You might have heard of the four freedoms the FCC Chairman Michael Powell recited earlier this year. In short, users of a communications network should have the following capabilties:
- Freedom to Access Content. First, consumers should have access to their choice of legal content.
- Freedom to Use Applications. Second, consumers should be able to run applications of their choice.
- Freedom to Attach Personal Devices. Third, consumers should be permitted to attach any devices they choose to the connection in their homes.
- Freedom to Obtain Service Plan Information. Fourth, consumers should receive meaningful information regarding their service plans.
This consumer charter is laudable. Users should be able to freely process and transmit bits on connections that were purchased on clear terms. As a template for public policy, it's very good. But it isn't enough.
You can't have personal freedom without choice. It's practically a tautology to say so. And to have choice, the market has to be free to supply you with goods that meet your needs. It isn't enough to merely be able to select from an abbreviated list of hobbled and over-priced networks and devices.
So I propose we need a second charter. This one, however, is aimed at producers. To make the consumer charter worth something, you need both.
What are the producer freedoms for the communications industry? Here's my stab at it:
- The freedom to manufacture any device. Messing with the words of the famous US Supreme Court Betamax decision, if it has substantial legal uses, then it's OK to make it. Furthermore, any illegal use can't be "recursive": that is, the illegal act can't itself be a regulation whose primary purpose is to outlaw classes of device; it has to be external to communications regulation (e.g. preventing the spread of child pornography or preventing terrorism). The user's freedom to attach devices is worthless if their choice of devices is circumscribed in advance.
- The freedom to fund and deploy any network without constraint. It should not be possible for municipalities to prevent the deployment of any network (e.g. through an exclusive franchise deal), or for anyone to prevent any entity (including a state or local municipality) from deploying a network and funding it from any legal means. Some of this was codified in the US in the 1996 Telecom Act, but went horribly wrong in implementation and got overturned in the courts. Outside the US, it's a mixed bag, with places like Scandinavia having excellent public communications infrastructure.
- The freedom to acquire wayleaves and spectrum on an open and non-discriminatory basis. No spectrum, licensed or unlicensed, would come burdened with rules on what it could be used for. Likewise for rights-of-way acquired across public lands or through exercise of eminent domain. Licenses to dig holes in the road should be available for any non-frivolous purpose, regardless of who else dug a trench before you. Existing privileges and encumberances (like mandated analogue TV and radio frequencies) would be phased out or bought out.
- The freedom to extend via interoperation. At the network level, this is what IP does for us, and nobody owns that interface to extract rent from it. But you need physical networks to connect to, and not just a technical spec on how to do it. There still need to be rules that force reasonable and non-discriminatory interconnect terms on network providers who have local market power in excess of what a truly free market would offer. At the device level, it's all in the interface. We should ensure that patents are only enforceable on the implementation beyond the interface, not the interface itself. A further refinement to patent law is to require that licenses must only be enabling; you could never specify things that cannot be done with the device or technology once licensed. A fair enough restriction for a quarter-century of state-enforced monopoly rights.
As ususal, there will be exceptions. For example, we might carve out a little separate world for public safety applications (the original reason for spectrum regulation in ths USA was communications problems following the sinking of the Titanic). But let's stop making the exception into the rule.
This is going to upset some people, since it is as much about putative future producers and competitors as existing ones. Incumbents have noticed that there are many fewer producers of networks, devices and services than there are users. Users and unpredictable, get uppity and vote in horribly misguided ways when they're upset. Much easier to lobby for freedom restrictions on the producer side, since nobody misses a freedom they never felt in the first place. And thus we get broadcast flags for HDTV, region-coded DVD players, and non-interoperable audio content.
I'm not so naive as to believe any of this will come to pass. Yet I'm happy for my and your descendants to know we dreamed of a better, freer future.
I'm going to be at the Fall 2004 VON conference in Boston. The conference runs from 17 October to 21 October, but I'll be arriving in Boston late on 15 October due to Icelandair's schedule (motto: "we grimace harder").
I'll also be at the Powering up with Broadband conference in Aviemore, Scotland on 2-3 November.
Anyone wishing to meet up for a chat, drop me a note.
OK, I promise to stop soon. But first here are a few last thoughts on UK supermarkets and how this applies to telecom...
First, there is a virtuous circle in the launch of a loyalty program tied to a cross-sell initiative. The more people bought £400 TVs and £600 insurance policies at the supermarket, the easier it was to accumulate lots of points, and the more attractive it was to come to Tesco and expose yourself to the cross-sell pitches. Tesco had transformed themselves from "we supply food" to "we supply the things you need to run a home". Maybe those telecom shops need to change from "we sell phones" to "we sell the things you need to stay in touch with your world".
Secondly, it's staring us all in the face, but there was no one single strategic magic bullet. Tesco had to simultaneously out-execute their competition on multiple fronts. Only many co-ordinated actions led to market success.
A final anecdote. Tesco and Sainsbury's both have a low-end sub-brand for loss-leader products. Sainsbury's dub this their "economy" line, and have plainly-printed packs of economy orange juice, economy pasta, etc. Tesco used the moniker "value". The work "economy" sounds to me like you're going without, "economising". Contrast this with "value", which sounds like you're getting more than you're paying for. So of the 5 Ps of marketing, the correct "postitioning" of a product clearly matters. As we move towards VoIP products that (for now) compete on price rather than functionality, something to bear in mind.
An update to my earlier musings on the parallels between food retailing and telecom...
Walking around town yesterday, I note that the Co-Op is still going strong, despite a new Tesco Express micro-outlet opening nearby. The Co-Op is a very old organization, and is effectively owned by its customers. As a Co-Op customer, you get discount coupons ("dividends") based on your spend there. Their profits are distributed through the (customer) dividend mechanism, as well as to a number of social good causes. Whilst they have traditionally been less agressive in their supply chain management and marketing than their publicly quoted peers, they are clearly holding there heads above water in the very competitive UK food retailing sector.
Sadly, the analog for telecom and issues such as municipally funded fibre isn't as benificent as you might hope. Does the success of a user-owned supermarket bode well for user-owned telecom networks? It is easy for customers to switch supermarkets, and easier to open new ones compared to building new telecom access networks. The discipline of competition keeps the Co-Op honest. As a sole supplier, it could become a good-willed but lazy incumbent. No one customer is large enough to care about getting the management fired if they underperform or fail to innovate.
Another successful UK retail group, the John Lewis Partnership, is owned by its employees. Along with a department store chain, it runs a popular up-market supermarket chain called Waitrose. Let's assume the Paradox of the Best Network is always true. (Incidentally, I believe that there are some get-outs by examining the assumptions and asterisked clauses.) That means there's limited profit in running a telecom network. John Lewis makes money, but even if it just broke even, it could also be a template for a new type of telco. One that is employee-owned, and the ability to take home a half-decent salary is the only reward. If spectrum becomes free (in both senses), IP routers and 802.16/20 equipment are cheap, and back-haul inexpensive, then the capital costs are not prohibitive.
So who knows, perhaps the future of telecom looks more like a Marxist collective or hippie commune than a besuited corporate behemoth?
Generally I try to keep on-topic and only recount stories and anecdotes as they relate to stupid networks. But having a 14 month old toddler in the house causes a few funny things to happen, so here's three quasi-telephonic incidents to cheer up your working day.
One of my daughter's first intelligible English words was "hello". (I don't think "wilderwee" is in the dictionary.) She's a pretty friendly little imp, accosting passers-by and insisting on saying hello and byebye. She'll even chase them down the street at maximum waddle speed if they don't seem to have caught onto the game right away. Anyway, she picked up on the association of "hello" and answering the phone pretty quick. Almost the first time I handed her my cell phone she put it to her ear and announced "hello". (I can't quite reproduce her twisted vowels in writing, so stick in a few of your own to improve the effect.) Rather cute. Anyway, now any TV remote control, hairbrush, or even seeing a hand waving about is a cause for sticking your arm to your ear and warbling "hello." We start 'em young in the Geddes household, although just like feeding organic babyfood (MrsDr G's choice...), I insist she only makes free VoIP phone calls.
Last night the LED on my DSL modem stopped blinking and turned solid green. Good news, we've got broadband, and two days ahead of schedule. One sad little side-effect though. Dear daughter goes "la-la" when she hears music, and often bobs up and down in a baby dance. You can be walking down the steet with her on your sholders and she'll pick up on a house or car playing music and start singing. While we had dial-up Internet last week I had the sound enabled on my laptop, and she decided this was a big la-la, and grinned and danced every time. I guess we won't be seeing any more of that. When she's older I'm hoping to introduce her into he more melodious harmonics of optical fibre.
Finally, we've got a lot of brochures from the mobile networks and retailers around the house. But I don't think we're going to go with the O2 network: little madam tore the covers off their marketing bumpf and put it all straight into the bin. She wasn't too impressed with Carphone Warehouse as a retailer, either. Shredded to bits on the living room floor. Seems to like Orange, paged through it for ages. I can understand her reluctance to commit, though -- they don't make it easy to unlock their phones. And is the untouched T-Mobile brochure a sign of approval of absolute distaste?
More results from the infant-driven handset and network selection another time.
UPDATE: She seems to strongly favour OneTel for landline carrier-preselect. Who am I to argue?
I've an infinitude of unread articles in my RSS reader, but this first one I read has stimulated my cranium a bit. Tim Oren, a well-hyperlinked venture capitalist, writes on bundling, a pet interest of mine.
Two things strike me. He mentions playlists as replacing the CD, and allieviating the constant decision of what track to play next. To me playlists are interesting because they are what directs your attention. I believe there is money in attention. Lots of money. I've written before that the only money in traditional telephony (without the addition of new presence etc. features) is in managing the ring and interrupting the user's attention. To me, the playlist is the thing for sale in a music store -- the music comes for free. Indeed, if you're a really cool person, you can sell your playlist. This is, in effect, what a DJ does.
All are more points on the graph confirming the hypothesis.
Also in the article, Tim ponders the balance of power between aggregating the attention of many users for the benefit of advertisers, versus the aggregation of many intersting stories for the attention of users. As someone who pays out of his own pocket to get this site hosted and grab your interest, I wonder if the future looks a bit like this: instead of you even being able to read this is a website, you will have to read it as an RSS stream, and potentially only via certain intermediary RSS readers where I can be guaranteed you'll have to see adverts, from which I'll get a cut by monetising your attention.
But if you want to bypass that future, I do invite you to send cheques (dollars or pounds sterling accepted) directly to me instead.
Well, it's been quite a journey back from Kansas City to Edinburgh. A week touring New England with family, followed by a conference and long weekend on Cape Cod, and then a week in Iceland. We've been back a few days, still finding our feet. Broadband due to be switched on next Wednesday, at which point my life will be whole again.
I'm glad I'm not forming my first impressions of Britain by flying into Glasgow. A badly signposted airport that pongs of cigarette smoke. Announcements are encrypted in Glaswegian, a dialect to which the public keys have yet to be published. Then a strange labyrinth to negotiate to get out of the rental car park and onto the motorway heading east into the clouds and drizzle. Ouch.
Once back home, the first thing to do is a pilgrimage to Tesco for some choccy biscuits (consumed by the British at "an astounding 52 biscuits per second") and scrummy juice. Funnily enough, the news on the car radio had been announcing how this supermarket chain had made about GBP800 million in profit (about US$1.4bn) for the first half of the year. That's a lot of packets of crisps. Our plan: make Tesco richer, as fast as possible.
Now, there are many things that the US does really well. Take gas stations. Low prices. Absolutely everywhere, never queue up. Pay at the pump. Locking clips on the pump handles to stop your hands getting cold. Marvellous. Buying petrol in the UK is a mixture of pain, insult and embarassment. Maximum inconvenience at extortionate prices.
On the other hand, there are some things that are utterly crap in the US, and dazzlingly brilliant over here. And food retailing is one of those things.
Tesco's success is interesting, because you might have thought that food retailing is the ultimate in profitless low-tech commodity shifting of other people's goods. Perhaps if there's money in shifting bananas and beans there's a few cents to be made in transmitting bits and bytes?
Tesco have famously outmaneuvered two of their key rivals: Sainsbury's and Marks & Spencer. How did they do it? There seem to be five key ingredients to the food retailing recipe, if you'll excuse the pun.
First was simply having a superior back office and supply chain management. (If you're a carrier, this means your handset logistics, provisioning and retailing systems need to be the best.)
The second ingredient was diversification. They were the quickest to offer attractively priced non-food goods in their stores. TVs, clothes, financial services, fuel, and so on. They also introduced their high-margin "Finest" range of top-quality prepared foods. (Ready-made meals in the US are almost always an abomination of filler, fat, and fructose. In the UK they are an art form for the masses. The reverse applies to restaurant eating.) They simply got you to spend more.
So, if you're a carrier, those stores, partner networks, and customer relationships are your core assets -- not the network. The bit shifting is a loss leader. Whilst the applications layer may be de-coupled from the network, that doesn't mean the retailing of communications services is partitioned.
Thirdly, marketing. Let's look at how the competition screwed up first, before we see how Tesco did it right.
Sainsbury's are pushing the tagline "Making life taste better". So is their strategy one of product differentiation? Do they think people are under-satisfied with the taste of their food? Funnily enough, Sainsbury's started to seriously lose the plot when they abandoned "Good food costs less at Sainsbury's". Still a confused mix of aspiration and value pitching, but better.
So, on to Marks & Spencer and its decline. For those who don't live in the UK or near an overseas M&S outpost, some explanation is due. M&S isn't just a clothes and food retailer. It's a religion for middle-aged British women. Whilst is has over 25% market share for women's lingerie, I believe (but can't find the reference) that over 50% of all men's underwear sold in the UK comes from the hallowed aisles of M&S. Your wife and mother know how you spend your weekends, and it isn't shopping for undies. M&S provides stability, purpose and pride in the life of millions of otherwise existentially challenged people.
Many of M&S's woes come from fashion problems in their clothing and home furnishing departments. Traditionally rather fuddy-duddy, they have careened over to the other side and indeed become "too contemporary". However, public taste is more of an issue for handset vendors than carriers. (While buying a prepaid phone for MrsDr G. yesterday, the assistant was adamant that all Nokia phones were ugly and should not be bought under any circumstances.) What M&S are also famous for are their highly prepared and beautifully presented foods. Not least of which, the humble prawn sandwich. (Go read, it's a great yarn if you aren't familiar with it.)
For a long time, M&S's tagline was "Quality. Value. Convenience." Examining the discarded carrier bag now lining the kitchen bin, this motto seems to have disappeared. But the taste lingers on. Being the fanciest, the cheapest and the easiest to use was a strategic impossibility. And the customers knew it.
And Tesco? "Every little counts". Gramatically horrible, great for shareholder value. Pull people in with the anticipation you're going to make them a great deal. Up-sell them once they're through the doors to Finest food, cross-sell them a toaster and a car insurance policy. Genius.
At the same time, Tesco pioneered the loyalty card. They attracted a broad base of partner services to rapidly rack up the points with. There was even a defection of the Air Miles travel points scheme from Sainsbury's to Tesco as a partner. (The UK mobile market seems to have a more developed loyalty structure than the US one, I casually observe.)
Finally, they expanded their distribution network with local "Tesco Metro" stores in locations away from the big supermarkets where you do your weekly shop.
So Tesco get you to pay more for the stuff you buy. They sell you more than you thought you were going to the supermarket for. They get you to go to the supermarket more often. They get you to select Tesco as the destination more often. And they spend less serving you when you get there.
Isn't it nice to know that business success is so simple?
UPDATE: Thinking more about M&S, their elaborate prepared food products are dependent on a few cunning manufacturers like Northern Foods. Perhaps the profit pool is being assigned to other parts of the value chain? You can't send sandwich preparation to Bangladesh, even if you can move clothes production around. M&S don't have much choice. Maybe a lesson for mobile carriers sourcing fashionable smartphones here. Much better to be selling commodity handsets to a specialised niche where you can give your supplier a good whipping in price negotiations. Try to make yourself the only route for handsets to reach that specific market segment. Don't let your suppliers have too much power over you!
Mr Blog reports that there's some friction over whether non-PSTN "phone companies" deploying VoIP are allowed to access the phone numbering system.
My answer to this problem is simple. Privatize it. And dump the regulators.
Sell the integers off. Throw in # and * for good measure at no extra charge. Let someone manage each area code, each different string length. Use them to name your dog, count lamp posts, give them away as birthday presents. Anything, as long as the market price is reached. Not enough 9-digit codes left for everyone to have a phone? No problem, the serialized birthday card market is roaring. And the taxpayer makes a windfall from selling a non-exclusive right to zero (figuratively and literally).
Then we can have some proper competition between the namespaces. The phone numbers might not win.
PS I'm reserving "59" in case I ever get a dog. (Hint to the puzzle: "Dr. Who's pet").
UPDATE: Incidentally, here's how to do it. Since you don't want a monopoly supplier of phone numbers, you create multiple suppliers (minimum of 3). Randomly (or otherwise) assign unused numbers to them. Create articles of incorporation that prevent common ownership exceeding a certain threshold and excess market power being created to another entity.
Essentially all a modest update on how DNS is run, with the equivalent of Verisign/Network Solutions cut down to size.
In the end it was quite a relief to sell the car. Our last day in Kansas City was the Tuesday, and we sold it to a dealer on the Monday for near our private sale asking price. Will we miss our green Ford Focus? Not really, just a hunk of plastic and metal. Some memories maybe -- driving my pregnant wife to hospital, taking a wrinkly tiny baby home; a casket of ice dripping off it after the big ice storm; trips down to the arboretum for walks.
Everything looks rosier in retrospect. When we got it, I was a bit disappointed. Don't get me wrong -- everything was put together just so, just the odd tiny design niggle. Like the armrest.
Being a whacky European, I had selected a manual gearbox for use in suburban flatland, Kansas. This clearly wasn't in the minds of the designers of the US version of the Focus, since they had decided that a whopping great armrest was a compulsory feature for the American market. Even if that armrest interfered with minor use cases like changing gear.
So here's the thought. We're living in a world of increasing interconnectedness: long value and supply chains, web services and cheap connectivity. But the corporate body hasn't evolved along with it. I can't penetrate the force shields of the Ford Motor Company and dive down to the product manager who decided to mess up the clean Euro design of the Focus when translating into supersize Americana. [This is nothing about Europe vs. US, by the way. It just works out that way in this one case.]
My cell phone, my car, my home, all the stuff I buy -- I want to be able to make it better. I want to have a meaningful relationship with my personal suppliers. I want to see the translucent enterprise: not so transparent that they freak out, not so opaque as we have today.
I want to be able to go to the corporate web site, select any product or service, and be able to drill down. Interact with the product manager and marketing team. Tell them what's wrong, what my unmet needs are. Do it directly, not just post up an unseen complaint on a random website.
In return, they keep me informed when my concerns are addressed in the next product iteration, give me priority access to new product, give me the inside track on other customers.
Crazy? You bet. But is it any madder than online banking and dating were twenty years ago?
This evening I'm sat in the rather chilly lobby of the Holiday Inn in Ellsworth, Maine. The surroundings (beyond the strip mall) are gorgeous, the weather today was perfect, and dinner was delicious. So why am I frustrated and feeling invective?
Because I just read this article on the Economist. (Sorry, it's behind the pay-wall. Caveat lector.)
On the surface it seems like a very reasonable retrospective on the 3G roll-out fiasco and subsequent gentle recovery. Tragically for the Economist's readers, it also zigzags around the real issues. This isn't the first or last time the mainstream press have failed to communicate the facts to the public, but I really hoped for better from the scribes of record in Econoville.
Here's a few stale and mouldy content crumbs to ruin your appetite.
Enthusiasm for data is growing, just not very fast: data services now account for 16.3% of Vodafone's worldwide revenues, for example, up from 15% a year ago.
Whoa! Our Vodafriends aren't breaking out the connectivity part from the service part of "data revenues". So are their users subscribing to data plans and sending emails to each other, cutting the carrier out of the services picture? Indeed, there may even be a "Fallacy of the best network" to accompany the "Paradox of the best network": improving "data revenues" are not necessarily an indicator of improved long-term health of a carrier. (Anyhow, if circuit-switched voice prices go into free-fall, data as a proportion rises automatically. So it's meaningless without context.)
Reaching further into the dark and dirty recesses under the counter we find...
Downloading ringtones is already popular, so downloading entire tracks—something that is only really practical using a 3G network—is the next logical step. Motorola, the world's second-largest handset-maker, has just done a deal with Apple, whose iTunes Music Store dominates the market for legal music downloads. And Nokia has just done a similar deal with LoudEye, another online music store. But it is still too early to tell whether this will turn into a mass market and, if it does, whether it will prove profitable for operators.
Hmmm. Last time I checked, Moto and Nokia weren't carriers. Wouldn't the Economist think it just slightly noteworthy that the carriers spend billions building the network, and the handset operators (i.e. the edge) get the value through increased handset functionality and prices?
(Did I ever mention I once had a student job in the kitchens of a posh private hospital? I once was told to scrape mildew off carrots using the industrial potato scrubber. It was good experience for working in telecom.) Anyway, inspecting the next unappetising morsel...
But there are signs that Hutchison 3G, a new operator that has launched 3G services in several European countries under the “3” brand, is already leading the European market down this path, notes Mr Thelander: in some cases, 3 offers voice calls for a fifth of the price of its rivals. Further pressure on pricing, argues João Baptista of Mercer Management Consulting, will come as fixed-line operators combat the flight of voice traffic to mobile with ultra-low-cost telephony services based on “voice over internet protocol” (VOIP) technology. With price cuts, he says, “someone starts, and then you can't stop it.”
Ooh! The real story about 3 comes in two parts. The first (and boring bit) is a failure to execute on the technology and network rollout, as well as a marketing misfire. The interesting bit is how they're created a packet walled garded that nobody uses because the carrier is the last one to really know what the customers really want out of the network. The desire for control killed the need for serendipitous success.
Curling our noses in dusgust we swallow the following:
It would be a great irony if, after years of hype about data services, the “killer application” for 3G turned out to be boring old voice calls [from increased network capacity and lower prices]. [...] “Unlike traditional voice service, the adoption of 3G services is very much customer-segment specific,” says Su-Yen Wong of Mercer. The lesson from Japan and South Korea, she says, is that “certain customer segments are interested in video, but others are not—some go for games, others for traffic updates.”
Now, turn the brain into the "on" position, and think... voice is really important, customers are demanding segment-specific functionality, so... we need to roll out new and better voice applications for each segment! Ta da! The purpose of 3G is to be the stupid network for voiceish packets. (Andrew Odlyzko proves E=mc2 with less arm-waving in a number of papers on his web site.)
A final lurch towards the barf-bag:
The calculations being made about the prospects for 3G are further complicated by the fact that the technology is still evolving, making new services possible. [...blah blah...] W-CDMA [...waffle...] CDMA2000-1xEV-DO [...etc. etc....] HSDPA [...uh oh...] TDD-CDMA [...don't laugh...] CDMA450 [...and so on...].
So no mention that pretty much all the above are about to be trashed by ODFM variants that deliver the low-latency MACs that those real-time location and presence-enhanced voice apps will need? Not a dicky bird.
What is it that makes "Paradox of the Best Network" unprintable in the press? Why can't the Economist write an article about the real story, the (futile) battle of the carriers to retain control over the content on their networks while still enabling the creation of a dynamic communications ecosystem?