4 Apr 2007, 11:59PM PT
25 Mar 2007, 12:00AM PT
Closed: 4 Apr 2007, 11:59PM PT
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Other than the profile available at my consulting firm, www.kertongroup.com, I have unique qualifications in this field as a result of the management of the Global UMTS TDD Alliance, handled by my firm for the past 3 years. The Alliance is an organization of Wireless Broadband providers from around the world, which use a competing technology to WiMAX. While that technology is eclipsed by WiMAX, I nonetheless have had the privilege of working for years with REAL WIRELESS BROADBAND SERVICE PROVIDERS. See www.umtstdd.org.
When BWA (Broadband Wireless Access) goes live in a given region, the first thing to happen is the obvious: people plug cards into laptops, and use the Internet in a portable context. However, as time goes on, a few other things happen, both from the user side, and the Service Provider (SP) side:
- Users start to see increased value in VoIP applications, like Skype. A good BWA can easily support VoIP with low latency and mobility.
- SPs start to notice the VoIP traffic, and decide that they should be the ones to offer that service. Thus, "telephone service" is often added to the BWA plan. Check out our member company, Woosh, in New Zealand: http://www.woosh.com/ContentClient/Phone/PhonePricing.aspx Note how good those prices, are, too. That's NZD$49 for mobile Internet, and a phone line!
- No matter what the BWA technology (and no matter what WiMAX boosters tell you) there will be limits to the throughput of any customer on BWA. All of our member carriers have noted that the top 5% of customers use over half the system's capacity. These are money-losing customers. No carrier, be it Woosh, Clearwire, or Sprint wants to serve these customers. Thus, they are bound by caps or limits. In foreign countries, these caps are clearly described by the SP, such as a 1GB cap at Woosh. In the US, they are secretive and hidden, as Sprint or Cingular with EV-DO and UMTS, or as Verizon who disallow certain activities like file sharing, cameras, servers, etc. NONE OF THE BWA TECHNOLOGIES CAN WORK AROUND THIS. This will limit the "bottom up" applications that you ask about. But there's a big difference between "limit" and "exclude".
- The SPs would like to create all the services, and sell them to subscribers as value-add. But history has shown the telcos to be very slow, and very poor at inventing new services, and also slow and poor at adopting services that they didn't invent. There will be efforts to turn BWA into another "walled garden" and there will be efforts by SPs to provide the services that run on the BWA networks, but these will fall short. In the end, the SPs will basically offer a pipe, and the services that they will succeed at offering in addition to the pipe will be network-based: 1) a range of throughput-capped price plans, 2) QoS, 3) roaming or wider footprint, 4) faster speeds, 5) security or VPN, 6) the normal range of ISP services (hosting, email, spam filter, etc.) A good idea for the SPs, which they are unlikely to ever do, is a customized portal for web surfers with content dependent on their location.
- Because subscribers are very used to the Internet and WWW models as presented to them for years at their desktops, they will automatically assume the same from BWA. That's because they're going to start with BWA using the same devices (laptops) so naturally expect BWA to be similar to DSL. Aside from caps, slower speeds, and some restrictions (which will dissuade services like BitTorrent), the app/content creation for BWA is going to follow along the same lines as the WWW. Expect many of the same players (Google, Yahoo...) to play central roles, but also some innovators who make apps and services that target the mobile or portable users. You can see that "local" sites may gain some increased importance, like Go2. LBS may factor, gaming based on location, moving map AJAX apps, vertical solutions for enterprise like Real Estate.
- Once the BWA networks are up, a second phase of uses will come from embedded devices. Think of surveillance cameras, consumer snapshot cameras that upload directly to Shutterbug, MP3 players with constant access to your home PC, streaming media devices for video, in-car modules, and much more. The key to this phase, as it relates to your question, is that this phase of innovation will be open and democratized - not dependent on the SP. Although the SP will often be involved and targeting certain markets (like the in-car or in-Consumer-Electronics) they ARE NOT ESSENTIAL, and any company or person that wants to embed a BWA radio in a device will be welcome to do so. For examples, look at the embedded GPRS module market. The carriers and equipment vendors are happy to sell a GPRS radio chipset that can be embedded in anything (a vending machine, parking meter, etc) and collect a service fee for connecting it to the network. The innovation can come from anywhere.
There are many arguments for the "Open Gardens" approach, but the economic reality of wireless broadband in the wide area is that there is a services oligopoly. The cost of entry is high and there are barriers to entry for major revenue generating services like telephony. Unlike changes in the recent past, there are far fewer opportunities for new services, and the incumbent oligopoly has engineered a long term strategy to keep the competitors out.
To understand why the next set of services will be dominated by a top down model, it is necessary to understand what happened between the U.S. FCC's Computer Inquiry (circa 1966/7) and the present.
The historical perspective is that there was a regulatory construct that built a barrier between telephony and "information services" in the U.S. in the 1960s. This distinction was artificial but was designed to prevent two monopolies, AT&T and IBM, from competing with each other at a time when both businesses were considered to be natural monopolies.
By the 1990s, it was clear that these two businesses were no longer natural monopolies and that the technologies were on a collision course. When the Internet was commercialized, the long haul businesses were sacrificed in favor of companies with greater local control (a.k.a the "last mile"). The reasons for this were twofold: access charges and declining marginal costs for long haul carriage. By continuing to load the local loop with the majority of costs for telecommunications, telephone companies were able to demonstrate losses on paper which led to the logical conclusion that vertical integration (of long-haul traffic) was necessary in order to remain competitive.
Meanwhile, these same telecommunications companies saw tremendous opportunities in wireless telephony and in upcoming IP telephony services. Their long term strategies were to nominally support competition while re-integrating their customer services from local loop through the wide area to wireless and Internet. The objective was to shift hundreds of millions of subscribers from a heavily regulated business (circuit-switched telephony) onto unregulated services like DSL, VoIP and cellular.
The objective here was to cherry-pick the higher revenue customers while saddling the legacy, regulated networks with lower revenue customers. In essence, telecommunications companies now have the ability to generate losses on paper in their regulated businesses and to use those losses to offset income from their unregulated (DSL, VoIP and cellular) businesses.
This model describes the events in North America and Western Europe, but it forms the foundation for the architectures (and business models) these carriers define for the rest of the world.
As a result, telephony is the primary revenue generator for every telecommunications company in the world. And architectures like IMS continue to support this business model. Even though telephone numbers are archane, they are the key to the revenue, and users are unwilling to pay for services that do not provide interoperability with the PSTN. Hence, Skype is free until a user wants to connect to the PSTN.
The way telecommunications companies protect their oligopoly is through signaling and interconnect. Becoming a carrier is expensive, and unlike software development, there are barriers to entry. The upshot is that companies can provide telecommunications services, but generating revenues requires an investment in the telephony business model.
So will it be possible for a company to use open access like WiMAX to compete with traditional service providers? The answer is a definitive "no" in both regulated and unregulated cases. Here's why. In a regulated market, there are barriers to entry (e.g. a WiMAX license) that introduce start-up costs that force service providers to recoup their investments. In unregulated markets, limited spectrum means that service providers will not be able to guarantee their service quality (much like the way Wi-Fi interference presence challenges in densely populated areas) and will have difficulty charging a sufficient premium to generate long term profits.
In other words, WiMAX will be wonderful, and it will be like the Wild West. But nobody will make money selling WiMAX services. They will make money selling other services on top of WiMAX or other services as part of a bundle. But WiMAX won't be profitable in and of itself.
Which will send service providers in search of a revenue model. That revenue model will revert to the least common denominator of telephony. Content services will continue to follow a high margin, low volume business model.
Wireless broadband is indeed being rolled out in a slew of formats across geographies. From 3G UMTS, HSDPA, EV-DO, Wi-Fi, and WiMAX to 4G, each format offers its idiosyncrasies (with respect to quality of service, latency, world wide roaming capability, etc.). But at the end of the day, they all offer wireless broadband capabilities. I doubt if mainstream adoption of wireless broadband would result in a paradigm shift in application design and use, unlike the shift that happened from dialup to broadband. In all probability, we would see existing applications being upgraded to take advantage of the resulting mobility.
Fixed broadband is characterized by a “my connection; my carrier” mindset. Wireless broadband tries to bring in a degree of personalization through a “my content; my place” approach. A key tradeoff, however, in the development of applications for wireless broadband is the one between speed and mobility (or in other words, between coverage and throughput). Higher speed of access implies limited mobility and vice versa.
Assuming a technology agnostic approach, I would classify applications over wireless broadband into voice, video, and data driven applications. Outlined below is a list of potential applications:
It’s hard to generalize the uses for wireless broadband as being bottom up (designed by users) or top down (designed by carriers). A study conducted by the Broadband Working Group MIT Communications Futures Program (see reference) explains why wired and wireless broadband operators have the perverse incentive to throttle innovative, high-bandwidth uses of the Internet (due to flat-fee pricing models and bandwidth intensive behavior).
To quote, the paper says: “If this problem is not addressed now, many commonly foreseen broadband developments are unlikely to happen as planned. These include the next generations of videoconferencing, interactive video and television (broadly defined), collaborative gaming, peer-to-peer applications, grid-oriented computing, network-based backups, data-capable wireless networks (3G and beyond) and the sophisticated portable networked gadgets that will use them, and fiber-to-the-home networks. Delays in these innovations will hurt the makers and users of networks and all of their upstream complements, including content, applications, services, and devices.”
Because this problem has not yet been addressed, I believe that the top-down/bottom-up approach to application design will be market-driven (i.e. localized).
Reference: The Broadband Incentive Problem
A white paper prepared by the Broadband Working Group MIT Communications Futures Program (CFP) Cambridge University Communications Research Network
http://cfp.mit.edu/groups/broadband/docs/2005/Incentive_Whitepaper_09-28- 05.pdf
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