeds. I remember when I was on dial-up and I envied a few of my friends who were on a shared T1 at their office. I would have called somebody crazy if they said then that within twenty years that people would be able to get a gigabit at their house.

The 600 MHz Incentive Auction

001-Signal-Command-SSIThe FCC has again delayed the incentive auction for the 600 MHz spectrum. In a recent public notice the FCC in FCC 14-191, the agency is seeking comments on bidding procedures for the upcoming auction. Most of the document deals with the non-technical aspects of the auction such as bid pricing and procedures.

For those not familiar with this spectrum, today much of it is used by UHF television stations. The upcoming auction is being called an incentive auction because TV stations willing to give up their public spectrum or to be relocated within the spectrum will share in the proceeds of the sale of their spectrum.

But stations aren’t being mandated to leave this spectrum and the recent public notice discusses for the first time what might happen to stations that elect to remain on the public airwaves. The FCC proposes to ‘repack’ a stations frequency and to put it anywhere within the 600 MHz range in such a way as to optimize the 600 MHz frequency in a given market.

The controversial part of the idea is that stations could be placed into spectrum that is used by somebody else. For instance a TV station could be put into spectrum that is reserved today for wireless microphones. Or even more controversial, a station could be placed into what is called the duplex gap, which is a spectrum buffer that sits between major pieces of spectrum and that is used to reduce interference between different technologies. The easiest way to think of the duplex gap is to envision it as a buffer channel that nobody gets to use.

This FCC’s ideas aren’t pleasing anybody. TV stations are now worried that they will end up in parts of the spectrum that will be polluted by other traffic and that will mar transmission quality. And the wireless carriers are unhappy since the TV stations might end up interfering with cellular calls. It’s going to be interesting to read the comments that the FCC gets on this issue and to see how they can resolve it. The auction will quickly fall apart if the stations all decide to not participate.

There are many other interesting parts to this auction. The FCC would like to assign some of the 600 MHz band as unlicensed spectrum for use for WiFi. The 600 MHz band is one of the more useful spectrum bands around in terms of transmission characteristics. It can go long distances and can travel easily through walls and buildings (just think back to the ease of receiving UHF channels on your TV in the basement). The FCC also wants to create more room for ‘white space devices’ that can use the spectrum for high-speed wireless data transmission.

But not everybody is enthusiastic about the ways that the FCC plans to do this. The FCC’s plans are to very aggressively squeeze as much use as possible out of the spectrum and to allow white space devices to operate in the guard bands at power levels that might impair licensed spectrum. AT&T has said that it might not participate in the auction if it believes that the spectrum it buys will be compromised.

The fear expressed by radio engineers is that the current proposal will cause noticeable interference. For example, they say that a device using the white space, say a tablet, and a cellphone using a licensed portion of the 600 MHz might interfere with each other when used together in the same room.

There are already a lot of devices using this frequency today. In addition to the low power TV stations it’s used widely by wireless microphones, medical telemetry and radio astronomy, and there is fear that the repackaging is going to harm all of these uses.

I don’t know if the FCC has anything harder to solve than our shortage of spectrum. The demand for spectrum has grown rapidly and many of the existing bands get easily congested with traffic at peak times. The wireless carriers are clamoring for more spectrum while at the same time there are dozens of other uses of the spectrum including public safety and the military that must be considered in any wireless plan.

I don’t know if it would be possible to develop a good spectrum allocation plan if you started from scratch today, but it seems nearly impossible to satisfy everybody as we try to fit new uses of spectrum over top of a spectrum allocation that was made in a very different time. I don’t envy the FCC the task of figuring this out.

The Year for Micropayments?

Numismatics_and_Notaphily_iconI love end of year predictions and the Internet is full of them now. I just read one prediction from Walter Isaacson, the CEO of the Aspen Institute who predicts that 2015 is finally the year for micropayments. Micropayments are just what they sound like, and it’s the idea of being able to pay tiny amounts, maybe a few cents or even fractions of a penny for access to content on the Internet.

I have a friend Danny who has been predicting micropayments for at least ten years. He sees all of the benefits, and there are many. Micropayments don’t have to be really tiny and, for example, they could finally enable every vending machine to be accessible by cellphone. But there have always been reasons why micropayments haven’t taken off.

A more likely use for micropayments is as an easy for to pay for original content. For instance, with micropayments musicians could sell music directly to the public and cut out the middleman services like Spotify or iTunes. If people are willing to pay something like 5 cents per song then artists can make a lot more money with micropayments than they are getting today as royalties. It’s also a way for authors to sell short stories, essays and even novels.

But perhaps the use that most have in mind for micropayments is as a way to make money from written online content. I know that I read a lot of articles online about tech, politics and sports. But there are articles on pay services that I can’t get today because I am not willing to pay for a premium service like the $9.95 that the Washington Post or New York times charges for total access to their papers each month. They will give out a few free reads monthly and then you are done for the month when you hit the limit. Most of the article I read are free, but I could see paying a few cents per article everywhere if that would stop me from being blocked at more and more sites that want me to pay a bit subscription price. I don’t read enough articles as any one site today to justify becoming a premium customer, but I would gladly spend a dollar or two at each of these sites each month.

But there are reasons that micropayments haven’t been used. Isaacson sees micropayments being realized through bitcoins and there are already some bitcoin payment systems such as ChangeTip, BitWall, BitPay and CoinBase. But I can’t see the general public ready yet to accept bitcoins. In 2014 bitcoins lost 52% of their value during the year and I don’t see people willing to put money into something that might change in value overnight. I know that if I sat aside $30 per month to pay for online content that I would be really annoyed to see that a few dollars of that value had evaporated before I used it. Further, I read every month about Bitcoin exchanges getting robbed and it doesn’t feel secure enough to me yet to feel like a currency substitute.

But there are other payment methods and micropayments could be transacted through PayPal, credit cards or bank accounts. However, until now all of these institutions have wanted significant transaction fees that are higher than the micropayment, and so this is not going to happen through the old money system. In a way this is a shame because there is a lot of money to be made with micropayments. Today credit card companies make roughly 3% for every transaction they process and there is no reason they couldn’t do the same with micropayments. But I am sure that they are intimidated by the work of tracking and reporting these payments to customers as well as the hassle of having customers disputing payments of a penny on their credit cards, so they have not been willing to enter the micropayment arena.

There is also the issue of fraud and security. Somebody could get really rich by billing everybody in a micropayment environment a nickel per month and almost nobody would notice. But let hundreds of people do the same thing and customers would quickly lose faith in the security of the system. I am guessing that it is going to be a lot more tempting to felons to bill tiny amounts than it is to undertake large credit card fraud, and so micropayment fraud could become rampant if there is not some way up front to stop it. That means having some ironclad validation process in place such as biometrics at the point of purchase.

But the biggest barrier to micropayments is human behavior. Numerous polls have shown that the vast majority of Americans are not willing to pay anything for content. Younger generations are more willing than older, and higher income people are more willing than lower income people. But even in those groups there is a lot of mental resistance to micropayments. In economic terms this is called the relevant cost and people seem to have a mental barrier against making that click on-line that authorizes a payment, no matter how small. The issue seems to be one of relative value and people have a natural fear of being disappointed and paying for something that doesn’t meet their expectations.

This was first documented a decade ago in a paper I read from Nick Szabo titled “Micropayments and Mental Transaction Costs”. His primary point was that the mental cost – that decision to make that click to purchase often exceeds and even dwarfs the computational cost of the item being purchased, which equals the value it provides less the transaction cost. He says that people hesitate and agonize over spending tiny amounts of money just as much as they do over spending larger ones.

I know that I discard two or three articles for every one that I read. I will be attracted to an article based on its title, but often within a few words I will see that it is just spitting back something that was widely reported elsewhere, or that it is poorly written, or that it is short and a waste of time. I know that if I was paying for content, then paying for such worthless content would become annoying and might make me slow down on my reading. And that is counter to what micropayments are hoping to stimulate.

Pew Research Privacy Studies

SpyVsSpyPew Research recently took two separate looks at the issue of privacy. First, they conducted a survey to see how the general public in the US feels about on-line privacy. They also polled 2,511 “technology builders, researchers, managers, policymakers, marketers, analysts and those who have been insightful respondents in previous studies.”

Some of the more interesting results of the survey are as follows:

  • 91% of adults agreed that consumers have lost control of how personal information is gathered and used on the Internet.
  • 88% agree that it would be very difficult to remove inaccurate information about themselves online.
  • 80% who use social media are concerned that businesses are accessing what they share.
  • 64% thought the government should do more to monitor on-line advertisers.
  • 61% disagreed with the statement, “I appreciate that online services are more efficient because of the increased access they have to my personal data”.
  • But to show how mixed feelings are about online advertising, 55% agreed with the statement, “I am willing to share some information about myself with companies in order to use online services for free”. There must be people who agreed with this who also disagreed with the previous question.

There were also questions about government spying on Americans:

  • 95% were aware that the NSA is collecting telephone records and online records on everyone.
  • 80% were concerned that the government is monitoring phone calls and monitoring the Internet.
  • Only 36% agreed with the statement, “It is a good thing for society if people believe that someone is keeping an eye on the things they do online”.

People were asked which method of communications they felt most secure using. Following are the percentages of people that felt either somewhat secure or very secure: landlines – 67%; cellphones – 52%; email – 40%; text messages – 39%; IM or chat – 29%; and social media – 16%. These findings correlated well with knowledge of the NSA surveillance – the more somebody knew about the NSA the less secure they felt using communications.

Only 62% of people have ever used a search engine to look up their own name to see what is known about them on the Internet. 47% of people assume that people they meet will look them up. Only 6% of people have set an automatic alert to notify them when their name appears on the web.

People are cautious about posting controversial comments on the internet. 59% have posted using a screen name that people associate with them. 55% have posted using their real name, and 42% have posted anonymously.

24% say that their employer has rules or guidelines about how they are allowed to present themselves online. 11% say that their job requires them to promote themselves through social media or other online tools.

In the poll of the industry experts, only 55% believe that there will be a “secure, popularly accepted and trusted privacy-rights infrastructure by 2025”. The experts almost universally agree that we are living in a period of ubiquitous surveillance.

Many of the experts believe that it is not possible to create an effective privacy rights system. They believe that both government and industry have very little incentive to reverse the already invasive status quo and that they have much to gain from continued monitoring of information.

It’s obvious in looking at these results that people are aware of how ubiquitous surveillance is and that what they say on the Internet is seen by others. Most people are concerned about how the government or businesses view and use their information, and of the consequences of what they post with their employer. Of course, this still leaves me wondering how to explain drunk selfies!

Is Now the Time to Invest in Fiber?

Fiber CableIt’s been obvious for a decade that the ISP market is not going to get competitive until new entrants join the market and build fiber networks. We don’t need the government to tell us that there is not very much head-to-head competition between large ISPs. Verizon is the only large incumbent that has built any appreciable amount of last-mile fiber, although there has been a lot of fiber built in smaller markets by the independent telephone companies.

Until now there has been virtually no competition from new market entrants other than Google and about a hundred municipalities that have built fiber in their own towns. And even most of those municipalities took advantage of the facet that they were already in the electric business. But I think the market forces are finally lining up to make this a more attractive market for new entrants.

There certainly seems to be a demand for fiber. Households clearly want faster and more affordable broadband and better customer service and are clamoring for competition. Cities everywhere have been crying out for fiber investments and have offered incentives to anybody who will build it. Certainly Google has awakened this demand by elevating the conversation to be about gigabit fiber service.

On the supply side it’s getting easier all of the time to build fiber. The cost of the electronics needed to serve customers has dropped steadily over the last decade. Where fiber used to require an expensive box on the side of the house, the ONT is now a tiny device with an integrated WiFi that can be powered from inside the house. And 802.11AC WiFi has enabled ISPs to be able to deliver services within many homes wirelessly, allowing them to ignore the costs and problems of using existing wires. There are now also more cost-effective ways of getting the fiber drops from the curb to the home.

On the supply side you also have to consider the lack of competition from the incumbents. The Department of Commerce just released numbers that show that vast majority of customers who want Internet speeds of 25 Mbps or faster only have one ISP option.

It’s also gotten easier in the financing world. The economy has improved significantly since the sub-prime mortgage meltdown of 2007 and the consumer confidence index has risen steadily. Interest rates are still low and investors have built up a huge war chest of investment money looking for good shovel-ready projects.

All of these factors are coming together to enable new entrants to look at fiber as a profitable market opportunity. Certainly the margins on data products are sky-high with operating margins of at least 80% compared to margins on voice at about 60% and on cable TV of maybe 20%. A competitor can look at those margins, along with the public’s general dislike of large ISP customer service and see an opportunity to make money.

There are a handful of new market entrants that are building fiber networks. Consider the following examples:

  • Tucows from Toronto has already made a name in the US through Ting wireless. They have done well in wireless through great customer service and by pricing so that cellphone customers only pay for what they use. Tucows just purchased Blue Ridge InternetWorks in Virginia and plans to build fiber in Charlottesville, the home of the University of Virginia. They see room in the ISP market for companies with great customer service and competitive pricing. They plan to offer gigabit speeds and will by eyeing additional markets.
  • Brooklyn Fiber is building gigabit fiber in Brooklyn and surrounding areas. It comes as a shock to people when they learn that Brooklyn and many other older east coast communities never got Verizon FiOS fiber. Brooklyn Fiber offer speeds up to a gigabit at affordable prices.
  • Sonic is an ISP in California that has installed gigabit fiber in Brentwood and Sebastopol. The company has been an ISP since 1994 and has resold service on incumbent copper. But with superior customer service they have become the dominant ISP in their neighborhoods.
  • US Internet has been building residential fiber in small parts of the Twin Cities in Minnesota. They offer 1 Gbps servive for $65 per month and have just announced a 10 Gbps product at $400 per month.
  • RS Fiber Cooperative is a new cooperative that will soon be bringing fiber to rural Sibley and Renville Counties in Minnesota. I can’t remember the last new telecom cooperative that was formed. The Cooperative model is an interesting one since the customers own the business. Over the long run cooperatives can thrive where other providers can’t due to not needing to make big profits In fact, by law cooperative are largely required to plow profits back into their businesses. This new business is particularly interesting since they are bringing fiber to the farm.

These handful of companies don’t yet constitute a movement, but perhaps they are the first of what may be many new competitors. The actions of the incumbents – poor service, high prices and relatively lows speeds – are inviting competition into existing markets, and so perhaps we have finally reached the time when it’s a great idea to invest in fiber.