IP Convergence: Beyond VoIP, Beyond Cost Savings

The release of ”The Diverse and Exploding Digital Universe”, a report produced by IDC and sponsored by EMC, is fascinating on several levels. First, the fact that someone is trying to quantify the digital universe is an interesting and welcome exercise. Second, the extent to which the size of the digital universe is consumer generated is gratifying. Third, the extent to which enterprises exercise control over digital content is disconcerting. Fourth, the growth of your “digital shadow” as IDC calls it is more than disconcerting. And fifth, you realize after reading the report that we have not developed any coherent public policy to govern the digital universe.

To the first point, putting aside the obvious self interest EMC has in publicizing the extent of digital storage, it is a very useful exercise to capture the growth of the digital universe. Information is the key to successful management and studies such as these add to our understanding of the broader trends and dynamics taking place in the digital universe.

The second point and third points are in reaction to this statement in particular –

"While 70% or more of the digital universe is created,
captured, or replicated by individuals — consumers and
desk and information workers toiling far away from the
datacenter — enterprises, at some point in time, have
responsibility or liability for 85%."

It is great to see that individuals are the primary generators of digital content and that the production of digital content is not concentrated in the hands of the few. This makes sense since the tools required to generate digital content are much more democratic than the tools of the last century. Today someone with a computer, web camera and an iPod can create halfway decent content. Add in an actual video camera and some editing and mixing software and you can pretty much create high-quality content that used to require full-blown production studios. Now you can simply upload that content to the Internet whereas in the past you had to either be a broadcaster, publisher or movie distributor.

The scary part is that 85% of that content falls under the control of enterprises at some point. While for the most part these enterprises have refrained from exerting control over the content there have been cases where they have tried. The good news is those attempts largely failed. The bad news is they only failed because they became public and public opinion was quickly marshaled against the efforts. That is not a sustainable process in the long term and soon enough the public is going to grow tired of these spontaneous crusades.

Where things start to get scary is the notion of a “digital shadow”. As defined in the IDC report, your digital shadow consists of “digital images of you on a surveillance camera and records in banking, brokerage, retail, airline, telephone, and medical databases. It is information about Web searches and general backup data. It is copies of hospital scans. In other words, it is information about you in cyberspace. Your digital shadow, if you will.”

IDC estimates that your digital shadow comprises roughly half of your digital footprint. In other words, half of your digital footprint consists of content you created and half consists of information about you that is collected from a multitude of sources. It is this latter aspect, and particularly the ability to aggregate that information, that really scares me whether such aggregation is performed by enterprises or government.

Which brings me to my last point. There is no coherent public policy governing the generation, transfer, use, and disposal of digital information. European regulators have made some attempts in this area, most notably with the Directive 95/46/EC on the protection of personal data as well as Directive 2006/24/EC on the “retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks and amending Directive 2002/58/EC.” Nothing comparable exists in the U.S. unless you count the disclosure statutes of numerous states.

What concerns me is that the approach of the U.S. government is to encourage enterprises to establish their own policies that they will enforce through the control they exert over 85% of the consumer-generated content. These policies will serve the enterprises well and give them access to a treasure-trove of personal information that they can do with largely as they please especially if they share it with law enforcement. This Administration’s efforts to collect calling data and credit card data attest to that.

But what about consumers? Don’t they have a right to this information? Indeed, don’t they have a property right in their information? In the United States we allow citizens to kill an intruder in our home. Shouldn’t we have some equivalent right (albeit less severe) for intruders into our digital “home”? What we are seeing develop is an information gap between what enterprises know about their customers versus what customers know about enterprises. A similar gap is widening between what the government knows about you and you about your government. That gap has to be closed and the quickest and most complete way to do that is to acknowledge the property interest that individuals have in their digital information. Once acknowledged, we can then begin to apply traditional property law and policies and close the information gap that is widening all too fast.

The release of a white paper by ETNO (the Eurpean Telecommunications Network Operators Association, a coalition of incumbent network operators) purporting to demonstrate that network investment would increase if policy makers would just stop insisting on unbundling and allow “inter-platform” competition to flourish is of course a re-packaging of the same arguments put forth here in the U.S. by the Bell Companies (unfortunately with great success). 

Thankfully, ECTA (the European Competitive Telecommunications Association, a coalition of competitive carriers) has offered a rebuttal to these arguments.  Like their U.S. counterparts at Comptel, ECTA must now counter what is sure to be a huge political and public relations push by the incumbents to roll back the regulatory progress made over the last ten years. 

We have seen this investment debate before and it runs a predictable course.  Let’s hope that ECTA has learned from the mistakes of the past that allowed the incumbents to be successful in the U.S.  These lessons include –

1.            Establish a political constituency.  If the debate is about what price competitors pay for access to the incumbent’s network, the competitors have already lost.  Incumbents are typically one of the largest employers in a country and those employees vote.  Moreover, incumbents are typically some of the largest political donors.  Competitive carriers do not match up well in this regard for the simple reason that they do not have a bloated payroll from a century of political largesse.  So, competitive carriers need to establish a political constituency of their own.   Ideally, competitive carriers will be able to rally the business, academic, and scientific community to their cause.  After all, these are some of the most telecommunications-intensive industries in the economy who surely have benefited from the improved service and reduced pricing that competition has spurred.  Competitors need to encourage the business, academic and scientific community to be active participants in the debate.  Of course the incumbents have the advantage here as well since they often are large contributors to universities and scientific organizations who are naturally loathe to antagonize such generous benefactors. 
2.            Simplify the debate.  The incumbents have a very facile argument – if carriers want to compete, let them build their own network.  Competitors shouldn’t expect to have subsidized access to the incumbents’ network to compete.  Inter-platform competition between stand-alone platforms is more robust than competition “created” by forced resale and unbundling.  Unfortunately, when rebutting this argument competitors fall into the trap of trying to explain how access prices are cost-based and how unbundling works.  The better response is to simply say that if government wants to grant carriers free access to public and private rights of way, give them 100 years of advertising and public relations support, and commit 100% of their telecommunications business to them, then competitors will indeed build their own networks.  Since that is what government did for the incumbents, it is only fair they do the same for competitors.  After all, how are competitors supposed to compete with a bunch of “welfare queens?”
3.            It’s not about investment, it’s about risk.  The incumbents always talk about investment incentives, but really what they are asking for is risk insurance.  They don’t want to place their capital at risk.  They want a guaranteed return on investment.  You can’t blame them for asking.  It’s the policy makers that are to blame for actually minimizing the risk.  But the reality is no politician wants the largest employer to cut back on spending and initiate layoffs.  Moreover, in the competition for broadband penetration rankings, there is no easier way to increase broadband penetration than to give your incumbent carte blanch.  With tens of millions of subscribers, a minimal sales and installation effort can result in millions of new broadband subscribers and an uptick in the rankings.  So the lesson for competitors is not to present themselves as such a threat to the incumbents.  Unbundling and resale is not about taking market share from the incumbents.  It is about improving service to consumers and maximizing the value of an aging asset (the old copper network) and guaranteeing sales on a new asset (next generation networks).  Incumbents should embrace a business model that allows them to monetize their aging asset in the form of resale and unbundling while investing in next-generation networks that easily out-compete legacy networks.  Competitors would be foolish to rely on unbundling and resale as a long-term strategy if they knew the incumbents were aggressively investing in next generation networks.  So naturally they too will invest in new networks and if they don’t, shame on them.  And if the incumbents are concerned that unbundling and resale of their next generation network will erode their market share, then they are admitting that competitive carriers are better at sales, marketing and customer service. 
4.            It is not a zero sum game.  Telecommunications traffic continues to grow at phenomenal rates.  Competitive gains do not equate to incumbent losses.  It is a growing pie that all parties can share.
5.            It’s a national security issue.  In today’s world, telecommunications is a critical component of everyday life for individuals, for business, and for government.  Major telecommunications outages have as great an impact as power outages on economic activity and the conduct of government.  Moreover, control over the flow of information should be as dispersed as possible in order to ensure an informed electorate.  Consolidation and control of the telecommunications infrastructure in the hands of a single incumbent is a poor strategy for protecting critical infrastructure and ensuring the free flow of information.  Nations need robust telecommunications infrastructures that are only possible when you have a “network of networks” seamlessly interconnected.  The more interconnection points you have, the more robust your network of networks is.  And if you have interconnection at all levels of the network (which is what unbundling is all about), your network of networks is more robust still.

Finally, European policy makers should recall that during the 1980s and early 1990s the United Kingdom resisted efforts at unbundling in favor of inter-platform competition.  At the same time, the U.S. was implementing unbundling.  The result was enormous growth and investment in the U.S. telecommunications infrastructure and nominal activity in the U.K.  This caused the U.K. to change course and pursue its current policy path.  So the experiment in inter-platform competition was already tested and abandoned as a failure.

Mesaging is undoubtedly the fasted growing method of e-communication in the industry today, spanning both consumer and enterprise segments.  In the wireless industry alone, the statistics on text messaging volume are staggering.  CTIA's president Steve Largent was quoted as saying that 158 billion text messages were sent in the U.S. alone in 2006, translating to approximately 300,000 per minute, which is almost a 100% growth compared to 2005.  He also notes that consumers can use text messaging to save lives.  Huh?  Well, Amber Alerts is now wireless, so you can receive text message with the Amber Alert information (that is displayed on digital signage) when one occurs, provided you submit your mobile phone number and area zip codes.  BTW, I encourage everyone to sign up for this.  The reason?  We all look at a text message when we receive one, and most of the time we respond to it.  This is a very viral form of communication, and an extremely high margin service; up to 85% in some cases.  Combine this with Instant Messaging, and the transactional volumes far exceed voice by a huge margin.

Aside of the convenience and trendiness aspects of SMS, texting is also very cost effective.  When users are low on their cell phone minutes, they often resort to sending text.  Also, due to excessive roaming costs, sending text messages is a way of avoiding expensive voice roaming and ILD rates from the mobile operators.

Identity-based services are a unique way to bridge communications between the wireless and wireline worlds.  Many innovative service providers are creating offerings which provide a single number (or second line) to the external community, but which allow the subscriber to manage inbound calling to various destinations (mobile, home phone, work phone, etc.).  GrandCentral and TalkPlus are two such providers of this service.  This identity is can be enabled through a VoIP DID-based carrier such as Global Crossing, which provides phone numbers and voice origination and termination capabilities.  Unique solutions like this are rapidly growing in the industry and are likely to continue, bringing voice beyond basic peer to peer dialing.

Another innovative use of identity based services is one where the purpose is to hide the true identity of the called party.  Jangl provides such an application to Match.com which enables dating prospects to communicate with each other without having to know each other's phone number.  Obviously, you don't want to advertise your phone number to what seems to be a decent date but who turns out to be an obsessive nut job.  Again, a powerful use of application-based communication.

Applications such as this can leverage more than just voice.  Text messaging can also be applied just as easy (if not easier) to these identity services, which opens up a powerful enabler and revenue opportunity.  In fact, most users with a mobile phone expect SMS to be a supplementary service, even when using a service such as one of those above.

Text messaging has, and will continue to be a key communication service requirement coupled with voice.  Wireline has some catching up to do, but you can expect some very innovative additions to enable messaging services to continue to be an essential component of the converged services equation.  Expect more from Global Crossing.  Stay tuned.....

Om Malik wrote about us earlier today in his post Internet Backbone Consolidation continues. Hey Om, we love the coverage, but why'd you have to dredge up the ancient past? While you were dredging up dirt from the bottom of the ocean did you happen to see any of our fiber optic cables? :-)

I quote:

Having atoned for its past sins, Global Double Crossing is back in the growth mode, and says it will buy FiberNet, a metro area network provider for about $96.1 million. It is no different from a recent buying spree by Level 3 Communications. Level 3 is trying to transform itself from a pure vanilla backbone provider to a more metro services company. That’s where the money is for now.

That whole global double crossing thing is ancient history, and we proved to have some of the most convservative accounting of fiber swaps of any of our peers in the industry.

I am also not sure that Om grasps the challenges that the old IXC's face. It's not that Global Crossing or Level 3 are trying to transform themselves into a metro services company, it's just that having robust metro networks are a critical component of improving the economics of your business. If every customer that you connect to your network requires an access loop, those charges that you incur for the loop negatively impact the margin of your sale. It is only natural for a company to seek out ways to improve margin by buying suppliers, is it not? Not only does it enable improved economics but it puts more of the total solution under our direct control, which can enable us to offer higher SLAs, something customers are always demanding. Such an acquisition does not imply a desire to be a different business, the reality is that we want to improve the business that we have.