Time for a New Telecom Act, Part 2

FCC_New_LogoYesterday’s blog postulated that we would see a new telecom act this year from Congress. That blog looked at what was accomplished by the last Telecommunications Act of 1996. Today I’m looking ahead at the issues that a new Act needs to address.

Last week we learned more about how the process will probably work. A new telecom act would likely be spearheaded by the Energy and Commerce Subcommittee on Communications and Technology. Last week Rep. Marsha Blackburn, head of that committee, told the press that she favored giving the new FCC a shot at fixing the things under its purview before the House would tackle a new Act. The FCC doesn’t have the authority to make many of the needed changes in telecom regulation, but it does have considerable power. Anyway, this probably means a new act is at least a year away.

Here are some of the things that I think the FCC and Congress need to address to modernize telecom:

Need for More Spectrum. It’s becoming clear that a lot of big ISPs are thinking of deploying 5Gn and various other millimeter wave technologies. The FCC needs to continue to open up more spectrum for broadband. There is still a lot of spectrum has been reserved for government use and there needs to be more attempts to share frequency when possible. There also needs to be a fresh look taken at how frequency is used. Historically many bands of frequency had narrow channels aimed at accommodating voice traffic or a single channel of television. From an engineering perspective we can get a lot more out of spectrum if we can make wider channels in the spectrum bands that are already in use.

Tackling Cybersecurity. 2016 was a year when security breaches led the industry news weekly. There is no easy fix for security issues, but there are big steps that can be taken. For example, we are flooding the world with IoT devices that are easily hacked and which can now be used to launch coordinated denial of service attacks. With Congressional backing the FCC could create standards to make IoT devices more secure. The government will never make us free from hacking, but there are a lot of sensible standards and fixes needed for IoT devices.

Expanding Access to Fast Broadband. As somebody who works regularly in rural America I know that lack of broadband there is now one of the biggest problems identified by rural households. We need to find ways to get good broadband to more places, and we have to do this smartly by building infrastructure that will last for decades. We’ve already seen how not to do this with the CAF II program that is being used to expand DSL and LTE wireless – two technologies that are already inadequate today.

Unless we see that fiber is built everywhere this is going to be an ongoing major issue. For example, if we fix broadband for those that have none but ignore the bigger swathe of the country that has only marginally acceptable broadband today, we will be back in a decade looking at how to fix broadband in those places.

We also need rules that unleashes anybody willing to spend money on fiber. I see numerous rural counties and towns that are ready to spring for bond issues to get fiber. We need rules that allow anybody willing to invest in fiber be able to do so – be that local governments, electric cooperatives, rural telcos or anybody else.

Infrastructure Issues. There are still a lot of infrastructure roadblocks to deploying fiber. We have never done a good job of fulfilling the mandate from the 1996 Act to provide access to poles and conduit. And we are now looking at deploying a fiber-fed wireless network that is going to mean bringing both fiber and power to buildings, rooftops, poles and other infrastructure. We need to find a way to get this done without also trampling over the legitimate concerns of local jurisdictions. For example, the FCC can’t just demand that cities allow free and quick fiber construction if that means digging up newly paved streets or overburdening poles – we need to find rules that work. And we need to do a much better job of this than we have done so far.

Programming. It’s now clear that online video content is competitive alternative to traditional cable TV. We need rules that unleash cable companies and anybody else to sell programming that people really want to buy. That means stepping away from the current rigid cable rules that mandate the giant channel lineups. Companies need to be free to create programming bundles that people want to buy. This might mean allowing a la carte programming. And there must be rules that require content providers to sell to everybody in an unbiased manner.

I don’t know how many of these big issues the current FCC is going to be willing to tackle. It seems like a lot of their agenda for the first six months will be to undo things ordered by the previous FCC. While I understand the desire to mold the FCC to the political persuasion of whatever party is in power, most of the issues on my list above are not partisan. They are just things that we all need to solve if we are to have a telecom infrastructure that serves us all well.

Regulating the IoT

Nest_Diamond_ThermostatThe FCC has joined other government agencies and private organizations that are concerned about the lack of security with the Internet of Things. The agency issued a 50-page research paper that discussed the issue and came to some troubling conclusions.

From the report: The large and diverse number of IoT vendors, who are driven by competition to keep prices low, hinders coordinated efforts to build security by design into the IoT on a voluntary basis. Left unchecked, the growing IoT widens the gap between the ideal investment from the commercial point of view and from society’s view.

That’s not nearly as strident as the sentiment expressed by most industry experts who understand that most IoT device makers look at security only as an afterthought. It’s been demonstrated repeatedly that almost every IoT device on the market can be hacked, often quite easily. There are exceptions, but a large percentage of devices have little or no defense against hacking.

The Department of Homeland Security is also looking at IoT and issued a set of guidelines they want to the industry to adopt. DHS believes that unprotected IoT devices are a national security threat. We now saw good evidence of this last month after massive denial of service attacks were launched from security cameras and home appliances. The DHS guidelines suggest some common sense requirements like allowing devices to have unique passwords and allowing IoT devices to receive needed software updates.

The Federal Trade Commission is also looking at IoT security issues. The agency recently announced a $25,000 prize to anybody who could offer a security solution for dealing with outdated software in IoT devices.

The Department of Commerce also recently issued IoT guidelines, but the guidelines seem to be aimed internally at the agency and not at the wider world.

This all raises the question of who should be regulating IoT? Right now the answer is nobody – there is no agency that has clear jurisdiction to impose any requirements on the IoT industry. And that is because such authority can only be granted by Congress. We’ve seen this same thing happen many times in the last fifty years as new technologies spring into existence that don’t fit neatly into any existing jurisdictional bucket.

The closest process we have to what is needed to regulate at least part of the IoT today is the way the FCC certifies new wireless and other telecom devices. Most people don’t realize it, but all phones and many other kinds of telecom gear undergo vigorous testing at the FCC to make the sure the devices do what they say they do and to make sure that they won’t interfere with the rest of the world. We need a similar process to tst and certify IoT devices because we can’t ever just take the IoT manufacturers’ words that their devices meet and standards that are developed.

But the FCC today has zero authority to regulate the IoT. For now they have created the ability to regulate ISPs through Title II regulations – but that is expected to be reversed or watered down soon. But even that authority doesn’t give them any jurisdiction over the IoT. Like many technologies, the IoT is something new that doesn’t fit into any existing regulatory framework.

It’s not really comforting, but there are a bunch of other new industries with the same situation. There is no agency that has any clear regulatory authority over driverless cars. Nobody has any real authority to regulate artificial intelligence. There are only very minimal regulations for gene-splicing.

I think most of us believe that some level of regulation is good for these big society-changing technologies. Certainly if nobody regulates the IoT we will have disaster after disaster from misuse of the technology. I hope we don’t wait too long to tackle this until it’s too late and there are billions of poorly manufactured IoT devices in the world that can’t be fixed.

The Internet of Everywhere

tostitos-logoForget the Internet of Things. That is already passé and I saw something yesterday that made me realize we have now moved on to the Internet of Everywhere.

Tostitos has put out a special ‘party bag’ of chips for the SuperBowl. The bag contains a chip and a tiny sensor that can detect traces of alcohol on your breath when you breathe on it. If you test as intoxicated the bag will light up red and flash “Don’t Drink and Drive.” But that’s only the beginning. If you set off the red flash you can tap the bag against your smartphone and it will automatically call Uber and give you a $10 discount on your ride.

This is obviously a super-cool marketing idea and I expect the company to sell lots of bags of chips and will get a lot of positive press. And I would expect a lot of people will strive to make the bag flash red. But this demonstrates how cheap computer chips have become when a company can design a campaign using millions of chips in throwaway bags for a one-time promotion. This goes to show how amazingly small sensors have become that this bag can give you a mini-breathalyzer. I’m sure the test is not super-accurate, but the very fact that it can do this and still be affordable is amazing.

Engineers have been predicting this sort of technology for a few years. For example, there are now chips that can be printed onto human skin and can act as a keypad for your smartphone. We are not far away from having chips printed on every grocery item in the store, which will simplify checkout and will fully automate inventory control. With cheap chips we can literally sprinkle sensors throughout a farm field to cheaply monitor for the localized need for water, fertilizer or the presence of pests.

The real Internet of Things isn’t going to be unleashed until we can develop affordable swarms of sensors and also provide a way for them to communicate with each other. Today the IoT is being used mainly to monitor factory production and in homes for alarm monitoring and other similar functions. But the revolutionary value of IoT will come when it can grow to be the Internet of Everywhere.

Then we can have constant monitors inside our blood stream to sense for diseases and to fight them off early. We can monitor sensitive environmental areas to protect endangered wildlife. We can monitor our homes to a degree never done before – want to know if a mouse just snuck in – done!

There have been a lot of breakthroughs in creating small, low-power sensors. But the real challenge is still to find a way to communicate easily and reliably with a cloud of sensors. We are not going to be able to create a WiFi path with a thousand different home sensors but will need some sort of mesh technology that can first collect and make sense of what the sensors are telling us.

But I have no doubt that if a potato chip bag can tell me if I’ve had too much to drink and can then call for a ride to take me home, that we are making great progress.

And as I write this blog I’m sitting here thinking of if only I could show this bag to one of my long-passed grandparents. What would they ever make of this flashing chip bag, of my smartphone and of Uber? But then again, perhaps their biggest question might first be, “What is a Tostito?”

2017 Technology Trends

Alexander_Crystal_SeerI usually take a look once a year at the technology trends that will be affecting the coming year. There have been so many other topics of interest lately that I didn’t quite get around to this by the end of last year. But here are the trends that I think will be the most noticeable and influential in 2017:

The Hackers are Winning. Possibly the biggest news all year will be continued security breaches that show that, for now, the hackers are winning. The traditional ways of securing data behind firewalls is clearly not effective and firms from the biggest with the most sophisticated security to the simplest small businesses are getting hacked – and sometimes the simplest methods of hacking (such as phishing for passwords) are still being effective.

These things run in cycles and there will be new solutions tried to stop hacking. The most interesting trend I see is to get away from storing data in huge data bases (which is what hackers are looking for) and instead distributing that data in such a way that there is nothing worth stealing even after a hacker gets inside the firewall.

We Will Start Talking to Our Devices. This has already begun, but this is the year when a lot of us will make the change and start routinely talking to our computer and smart devices. My home has started to embrace this and we have different devices using Apple’s Siri, Microsoft’s Cortana and Amazon’s Alexa. My daughter has made the full transition and now talks-to-text instead of screen typing, but us oldsters are catching up fast.

Machine Learning Breakthroughs will Accelerate. We saw some amazing breakthroughs with machine learning in 2016. A computer beat the world Go champion. Google translate can now accurately translate between a number of languages. Just this last week a computer was taught to play poker and was playing at championship level within a day. It’s now clear that computers can master complex tasks.

The numerous breakthroughs this year will come as a result of having the AI platforms at Google, IBM and others available for anybody to use. Companies will harness this capability to use AI to tackle hundreds of new complex tasks this year and the average person will begin to encounter AI platforms in their daily life.

Software Instead of Hardware. We have clearly entered another age of software. For several decades hardware was king and companies were constantly updating computers, routers, switches and other electronics to get faster processing speeds and more capability. The big players in the tech industry were companies like Cisco that made the boxes.

But now companies are using generic hardware in the cloud and are looking for new solutions through better software rather than through sheer computing power.

Finally a Start of Telepresence. We’ve had a few unsuccessful shots at telepresence in our past. It started a long time ago with the AT&T video phone. But then we tried using expensive video conference equipment and it was generally too expensive and cumbersome to be widely used. For a while there was a shot at using Skype for teleconferencing, but the quality of the connections often left a lot to be desired.

I think this year we will see some new commercial vendors offering a more affordable and easier to use teleconferencing platform that is in the cloud and that will be aimed at business users. I know I will be glad not to have to get on a plane for a short meeting somewhere.

IoT Technology Will Start Being in Everything. But for most of us, at least for now it won’t change our lives much. I’m really having a hard time thinking I want a smart refrigerator, stove, washing machine, mattress, or blender. But those are all coming, like it or not.

There will be More Press on Hype than on Reality. Even though there will be amazing new things happening, we will still see more press on technologies that are not here yet rather than those that are. So expect mountains of articles on 5G, self-driving cars and virtual reality. But you will see fewer articles on the real achievements, such as talking about how a company reduced paperwork 50% by using AI or how the average business person saved a few trips due to telepresence.

The Battle for IoT Connectivity

Amazon EchoThere is a major battle brewing for control of the connections that control the Internet of Things. Today in the early stage of home IoT most devices are being connected using WiFi. But there is going to be a huge push to have connection instead made through 5G cellular.

I saw an article this week where Qualcomm said that they were excited about 5G and that it would be a world-changing technology. The part of 5G that they are most excited about is the possibility of using 5G to connect IoT devises together. Qualcomm’s CEO Stephen Mollenkopf talked about 5G at the recent CES show and talked about a future where 5G is used for live-streaming virtual reality, autonomous cars and connected cities where street lamps are networked together.

Of course, Qualcomm and the cellular vendors are most interested in the potential for making money using 5G technology. Qualcomm wants to make the hundreds of millions of chips they envision in a 5G connected world. And Verizon and AT&T want to sell data connections to all of the 5G connected devices. It’s an interesting vision of the world. Some of that vision makes sense and 5G is the obvious way to connect outdoors for things like street lights.

But it’s not obvious to me at this early stage of IoT that either 5G or WiFi are the obvious winner of the battle for IoT connectivity in the home. There are pros and cons for each technology.

WiFi has an upper hand today because it’s already in almost every home. People are comfortable using WiFi because it doesn’t cost anything extra to connect an IoT device. But WiFi has some natural limitations that might make it a harder choice in the future if our homes get filled with IoT devices. As I’ve discussed in some recent blogs, the way that WiFi shares data can be a big problem when there is a lot of steady and continuous demand for the bandwidth. WiFi is probably a great choice for IoT devices that only occasionally need to make a connection or that need short-burst connections to share information.

But the WiFi standard doesn’t include quality of service and any prioritization of which connections are the most important. WiFi instead always does its best to share bandwidth, regardless of the number of devices that are asking to connect to it. When a WiFi router gets multiple demands it shuts down for a short period and then tries to reinitiate connections again. If too many devices are demanding connection, a WiFi system goes into a mode of continuously stopping and restarting and none of the connections get a satisfactory connection. Even if there is enough bandwidth in the network to handle most of the requests, too many simultaneous requests simply blows the brains out of WiFi. The consequence for this is that having a lot of small and inconsequential connections can ruin the important connections like video streaming or gaming.

But cellular data is also not an automatic answer. Certainly today there is no way to cope with IoT using 4G cellular networks. Each cell site has a limited number of connections. A great example of this is that I often talk to a buddy of mine in DC while he commutes, and he usually loses his cellular signal when crossing the between Maryland and Virginia. This is due to there not being enough cellular connections available in the limited area of the American Legion bridge. 5G will supposedly solve this problem and promises to expand the number of connections from a cell site by a factor of 50 times or so – meaning that there will be a lot more possible connections. But you still have to wonder if that will be sufficient in a world when every IoT device wants a connection. LG just announced that every appliance it sells will now come with an IoT connection, and I imagine this will soon be true of all appliances, toys and almost anything else you buy in the future that has any electronics.

Of a bigger concern to me is that 5G connections are not going to be free. With WiFi, once I’ve bought my home broadband connection I can add devices at will (until I overload my router). But I think Verizon and AT&T are excited about IoT because they want to charge a small monthly fee for every device you connect through them. It may not be a lot – perhaps a dollar per device per month – but the next thing you know every home will be sending then an additional $50 or more per month to keep IoT devices connected. It’s no wonder they are salivating at the possibility. And it’s no wonder that the big cable companies are talking about buying T-Mobile.

I’m also concerned from a security perspective of sending the data from all of my IoT devices to the same core routers at Verizon or AT&T. Since it’s likely that the recent privacy rules for broadband will be overturned or weakened, I am concerned about having one company know so much about me. If I use a WiFi network my feeds will still go out through my data ISP, but if I’m concerned about security I can encrypt my network and make it harder for them to know what I’m doing. That is going to be impossible to do with a cellular connection.

But one thing is for sure and this is going to be a huge battle. And it’s likely to be fought behind the scenes as the cellular companies try to make deals with device manufacturers to use 5G instead of WiFi. WiFi has the early lead today and it’s still going to be a while until there are functional 5G cellular networks. But once those are in place it’s going to be a war worth watching.

Too Many Gadgets?

ibm_chip1It seems that we have reached a point where the typical consumer thinks there are too many gadgets in his (or her) life and the average person is becoming less interested in buying new ones. A poll conducted earlier this year by Accenture showed that consumer demand for personal electronics is greatly reduced compared to recent years.

The drive to have personal electronics was spurred by the smartphone revolution, which has outperformed sales compared to almost any other product in history. But there have also recently been other personal electronics products like the Fitbit and health wearables that have done very.

But it looks like the shine might be coming off of the personal electronics industry. The Accenture survey showed that fewer people are considering buying every category of personal electronics. For example, the poll showed that only 13% of respondents were considering buying a new smartphone in 2016. That is far below the levels seen in recent years where a significant percentage of smartphone users upgraded their phone every 2 or 3 years.

And the survey also showed weak demand for wearables like Fitbit, for virtual reality, for drones and for the Internet of Things. If this poll is true, then all of these industries are going to underperform compared to expectations. We are certainly seeing this in the real world. Apple stock just stumbled due to falling demand for the iPhone. Samsung and the other smartphone makers went through the same thing last year.

The poll didn’t ask why this was so, but just measured consumer demand. I can think of several reasons why demand is down. First is cost. None of these personal electronics are particularly cheap and it’s unrealistic for the market to expect that all of these electronics will sell as wildly as is predicted by industry insiders. If you listen to the hype each year at places like CES you would expect that everyone in America will soon be buying drones and piles of IoT devices for their homes.

I think another primary reason for the decline is performance. My wife has a sports device to track her running. It works great for what she wants from it and there is no particular reason for her to upgrade it. And every runner she knows has one. Once the market for runners and walkers is saturated there is only so much that can be expected in demand for a device with such a specific function. There is just not much difference between the newer sports wearables and ones sold just a few years ago.

And performance is now a bit issue with smartphones. There is not much difference any more between one generation and another. The new smartphones look the same, feel the same and do about the same things and the old ones. And this is more the fault of the slowing of Moore’s law than anything else.

Since the early 70s chip makers like Intel have released a new chip about every two years that crammed about twice as many transistors into the same chip space. This is the primary reason why each new generation of the iPhone has been a noticeable improvement over the previous model. Each new chip has meant a big leap upward in speed, energy-efficiency and performance of the smartphone.

But in the 10-K filed with the Securities and Exchange Commission at the end of 2015 Intel disclosed that the pace at which it will launch new chips is going to be slower in the future. Intel’s latest mass-production chips for smartphones now have a gap between components of 14 nanometers. Physics is going to limit that ultimate gap to perhaps 4 or 5 nanometers at the smallest due to the size of the molecules of the chip materials. There isn’t very much more room for improvement.

This is not to say that there won’t continue to be improvements in computers – but soon the improvements are not going to come from more compact chips. There are amazing new breakthroughs coming in other areas. IBM has a new chip that works in 3 dimensions that has a lot of promise for supercomputers. There are computers becoming faster by using light instead of electricity. And there is a lot of promise from quantum computing. But all of these improvements, at least for now, are likely to help larger computers and don’t lend themselves to the cheap mass-produced chips that drive personal electronics.

And none of this means that the market for personal electronics is dead. There are still huge numbers of all of these devices being sold. But when you use the performance of Apple over the past decade as the way to measure success in the electronics world it’s likely that nothing is ever going to measure up to that yardstick.

This is a cautionary tale for any carrier that is considering selling home automation, energy management or security. There is a decent living to be made in all of these areas, but don’t get sucked into the hype that every home in America is going to want all of these devices and services within the next few years. Because it appears that is definitely not true.

IoT as a New Product Line

Light bulbLast week Google and Nest announced that they were discontinuing the Revolv IoT hub for the home. The hub is the smart device that sits at the core of an IoT network and is generally the device that lets a user communicate with any other devices in the network. The Revolv hub will still work for anybody that owns one, but there will be no further development on the hub and no new devices designed to work with it.

And this got me thinking about small carriers offering IoT as a product. Big companies like Comcast are now offering a home automation package. Comcast has integrated nine different devices together that range from security, smart locks, smart lights, smart thermostat, etc. Comcast reports that they are surpassing their early goals and have a penetration rate of over 5% of total broadband customers.

But I would think that a company as large as Comcast has developed their own proprietary IoT hub to work seamlessly with all of the various devices. But finding a reliable hub vendor, and working to get any hub to work with a core set of devices can be a daunting task for smaller carriers. And since there are not yet any industry standards for IoT, devices don’t automatically integrate into different brands of hubs and will not work at all in many cases.

The real fear for a small carrier is that you’d build a product line around some specific brand of hub and that hub would either be discontinued or the company that makes it might even disappear. If you can’t trust somebody as large as Google for an IoT hub, then who can you trust in an industry that doesn’t yet have any clear dominant IoT manufacturers?

There are other issues with the IoT business plan that have to be considered. Probably the most immediate and costly issue is the fact that supporting residential IoT means a lot of truck rolls. I’ve looked at the cost of a truck roll for some of my clients and it’s not unusual to see costs of $50 to $75 for a truck roll, and so any business plan has to compensate for a product that is going to require multiple visits to customers over time.

Another issue to consider is customer expectations. There is now a huge variety of smart devices on the market and the vast majority of them are not going to work with whatever hub you choose. I would expect that once customers have some IoT devices from an ISP that they are going to buy other devices and will be disappointed when they won’t work with the hub that they are already paying for. And it’s virtually impossible for a small ISP to integrate incompatible devices with their hub of choice.

Yet another issue that is still of concern for the whole industry is security. Smart devices tend to have very rudimentary operating software and IT experts say that hacking IoT networks is relatively easy. I don’t think many of us are too worried about somebody hacking into our smart coffee pot, but when you put your thermostat, front door locks and watering systems onto a network together there is a lot of chance for damage from malicious hacking.

But a greater security concern is that an IoT network can be a gateway to your entire network and can let in malware and other problems that can create havoc with finances and personal data stored on your computers.

There are certainly customers that will buy these services, as has been demonstrated by Comcast. We might be decades away from a time where there might be significant penetration rates like we see with triple play products. But there probably is an opportunity today to get a small, but potentially profitable product out into the market. But the risks and costs of offering residential IoT still looks to be out of the comfort zone of many small ISPs. Perhaps rather than try to offer a full suite of products like Comcast is doing, a more workable strategy might be to concentrate on a small handful of functions like security and smart thermostats.

Three Years and Counting

2014_Rolling_Sculpture_Car_Show_67_(1969_Porsche_911_S)Today is the three year anniversary of this blog. I started writing this blog as a way to force myself to keep up with industry news. During the first month of writing the blog I worried that I would quickly run out of topics. But I underestimated then how dynamic our industry has become. The changes from just three years ago are amazing. Instead of running out of topics I often have to toss away topics because I can’t get to them fast enough.

I mostly write about the topics in the industry that I find most interesting, but I must be striking a chord because I pick up new readers to the blog daily. I now know that I am the only one writing daily about broadband and related topics and it makes me happy to see that others find these topics to also be of interest. Just since I’ve started this blog we’ve seen the following changes in the industry (and this is a short list):

An Activist FCC. The current FCC has waded into more new topics than any other FCC in my memory. The most significant one is the net neutrality decision that reclassifies broadband as a regulated service. But there have been many other rulings from this FCC. There was a time a few years ago when industry pundits predicted that regulation was dying, but it has done just the opposite.

Exploding Demand for Broadband. The penetration rates for broadband have continued to grow and in urban areas it seems like we are getting close to the time when everybody that can afford broadband has it. But there are still huge numbers of rural homes and businesses without broadband and they are starting to stridently demand it.

Growth of the OTT Industry. While Netflix has been streaming content a little longer than I have been writing this blog, the whole OTT phenomenon has really taken off in the last few years. Netflix now claims over 75 million customers and there is now a growing host of other OTT providers. Online video has completely transformed the Internet and video is by far the majority of online traffic.

New Products from the IoT. There are new products available to carriers for the first time in many years. I have a number of clients who are now successfully selling security and a number of them are getting into home automation and the many other related services associated with the Internet of Things.

Use of WiFi instead of Wires. It’s become recently obvious that the large ISPs have abandoned home wiring for delivering data. They now bring bandwidth into the home to a central WiFi router and don’t install wires to anything else. But a single WiFi router is already not sufficient for high-bandwidth homes and the next trend in this area is going to be the networking of multiple WiFi routers.

Services in the Cloud. More and more services are moving to the cloud. Carriers can buy voice and cable TV programming from the cloud today, something that was unimaginable just a few years ago. It was always assumed that expansive bandwidth made cloud cable TV impractical, but as bandwidth prices continue to tumble it makes more sense to buy programming from the cloud instead of building or maintaining a cable headend.

Public Private Partnerships. There were very few Public Private Partnerships a few years ago and now it’s something that everybody talks about. This is particularly relevant in rural America where communities are willing to kick in money to find a broadband solution. But we are even seeing this in urban areas, such as the deal just announced between Google Fiber and Huntsville.

Erosion of Landline and Cable Customers. Landline penetration rates are now under 50% nationwide and we are starting to see the erosion of traditional cable customers. The challenge for the next few years will be for triple play providers to find ways to replace these shrinking revenues and margins.

Massive Realignment of Rural Subsidies. We’ve seen subsidies shrink for small telcos. Access charges are being phased lower and the Universal Service Fund is being redirected from telephone to broadband. This has put a lot of pressure on some small carriers, but anybody who survives the end of this shift will probably be ready to succeed in the long run.

Trusting Our Digital Universe

BeetleI was thinking about the Volkswagen cheating scandal, where they had a computer chip change the emissions of their cars during testing. It got me to thinking about how customers trust or don’t trust businesses. Volkswagen not only lied to regulators that their cars have low emissions, but they went and made that the centerpiece of their advertising campaign.

What made the Volkswagen scandal worse for the rest of us is that they cheated using software. Pretty much everything we do in the telecom industry these days involves software. The Volkswagen scandal, along with many others, might eventually make the public untrusting of everything that includes software.

There are already examples of telecom companies who have violated their customers’ trust. For example, Comcast has made everybody’s WiFi routers into a dual purpose router that can serve people outside of your house. Comcast very quietly told the public about this once, but if I wasn’t in the industry I probably wouldn’t have noticed this change and I’m sure the average household has no idea that Comcast is using their routers that way. Security experts everywhere warn about how dangerous it is to let the public into your WiFi router.

I paused when considering buying a smart TV after it was revealed that Samsung TVs had the ability to watch whatever happens in front of them and to hear everything within earshot. Our PCs have had that same weakness ever since they started building cameras into every monitor.

And a lot of people now mistrust their ISPs who have been funneling all of their data to the NSA. Of course, your ISP already knows everything you do online anyway and there is no telling what some of them might be doing with the information.

We are about to enter an age where people are going to be filling their homes up with many more smart devices. We’ll obviously buy them because they will make our lives easier or more fun, but every one of these devices that is hooked to a network could end up being used to spy on us. You have to know that at least some of the makers of IoT devices will try to spy on us since there is a lot of money in selling data about us all.

I’m not quite sure as a society how we deal with this issue because we have entered uncharted legal waters. Almost all of our product liability laws concentrate of the mechanical nature of the things we buy. In the case of Volkswagen, the mechanical parts of their cars worked just fine; the fault was in their software that had been deliberately manipulated to lie about the performance of the cars. It’s hard to think that anybody except the smartest technical people are going to have any way to know if our devices are doing things we don’t want them to do. Once they get hooked up to a network, their software can spy on us in devious was that are as hard to detect as the Volkswagen software.

Telecom companies have a particularly important obligation to the public. As the ISP most directly serving people we must earn and keep their trust. This is why I am particularly dismayed to see the big carriers like AT&T and Verizon so willingly handing over customer data to the NSA. If the law makes a telecom company do something then they must obviously comply. But these companies chased the big bucks from the NSA as if they were just another customer and sold out everybody else who sends them a monthly check. And sadly, since AT&T controls a lot of the Internet hubs, the data from all of the little ISPs was given over as well, without the consent or knowledge of the smaller companies or their customers.

I fully expect some day that we’ll have a terrible scandal or tragedy involving the ability of our new IoT devices to spy on us. And when that happens there might well be a backlash with people ripping out and stopping their use of the devices. The whole industry needs to realize that a few bad events can spoil the market for all of them, and so it’s my hope that companies that abuse the public trust get exposed by those who do not. Unfortunately, we don’t have a lot of history of that happening.

Comcast and the Smart Home

comcast-truck-cmcsa-cmcsk_largeComcast has very quietly gotten into the smart home and the Internet of Things business. They reported recently that they now have 500,000 customers for what they are calling Xfinity Home. With their 22 million total customers this is just over a 2% penetration rate, but any business line with half a million customers has to be taken seriously.

Comcast started Xfinity Home five years ago as a security business competing against the likes of ADT. But since then the business has taken on energy management and home automation. Announcements this month show that Comcast is making a play to be a major home automation integrator. They are now supporting the home automation devices of 9 major manufacturers: August (smart locks), Automatic (automobile), Cuff (fitness tracking), Lutron (smart lighting), Leeo (alarms), Nest (thermostat), Rachio (sprinkler system), Skybell (doorbell), Whistle (pet tracking). It’s an impressive suite of products and is all integrated through the Comcast portal.

When I last looked at Comcast’s security product, a few years ago, it was more expensive than a lot of their security competitors. It looked like they were counting on the power of the bundle to attract customers. For instance, the basic security product only covered monitoring for 1 door and 3 windows and got more expensive to cover your whole house.

The monthly charge for the new suite of products is going to be $40 per month. This will include security monitoring as well as remote access to lighting and thermostat controls. Customer pay $5 a month extra if they want to be able to see and record video feeds from their home. Customers are asked to sign a 2 to 3 year contract for service. I can’t find yet if that new price will change as Comcast monitors more devices. Comcast normally charges $200 for installation but seems to often waive that fee. They charge extra for installing more than a set number of devices.

The key to succeeding in home automation is service. Customers find home automation to be confusing and they want somebody to set it up and somebody there to fix things when they go awry. I looked at a number of online reviews of Comcast’s current product and there are a lot of complaints about poor customer service and difficulties in getting problems fixed. This is going to get even harder for Comcast (or anybody else) to do well as they add more and more products to the home automation suite.

This business also requires a lot of truck rolls if done right. Most customers are going to want help whenever they integrate a new product into their home or whenever things aren’t working the way they want. Since truck rolls are expensive, this is one of the major concerns about being profitable in this business line.

Still, half a million customers is impressive, and as Comcast integrates more devices into the package it’s going to become more attractive to customers. Comcast has one advantage over most companies, which is that they already have enough customers to enable them to devote considerable time and resources into integrating devices and making sure they work well together. Ideally new devices from the various vendors would self-configure out of the box and would work seamlessly with existing devices. But I haven’t heard that anybody yet has yet mastered that degree of automation.

Comcast is doing this as a way to offset sinking cable revenues. And they are off to a good start. At $40 per month they are already near to a quarter of a billion dollars per year in annual revenues. And I’m sure they will find ways to goose more money from customers.

Every triple play provider has to look at this and consider if this business line makes sense. The biggest problem any small provider will have is in coming up with a suite of products that integrates well and works seamlessly together. But assuming that you are able to find such a suite of products, then the biggest asset for most small carriers is the relationship with their customers.

This is the kind of product that can be used as the springboard for everything else you do. When customers rely on you to make things in their home work right they are more open to hearing about other products and services you might offer. But I am sure that, just as Comcast is certainly finding out, the key to being profitable in this line is to find a way to control and cover the cost of the truck rolls while doing things right.