Is Internet Access a Right?

I just saw the results of an interesting survey conducted by AnchorFree, a digital privacy company. They asked 2,000 people a number of questions about Internet privacy and related issues.

The most interesting finding to me was that 32% of Americans now believe that access to broadband is a fundamental right. I’m sure you wouldn’t have to go back as recently as five years ago to find a time when nobody held that belief. I think this speaks loudly to the importance of broadband in people’s lives.

I also know a lot of people at the other end of the spectrum for that belief. Many people think that the primary purpose of the Internet is now to watch video. It’s not hard to understand this viewpoint since video traffic, due to the size of video files, dwarfs other internet traffic. But the Internet has continued to increase in importance in the average person’s life in ways that might not be catching the big headlines. One example is the way that the Internet has changed how many of us work. Just in my family of siblings I and a sister along now work at home. On the block where I live there are half a dozen people that work from home. While that phenomenon has been around for a while, the number of people working at home some or all of the time continues to climb rapidly- something that would not be possible without reliable broadband.

The Internet also has changed our lives in smaller, but important ways. I recently moved to Asheville, NC and live close to downtown. It turns out here that most of the households in my new neighborhood subscribe to a platform called Nextdoor. This delivers hyper-local news, something that was talked about a lot in the early days of the Internet, but which never quite materialized. This is a platform where you report a lost cat, warn about a tree branch that has fallen in the road or look for somebody local to mow your lawn. The platform can be set to just cover your immediate neighbors or for a wider area. At least in my new neighborhood this Internet platform has created a sense of connectivity and community, something that has disappeared in a lot of the country.

Most of us also use the cloud today, and I think many people don’t even realize the extent of the cloud in their lives. I use a back-up service to automatically store copies of every file on my computer. We use several software packages such as Microsoft Office365, Adobe PDF services and QuickBooks that are in the cloud. And like almost everybody our email is all done in the cloud. It seems like my broadband connection is always updating some app on my cellphone or computer.

The Internet has also become the tool for training and education. This school year my daughter was unable to take the math class she wanted due to a scheduling conflict but was able to take it instead online – something that benefited her, but which I also suspect saved money for the school system since one online teacher could handle more students than in a classroom. I know a lot of people who have completed online masters degrees that have led to better-paying jobs. What is probably most extraordinary about this is how ordinary online training has become compared to just a few years ago. It’s hard to pictures students without Internet access, which is one of the biggest sore spots in rural America that doesn’t have good broadband.

But back to the rest of the survey. Not surprisingly, 80% of respondents said that they are more concerned today about online privacy and security than they were a year ago. This high percentage is probably due to a few factors such as the recent news that the FCC ended privacy regulations for the big ISPs. There has also been a lot of headlines in the last year about security problems and I rarely go a day any more without hearing about some new virus, some new weakness in a software platform, or some new major hacking.

Just over 70% of respondents said that they are doing more today to protect themselves online. For most this meant changing their passwords more often and being more careful about opening emails. But there has also been an explosion in new subscribers to VPN services since the FCC ended ISP privacy protections. I also anecdotally have talked to quite a few people who have either pared back or stepped away from social media like Facebook.

Interestingly, 42% of all respondents thought that it is the responsibility of their ISP or somebody other than the government to make the web as safe as possible. That has me scratching my head, but that’s probably because I know a lot more about the big ISPs than most people. The good news is that subscribers to smaller ISPs operated by telcos, cooperatives and municipalities have an ISP who is looking out for them. But anybody trusting the big ISPs might be putting their faith in the very company that is the primary culprit in violating their privacy.

Why Isn’t There a Cable Headend in the Cloud?

dish-731375I saw an article earlier this year that said that some smaller triple-play providers have decided to get out of the cable business. Specifically the article mentioned Ringgold Telephone Company in Georgia and BTC Broadband in Oklahoma. The article said that small companies have abandoned over 53,000 customers over the last five years, with most of this being recent.

I’m not surprised by this. I have a lot of small clients in the cable business and I don’t think any of them are making money with the cable product. There are a myriad of outlays involved such as programming, capital, technical and customer service staff and software like middleware and encryption  And all of these costs are climbing with programming increasing much faster than inflation. And there is pressure to keep up with the never-ending new features that come along every year like TV everywhere or massive DVR recorders. I have a hard time seeing any cable company that doesn’t have thousands of customers covering these costs.

But small cable providers are often in a bind because they operate in rural areas and compete head-to-head with a larger cable company. They feel that if they don’t offer cable that they might not survive. But it is getting harder and harder for a company who doesn’t have stiff competition to justify carrying a product line that doesn’t support itself.

I’ve written several blogs talking about how software defined networking is going to change the telecom industry. It is now possible to create one cable TV head-end, one cell site headend or one voice switch that can serve millions of customers. This makes me ask the question: why isn’t somebody offering cable TV from the cloud.

There are big companies that already are doing  headend consolidation for their own customers. For instance, it’s reported that AT&T supports all of its cable customers from two headends. A company like AT&T could use those headends to provide wholesale cable connections to any service provider that can find a data pipe to connect to AT&T – be that a rural telephone company, a college campus or the owner of large apartment complexes.

This wholesale business model would swap the cost of owning and operating a headend for transport. A company buying wholesale cable would not need a headend, which can still cost well over a million dollars, nor technical staff to run it. In place of headend investment and expense they would pay for the bandwidth to connect to the wholesale headend.

As the price of transport continues to drop this idea becomes more and more practical. Many of my clients are already buying gigabit data backbones for less than what they paid a few years ago for 100 Mbps connections. The only drawback for some service providers is that they live too far of the primary fiber networks to be able to buy cheap bandwidth, but the wholesale model could work for anybody else with access to reasonably priced bandwidth.

The wholesale concept could be taken even further. One of the more expensive costs of providing cable service these days is settop boxes. A normal settop box costs over $100, one with a big DVR can cost over $300 and the average house needs two or three boxes. The cost of cloud memory storage has gotten so cheap that it’s now time to move the DVR function into the cloud. Rather than put an expensive box into somebody’s house to record TV shows it makes more sense to store video in the cloud where a terabit of storage now costs pennies. Putting cable in the cloud also offers interesting possibilities for customers. I’ve heard that in Europe that some of the cable providers give customers the ability to look backwards a week for all programming and watch anything that has been previously broadcast. This means that they store a rolling week of content in memory and provide DVR service of a sort to all customers.

The ideal cloud-based cable headend would offer line-ups made up of any mix of the channels that it carries. It would offer built in cloud DVR storage and the middleware to use it. I think that within a decade of hitting the market that such a product would eliminate the need for small headends in the country. This would shift video to become a service rather than a facility-based product.

There would still be details to work out, as there is in any wholesale product. Which party would comply with regulations? Who would get the programming contracts? But these are fairly mundane details that can be negotiated or offered in various options.

It is my hope that some company that already owns one of the big headends sees the wisdom in such a business plan. Over a decade, anybody who does this right could probably add millions of cable lines to their headend, improving their own profitability and spreading their costs over more customers. AT&T, are you listening?

 

A Tipping Point for the Telecom Industry

Cloud_computing_icon_svgThe new ‘Law’ in the industry to go along with Moore’s law has been dubbed Bezo’s Law which measures the cost of cloud computing over time. This law says that over the history of cloud that the cost of a unit of computing power has reduced by 50% every three years.

Bezo’s Law is based upon the Total Cost of Infrastructure Ownership (TCIO) which is a calculation of the cost of owning and operating a data center. There are a lot of cost components to TCIO including hardware, software, power, labor and overheads. Most companies that operate data centers don’t publish their costs in enough detail for an outsider to calculate such costs accurately, so there is no easy way to measure the current cost metric precisely

But it is obvious that the overall costs of operating data centers continues to drop. For example:

  • There has been a lot of emphasis on lowering the power consumption of data center equipment and power is a significant component of data center operating costs.
  • The cost or routers and switches has continued to drop, and companies like Amazon and Google have developed their own hardware which has supposedly cut their costs more than companies buying commercial equipment
  • Software costs are getting cheaper through the advancement of software defined network techniques. And this same software should lower labor costs over time.

Bezo’s law is lately in the news because we are now reaching the point where it is probably cheaper to buy cloud services from one of the large providers like Amazon than it is to build your own data center. Amazon has essentially achieved an economy of scale that a smaller provider can’t match by building from scratch. This is not a unique economic phenomenon. Economic theory predicts that industries that benefit from economy of scale will eventually be dominated by the most efficient firms.

There are a lot of major implications for the telecom industry if it’s now cheaper to buy cloud services than it is to operate your own data center. I would expect to see all of the following within a few years:

  • One can expect the smaller and less efficient data center providers to fade away over the next few years as their margins get squeezed and finally killed by more efficient operators. One would expect to only find a small number of data center providers within a decade.
  • It no longer makes sense for corporations and governments to have their own data centers. Eventually cost savings will become compelling enough that you can expect a faster and faster migration of corporate IT functions to the cloud. This also implies dire consequences for employment for IT people who have specialized in providing services that can be replaced in the cloud.
  • Makers of routers and switches are at risk because as the number of companies left in the data center business decrease, the only vendors that survive will be those that sell to those handful of companies. This also implies a squeeze on the margins of IT equipment since the large cloud companies will have the bargaining power to insist on low prices.
  • ISPs will have a hard time justifying operating their own routers and servers and one can expect ISP functions like DNS, email and storage to move to the big cloud providers.
  • One would expect a proliferation of specialized cloud software companies. The big cloud providers are likely to offer generic software. While the hardware will all be owned by a few large companies like Amazon and Google, the specialized needs of different industries is going to be met by specialized software that works with the cloud.
  • This will accelerate the shift to software defined networking and one can expect to see things like cable TV headends, cellular base stations, voice switches and other hardware platforms all migrate to the cloud as well. Makers of those kinds of hardware also face a bleak future.
  • This will put even more pressure to have very fast Internet connections. We will soon not have just a digital divide, but a cloud divide where there are those who can benefit by the cheap cloud and those that can’t.

This shift is gigantic for the telecom industry and we have reached a significant tipping point. In the future when we show a timeline of the history of the telecom industry (like I did yesterday), we will see and entry saying ‘2014 – When the Cloud Won’. One can debate if we have already reached the tipping point or if it’s next year. But what can’t be debated is that cheap cloud resources are going to change our industry in major ways. A lot of vendors we are used to working with will disappear and companies like Amazon and Google will become entrenched in telecom (and in myriad other industries).