Telepocalypse

EFF off

I was just quietly reviewing the EFF's excellent guide to building your own DRM-free PVR. Casting a glance over the list of their campaign activities, I was reminded of why I think the breadth of their mission limits their success.

There are four parties struggling to capture the value of digital communications: connectivity service providers, hardware and software platform vendors (the "smart" edge), media content producers, and the users (the "really smart" edge).

The "customer" is the user; in any debate the EFF's job is to promote the interests of the public. The problem with the EFF's constitution is that it isn't clear who their friends are in the other constituencies.

For example, everyone wants to disintermediate the rent-seeking connectivity conduit provider. Microsoft would like to have you place all your telephony via MS-powered devices. So on an issue like wireless spectrum reform, Microsoft should be your friend.

On the other hand, when it comes to intellectual property law, Microsoft is Beelzubub's personal emissary. DRM is the fire-soup in the Beast's belly that poisons the air with a foul stench for the innocent public. Microsoft is your mortal enemy.

The problem of selecting consistent friends limits the EFF's effectiveness. They can't leverage their influence by assembling powerful coalitions. It leaves them as an isolated lone voice.

Just as we have identified the need for layered regulation, I would suggest we should have layered campaigning for public digital liberty. Institutionalising the Freedom to Connect concept is likely to prove more effective than leaving it to the EFF. A Californian senator might be quite open to spectrum reform -- either an Intel or Qualcomm lobbyist is likely to concur. But if the messenger is tarred with a techno-libertarian peer-to-peer filesharing brush, the political risk is too high. Hollywood won't pay for your re-election campaign. Copyfighting should be done elsewhere.

Anyhow, what use is a P2P network if nobody has affordable connectivity? There's also a natural precedence to sorting these issues out.

(In a sense this over-broad agenda marks a weakness of the non-profit approach to achieving goals. Where's the M&A for non-profits? How can one good cause subsume or break up another? Where's the futures market for non-profits to send "price" signals that which goals are achieveable, and which means are working? Another day, maybe...)

This may all seem rather critical of the EFF, yet I applaud their achievements. If I didn't have so much Scottish blood, I'd even pay in a few pence to help the cause. We just need more successes -- what they're doing is too important to be left to representative government, since it isn't necessarily representing you and me.

Smellster

I really wish I could write some gushing praise for Jeff Pulver's new Bellster telco disintermediation service. After all, I suggested a similar thing last year, and I'm sure the thought is hardly original.

Bellster is a PSTN-VoIP interconnect added to the you-scratch-my-back-and-I'll-scratch-yours algorithm of BitTorrent. So what's the problem?

Well, installation issues aside, it misunderstands how the PSTN creates value. Firstly, most PSTN endpoints can't call more than one (or two, with 3-way calling) other end points at once. Abuse is limited to real-time use. There's a natural brake. Secondly, there's identity collateral behind the telephone numbers (they can be traced back in a number of ways), and a governance mechanism to enforce good behaviour. Yes, these are both imperfect, and can be done better on a stupid network. But Bellster undermines both, and thus will suffer from poor social scaling.

To make Bellster more effective I would have made it less general. Rather than try to solve the anyone-call-anyone problem, I would have tried to overlay some sort of social network. My wife's family's computer will route any calls we have to Lithuania. Maybe second-order routing would be allowed too: a friend-of-a-friend could call as if they're me. But allowing arbitrary strangers to impersonate me? No way!

It's a victim of the un-stupid network; all the identity infrastructure is hidden centrally, and you can't morph it into new forms and purposes.

So my prediction: this will generate an initial fenzy of interest, but will remain a niche. Much like Free World Dialup, which underestimated the value of convenience, usability and ubiquity.

Just because postage and packing becomes free doesn't mean the PSTN product has no value and can automatically be disintermediated!

OPINION://Institute of Erroneous and Erratic Engineers

I've just been reflecting on the failings of Wi-Fi. Boy, are there a lot of them. But what makes them interesting is the common root cause.

Problem #1: Wi-Fi isn't sociable. There's nothing in the protocol to announce who owns an access point. We don't need some detailed, fixed protocol that fails to capture the market's requirements. Just a URL (which might be hosted on the access point) where we can fetch a flexible XML document whose format might evolve. SSID isn't good enough; we need meta-data too. I want neighbours to know what door to knock on to ask if they can have access!

Problem #2: Not enough 'A's. The heart of most mobile networks is the AAA ("triple A") system, that authenticates, authorises and accounts. (Your acronym may vary. Don't write, please.) Now there are independent standards like 802.1x for authentication that are all well and good. But Wi-Fi is lousy at authorisation and accounting. There's no formal means of bootstrapping the payment process, negotiating your way onto the net. Fudged splash screens are OK until you start deploying non-browser applications like Wi-Fi phones. I don't just want to distinguish between open and locked access points; I want to know which "open" ones are free.

Problem #3: It's terrible to use. Channel selection. SSID selection. Encryption method selection. Litmus test: does your mum buy and install it, or does it need to wait for a Chrismas family get-together and offspring to perform system adminstration? You know the answer. Its usability sucks like a Dyson.

Problem #4: No partitioning. Everyone's a blood relative, or everyone's an enemy; network engineers don't have friends. You either have totally open access, or lock-down. There's no means of offering 2nd class access to passers-by, reserving primacy for the owner. No means of requesting registration of visitors, or recognising returning visitors.

So it's kind of an autistic technology. It knows how to simulate Ethernet in the same way someone with autism might be able to memorise and draw a scene with incredible accuracy. But ask it to understand context, empathise and adapt, and it's useless.

This isn't an accident. The nerdy focus that makes an excellent wireless networking protocol engineer probably makes a lousy social scientist. The outcome of such engineering technical committees are solutions to engineering technical problems, not social or economic ones. It's a bit like the (discredited) ontogeny recapitulates phylology motto from biology; technology development recapitulates standards committee composition.

Here's a thought. Make each IEEE committee include some extra members: an economist, an anthropologist, a usability engineer, and a grandmother. The economist's job is to look for scarce resources and help enable markets around them. The anthropologist considers how digital-era savages fashion tools to further social group interaction. The usability engineer examines the affordances of the technology; too few and it becomes inflexible, but too many render it unuseable.

Oh, and the grandmother? She's there to remind everyone it's all about people, not technology.

A fatal infection

I would urge readers to drop the baby, turn off the oven, sit down and read this MIT paper on viral networking.

In a nutshell, it describes the future of mesh networks. There are two core results:

• Throughput increases with node density. More nodes add to capacity, not divide it.
• Latency is not a problem.

This is the E=mc² of communications. It means that fibre to the home and so on are just icing on the cake. The lower bound for the future of connectivity is going to be damned high wherever humans or their powered objects congregate.

It means the end game is already pre-determined. Centralised telecom won't exist in its current form. Don't hold long-dated bonds in network operators or their equipment suppliers.

The caveat? Getting this into reality is, as they say, non-trivial. You have to make it scale in a world where bad actors may be at play. You have to get all the non-functional stuff right, like battery life. We could be talking anything from years to decades. It's as big a jump as E=mc² to the atom bomb -- the Manhattan Project of communications.

But the theory is rock solid, and the future inevitable. You've been warned.

OPINION://Westminster eForum: A retrospective

I went to Wednesday's Westminster eForum symposium with a single, simple agenda: gather ideas on how telcos play politics. Top-dog regulator, top-dog political master, top-dog incumbent. I got what I paid for, and I'll be incorporating some of what I learnt into the advice I give my consulting clients.

But the debate also disappointed me. I don't think it got to the most important issues, and nobody asked the really hard questions. This may be because the debate is predicated on false assumptions.

So let's look at the assumptions behind the process that led to the OFCOM, DTI and BT pitches. The starting point was the Phase 1 strategic market review by OFCOM. This concluded that there remain market failures in UK telecom that require fixing through improved competition.

Reframing the debate

But is market competition even in principle capable of delivering a satisfactory outcome? What is an acceptable outcome for a service that, as Ben Verwaayen notes, forms an input to almost every other economic activity? And even if competition can deliver, as a matter of public policy should private entities have such control over the public's conduit to information?

As a hardened free-marketeer, even uttering the question makes me shudder. But the libertarian inside me also quakes at my free speech depending on a single commercial supplier. And the pragmatist tells me the dribble of connectivity into my home isn't keeping my small business competitive either.

Telecom is not a normal market good. Let me elaborate.

Connectivity isn't a can of baked beans

Traditionally economists have identified four core factors of production that come together to create markets: land, labour, capital and enterprise ("entrepreneurial drive"). None of these is run as a standard market based only on competition, contract and tort law. They are restricted and shaped in the public interest by rules such as planning permissions and zoning, employment law, financial services regulation, and company and tax law.

I would contend that connectivity is an equal of these four, as information goods come to contribute a dominant share to the value of products and services. And just as the special characteristics of land and labour have resulted in special rules, it should come as no surprise if we do the same for connectivity.

How is telecom special? It’s the one industry where less can be more, since stupider is better. In most industries adding features and services increases consumer value. In telecom it frequently erodes value because they're just price discrimination mechanisms. Vertical integration locks out rival innovations and competition to the detriment of the economy as a whole. Furthermore, the very nature of network effects makes these entry barriers very high.

Click your heels, dream of a better place

"Stupid network" connectivity services can be defined by a relatively small number of non-functional factors (reach, speed, latency, etc.). Their implementation may be subject to rapid innovation, but the factors themselves are well-understood, complete, and invariant. We could have a meaningful debate about the type of connectivity we'd like to have in 50 years from now; yet we couldn't anticipate the most important functions of a computer processor 25 years from now. We might not have even invented terms to describe those functions yet.

Telecom isn't alone. Take water. We know what clean water looks like, and we know where we want it delivered. There's no mystery in that.

Normal markets are a bit like Richard Dawkins' blind watchmaker model of evolution. We don't have an end in mind because nobody know what ends are possible. We just make locally optimal incremental steps, and hope for the best. Central planning fails because no one mind can hope to encompass all the market information and imagination to make optimal investment decisions.

Connectivity is different from cornflakes. We can have a debate about outcomes, since we don't need a market to explore what the possible outcome space might me. On an exceptional basis, you can have a public policy that specifically aims towards a target state. This is precisely what the Koreans, Malaysians, etc. have done. It's like Eisenhower and the interstate highways: you've just got to get it done to compete, even if you have to hide it in the military budget.

That means the OFCOM director is wrong and the polticians were right: competition is a means to an end in communications, not the end in itself. Being technology-agnostic is not the same as being connectivity-agnostic. Competition is a means of selecting between technology implementations, not connectivity destinations.

If you want to make the man from OFCOM uncomfortable, ask him if he'll stake his salary on Britain having the best connectivity in world in 10 years from now, and watch him squirm. Would he claim that being anything less than #1 is a triumph? How far down the list does he deem appropriate?

BT isn't an evil monster, just a dangerous zombie

In hindsight, the BT privatisation back in the early 1980s was a screw-up. The ownership of the local loop was transferred from the public to a private organisation. At the time the value of that loop only reflected the potential of phone and fax services. Later along came the idea of broadband and a stupid, flexible, pervasive Internet. Initially this had to be resisted by BT, as the services could not be metered and it disintermediated the voice product. Over time there has been an explosion of service possibilities. The value of loop has rocketed to reflect that, but not as a result of any innovation from BT. There is no claw-back clause to reflect that and return it to the public. It's a pure access rent. Even without supernormal profits from uncompetitive markets it starts to look attractive to deploy dumb pipe connectivity. Better to capture 25% of a $100-valued service than 100% of a $20-valued service.

So BT has had a massive unearned windfall. But it can only capture the the full value of that pipe by metering and charging for the traffic that passes through it. BT's purpose in life is price discrimination of traffic passing over a largely fully amortised network. (The 21st Century Network is just a way to create a closed, tolled private network on cheaper IP hardware with low opex costs. It isn't about creating a stupid network for users to take control of.)

Nobody asked the BT CEO how he plans to make money from his new network; what will it do that a vanilla Internet connection can't do; how will he stop people bypassing his service toll booths?

What's the price of free speech?

Freedom to connect is not a market good in the same way we don't charge people to enjoy freedom of speech or freedom of movement.

Would we tolerate for a moment a British Roads Corporation that inquired as to the destination and purpose of each journey and charged accordingly? No! We'll accept localised congestion charging on a non-discriminatory basis, but not general system funding via individual price discrimination.

That doesn't mean printing presses, cars or computers should be free. But the rules of the game may exclude certain rent-seeking behaviours and privacy invasions aimed at price discrimination.

Can the market deliver?

It's quite possible that BT will never deliver the desired type of connectivity, by the very nature of its constitution. They must always sail as close to the regulatory rocks as possible; get too far away and the board kick out the CEO for one with a more acute sense of navigation. The regulator can't push things too far, because they'll be out of a job. There's mutual co-dependence, which as the ntl VP noticed works to re-inforce existing market structures.

The market delivers roads and railways. But it can't decide where those roads and railways get laid. You just solicit bids for implementation and operational management. We need to re-think what the market and regulation are for. The model is broken, not the implementation.

What to do about BT?

How to get to "there" from "here"? Direct buy-back of the local loop is too expensive. Even if BT doesn't deserve the rent, that was the deal with the shareholders. You can't just take it away; in the interests of preserving property rights and an orderly society, you don't want to go there. So we instead have to resort to hidden expropriation via regulation. After all, this is a risk the shareholders knowingly undertook.

More access networks, please

One useful idea to come out of the proceedings was that regulated prices should be set at the indifference level of a new entrant building an access network. They should not be based on the bloated costs of an incumbent. However, I would go further. I do not believe we should be agnostic between platform competition and open access. Platform competition is superior because it doesn't rely on political caprice. It's hard to reverse. It naturally leans towards more competition and less politics. It stimulates new technology. So I'd force the price paid to access unbundled elements to be a bit more than the cost of building your own. The excess wouldn't go to the incumbent, however; it would go into the general fund to promote universal service, technology research, and cover the costs of what regulation does occur.

I'd also make it easier to create user-owned access networks through spectrum liberalisation and open access to conduits. BT's wayleaves across the streets are not private property of BT; they're granted by the public and the public is entitled to appropriate recompense.

Outlawing price discrimination by the back door

The playing field needs to be tipped to create disincentives to price discrimination. Think of the 3G auctions; sure the spectrum is worth $40bn to the users, but that doesn't mean the operator will be able to appropriate that value. If "stupid" connectivity had been mandated from the outset, the greedy operators might not have been raped so badly. Their spectrum fees, if any, would only have reflected the confidence they had in the superiority of their technology and implementation plans over the next-best rival. It wouldn't have represented their ability to tax all wireless speech.

Internet Protocol is blessedly content-neutral, and it's only when you get to the TCP and UDP protocols you get service-specific port numbers. Want to host a web server? That'll be extra Sir -- we don't allow inbound TCP segments with the SYN flag set...

There's a simple way round this. Amend the wiretap laws. Anything above IP is verboten. Your carrier should carry, not look. Call it the Medusa principle -- directly looking at the data will kill you. If the most you're allowed to see is a source and destination IP address, it gets damned hard to price discriminate. Oh, and you wouldn't be allowed to discriminate based on IP address range either.

OFCOM's false trichotomy

The OFCOM choice of deregulation, break-up or entente cordiale is a false one. Asking BT what to do is ridiculous. Their job is to defend their windfall. Ofcom's job is to return it to the public. BT's rightful goal is to be one iota away from forced breakup, and not give one unnecessary inch of concession. They'll get "option 3", and business as usual. Where’s option 4 – realignment of ownership and incentives? Not structural separation, but structural re-design? Breaking up BT without addressing the wider policy issues on connectivity is pointless and destructive.

The failure of the debate is to ask what the appropriate ownership and management structures for public networks should be. Increasingly, user-built networks like Wi-Fi and community meshes are being deployed. Networks deployed by users, communities or municipalities better align the interests of owners and users. There's less need to price discriminate in order to generate supernormal profits. The benefits to the wider economy should greatly outweigh the losses to the telecom market.

The fire escapes are locked

BT probably has more lawyers than OFCOM has staff. Nobody's going to tackle them head-on; BT can threaten job losses and service troubles, and parliament will do its bidding accordingly. The political will isn't there to re-examine our industrial policy and make the UK the hub of the global information society. No regulator has ever declared the job done and quit.

The only way out for now is a war of attrition on the technocratic rules of engagement, one by one. Eventually a slowly rising tide of stupid connectivity erodes BT's service revenue base. The connectivity cartel will be broken, but at what cost?

At the very least we can try to get a more sceptical audience for the next public engagement and give the players a harder time. Any volunteers?

Westminster eForum Sessions 3 and 4 Notes

Session #3

Ben Verwaayen, CEO, BT
The Networked Economy

Who could organise such a symposium a week before we submit our answers to OFCOM? OFCOM! Many challenges in providing the answers to the questions in the debate. Was not originally a fan of strategic review, but coming round.

It’s about being able to make decisions and stick to them. Are we willing to make regulatory choices? Can disagree about the choices. Don’t want a mess. Not because of bad people. It’s bad behaviour. Takes courage, vision and commitment to make choice.

OFCOM was smart and put the choice in BT’s court. Not so sure this was the right thing to do. There are some choices the incumbent cannot take; someone else must take them.

Example. Passionate about NGN. It’s a competitive input into every part of UK economy. Every single company has plan involving activities from abroad incorporated into own activities without physical movement. Used to call this outsourcing. A physical proximity as if in one room. Need real broadband capabilities in every city, in rural areas. Also care because do we have capability to reset the clock and have better transparency between BT and the rest of the industry. Not by going back to the repair the old [stable systems], but negotiated with the rest of the industry.

But not up to BT whether to make this investment decision. The investors make the capital allocation decision. The clarity of the return and risk depends on the regulator.

BT’s task is threefold. Deliver the network the economy needs; deliver transparency that enables predictable returns; deliver new services.

If the only differentiation we have is “one penny less” then commoditisation is inevitable. Need to innovate in services. [Oh my God!]

Only achievable if fix an intermediate step. One way is to adopt OFCOM’s Option 2 [Enterprise Act structural separation.] What is a settlement? An agreement on a purpose, and a commitment to deliver. So far BT has delivered everything it said it would, and delivered it on time. [Stop giggling down the back!] Have only lost one competition appeals tribunal, and few cases brought. And the one lost [on illegal privacy invasion on save calls] was ruled because of OFCOM rules changing.

Firm commitment to deliver. Will deliver LLU. Will feel bad if that’s the only taste in town. ISPs demand from BT a portfolio of opportunities. LLU an opportunity for some, but not say if you’re a small ISP. We were stuck in technical language on product margin squeeze tests.

Perceived BT bad behaviour. But perception is reality with a time lag.

An obsession with equivalence of input. Look at 21CN and opportunity to include regulator in design. Equivalence of input may burden small ISPs with inappropriate processes, and burden BT with pointless temporary investments.

Have not even discussed OFCOM option #1 – refrain from regulation. Have to find new employment for 535 regulators, so not an attractive option. Would say there is option for #1 as #2. In a country built on compromise

This is a market that represents 7% of all UK capital investment. Industry that directly or indirectly employs 2m people. 3 years ago we were a par with Albania. Now by far are #1 in G7 [his PR people are good!]. BB penetration almost as good as mains water [they’re really good!].

Q: Comment of behavioural correction for BT.

A: Need more differentiation than price. Need service differentiation. Thought behaviour issues bypassing changes in last 3 years, based on anecdotal evidence. Believe we are best in class in compliance and training. Some anecdotes are justified. Should just let it go.

Q: 21CN, but many new disruptive technologies like VoIP (e.g. Google VoIP). Is BT happy to see his eat up voice revenue?

A: VoIP today is competing on price. Interesting thing of NGN is based on IP including voice. Trick is keep the service the same while changing the technology. Gives you more flexibility. Today’s network drives the service. Voice service on voice network. New network is service agnostic. Just one network, not a patchwork. High risk, different pattern of investments.

[AKA - we can’t solve Paradox of Best Network, so need huge price leeway now to make up for it.]

Q: BT delivers on its word, just very late, by which time irrelevant.

A: Of course it takes time. Should take less time. I tell my management team that all the time. Rest of the industry takes just as long. Can deliver commitment and resolve to do better.

Q: 21CN will deliver significant savings to BT. Does BT plan to pass on those savings to customers, particularly wholesale customers.

A: Not all of it! Expect a return on investment. Call London-Glasgow has gone from 90p to 5p in years. Predict there will be access platform competition [he would say this...]. WiMAX will be successful. Satellite.

Q: Knowing what you know about 21CN, would you advise customers to invest in LLU?

A: Yes. Gives you tools to differentiate, a nice margin. There will be multiple ways to satisfy need for viable business model.

Q: What are key threats to BT? Look 5 years out and say how you see BT in the future.

A: 2 weeks before Q3 resusts! Industry will be a convergence industry. IT and comms into ICT. Mobile and fixed. Services and network [!!!!]. Service is confined in the network now. FTTH and level of exchange [?]. Telecom will be a competitive regional weapon like oil. Flat-rate services, not metered. Lots of video-based new services. [They’re going to keep bandwidth scarce enough to force you through their video servers and pay the toll...]

Q: Question of LLU pricing.

A: Waffle.

Keith Monserrat, Director of Policy, ntl cable

A wave of deja-vu. Almost 10 years ago I gave a similar speech on future of telecoms. Much technical advance, stock market adjustment, but less change in competitive environment.

Double-whammy of opportunity. Requires choice. Failure will cause us to revert to a monopoly and less innovation.

Opportunity #1: Strategic telecoms review. Allows industry to stand and look back.

Opportunity #2: Migration to all-IP network. Voice networks being replaced. Fundamental shift, crossing of technology rubicon. Technology that isn't important. It's the services.

How does telecoms market look to customer? Not bad! Prices low and falling. Even lower in the UK than US. Many price packages to choose from. Direct and indirect suppliers. Multiple BB access methods rolling out.

Cable industry a significant role. Misconception there has been no investment in access network. Cable has hybrid fiber and coax to within 500m of house. BT responded by deploying DSL in cable franchise areas. Price was spending 2001-3 in financial restructuring. Have just deployed VoD.

Potential to deploy digital UK. 45% of homes without a PC, almost 100% TV penetration. Demographic of cable covers many of these homes. Simple and ubiquitous mechanism of cable. [Hah! I see DRM for media content being used to control the edge and thus price discriminate services.]

UK still doesn’t have prices and bandwidth of Far East or Scandinavia. Still as a nation reliant on BT’s copper access. Almost all competitors reliant on BT for base products. Most innovation outside of BT. Forced to respond to these developments. Most competitors supported by a regulatory subsidy, which gives them an interest in keeping BT regulated.

Initial competition in international services. Created arbitrage opportunity to new entrants that depended on BT having high prices. They will always have an interest in intrusive regulation.

Consumers should be able to determine market outcomes. Current market does not open as a market. One supplier with power at wholesale and retail level. Means UK has fallen behind.

In France, 28Mbps to the home; Netherlands, 20Mbps is the norm. Will fall behind in national competitiveness. But not a pessimist. Strategic review enables us to fix market failure, put Britain at the front, if we make the right decisions. Grand unifiying IP network.

Problem is access. Like having a fast motorway network fed only by country lanes. Need to make benefits of reliability and speed available everywhere, and only a functioning market can deliver. Regulation can’t deliver what competition does. Requires three principles: 1. OFCOM needs clear statement on self-sustaining competitive market. 2. Regulatory certainty. 3. Pricing of wholesale products must promote, not mimic, competition.

Equivalence: should apply to enduring bottlenecks. Excellent principle. Devil is in the detail. Definition of an enduring bottleneck? Market with no BT competition? Market with no long-term prospect of self-sustaining competition (i.e. lives without regulation)? Regulation makes a rational investor keep money away from the bottleneck because of risk of change in regulatory strategy.

Classic definition is the place where demand exceeds supply. But alternative is where incumbent has enduring economies of scale that makes it difficult to compete.

Imagine a cable down the street. Odd numbered houses can access the cable. No economic bottleneck. On even side of the road, they can’t. Is there a bottleneck? Some significant incremental cost of serving even numbered houses. Doesn’t preclude a market. Suppose even numbers are declared a bottleneck, access to BT’s copper at regulated price. Suddenly no reason to build competing network.

Move somewhere LLU is unattractive because of low population density. Lowest level of competition is Datastream level. Natural monopoly becomes entrenched and a self-fulfilling monopoly.

Becomes crucial to whole country, as market structure becomes entrenched. Will have a patchwork quilt of remedies. No need for equivalence in some places, and at different levels of network in other places. Herculean task for BT to account for it. Impossible to regulate behaviour.

If OFCOM applies LLU then it hands a regulatory subsidy to service-based competition. UK relying on a single company to innovate in the absence of competitive pressure.

Investors must be able to earn a reasonable need, operators respond to customer need. Consumers should have a choice of substitutable access networks: fiber, copper, coax, wireless. Implementation must match strategy. OFCOM needs vigilance so what is defined in strategic review. Price of regulated wholesale product sends vital signal to investors. Regulatory price should encourage entry at deepest level.

Cost should be at that of an efficient entrant, not inflated cost of incumbent. Indifference between entry and wholesale. Many will enter. Ex-ante regulation will become less necessary.

Hybrid coax is more future-proof than copper; and fiber-copper is closer than BT exchange. 10Gbps in fiber, plenty to share with fast DSL.

Use a lot of the capacity for broadcast TV. Will be less future demand for broadcast TV, switch to VoD. Can offer 100Mbps without further network build.

Bottlenecks and equivalence entrench monopoly.

If prices are held down by short-term need or political intervention it hurts investment. Policies must stimulate and not mimic competition.

Mike O’Brien, Minister for Energy and E-commerce

Telecoms is vital to competitive economy. UK telecoms one of the most competitive in the world, 100s of service providers, as many mobiles as people. Approaching 99% BB coverage, more penetration of Germany. A good result for government and industry. Falling prices stimulate take-up. LLU working.

BT moving to an IP network. Once-in-a-generation opportunity. Chance to have equality of access from day 1. [Oh dear, more entrenched regulation. Are we going to be at the mercy of BT forever]

But Internet has darker side – computer security, spam and viruses. UK Internet Security campaign to be launched this spring. Straightforward security measures. Need confidence in BB. If we allow development of darker side people become afraid to do business, allow children online. Have already acted on Internet dialler scams. Will respond. People will find new scams, make money. Ongoing effort to keep productive use of Internet ahead of fraud and corruption.

Also looking to enforcement powers of information commissioner. OFCOM right to stabilise regulatory environment. Key government interest to keep regulation fair and proportionate. Consumer protection important where regulation is drawn back. Less regulation cannot mean more corruption, spam and fraud. [So are BT are going to promise to create a “safe” world in return for political favours?]

Telecom accounts cannot be slammed. Happened to an 83 year-old constituent. Fixed telecom suppliers need a sales and marketing code of practise. Avoid problems of gas and electricity markets. Cannot have people left behind, need to address universal service order.

Government will engage with EU on regulation policy. UK businesses will get access to European markets. Commission will have universal service directive next year. Would like to see OFCOM regulatory reforms implemented across the EU. A priority for UK presidency of EU. All EU states will have telecom markets as open as UK's.

A balance of regulation: public safety and benefit vs. growth and competition. Huge new consumer demand. [Gee, this feels very pre-Cluetrain. Consumer, consumer, consumer. Not participants, citizens, producers.] British companies will be at the forefront.

Q: There’s no consumer representative as we have for water and electricity regulation. Will we see OFCOM have a greater role?

A: OFCOM won't tell consumers which tariff is right. Need clear Ts&Cs, pricing. Don't need a consumer group yet.

Q: Music industry suffering from fraud [P2P sharing]. What to do?

A: Need new international agreements to protect content providers. Need to build up a secure market in these areas. Have discussed with Japanese and Koreans. But what about the Chinese? Complex problems for government to grapple with. Want to see British economy expand in these areas. Cross-border enforcement of intellectual property rights.

Q: Do we want to enforce foreign copyright? Also, UK is streets ahead in IWF and Hotlines. Have fantastic infrastructure. [WTF!?!!]

Q: We’re a small-medium ISP. A lot of traffic is P2P. Mould make it into a legitimate process. New pricing and marketing. A reason for a lot of illegal activity is due to inflexibility of pricing and access to new media.

Session #4 Will equivalence work?

A rather dry discussion on the mechanics of "equivalence". I'll spare you the pain and me the typing.

Westminster eForum Session 2 Notes

Baroness Buscombe

Consumer and citizen interests next. Will we need regulation? Will technology outpace the regulation? What are the pitfalls of such rapid change?

Elizabeth France, UK Telco Ombudsman

My role: run a not-for-profit company, not a statutory agency. But independent dispute resolution is mandated by law. 115 member companies. Investigated over 3,300 cases. Billing/charging and customer service most common (former most common issue). [Hey, telcos are there to price discriminate and obfuscate prices!] Most common issue is correct charges but consumer is confused. Debilitating effect on consumer confidence. Bill dispute for pennies goes all the way up to ombudsman, and consumer switches supplier.

Many consumers of telecom are young people for whom we need to take extra care. Three cases of teens with download bills in the thousands of pounds that they can’t pay.

Claire Milne, Antelope Consulting

UPDATE: See Claire Milne's clarifications on my note-taking in the comments below.

Focus on consumer affairs and affordability. OFCOM basic principles: competition where it is effective and appropriate. But surely it is always appropriate!

Some consumers overwhelmed by choice. Market forces will push more people into universal service net. Might have thought the opposite. Notes shortage of consumer representatives in the room.

Would ask OFCOM to tell us more about the price of jam, who is paying, and how long we need to wait for jam, whose bread it will be spread on, how thickly it will be spread. Support idea of consumer charter, list of consumer rights. Would then form a framework to deal with complaints.

Phil Mochan, Compere Capital

Need a high-capacity fixed infrastructure to homes, and mobile BB. Large capital investment, efficient spectrum use, FTTH. Spectrum scarce. Should spectrum be charged for? Believe it is a regressive tax on communications. New wireless technologies coming to market. Selling spectrum to provide for them is against interests of UK citizens.

Other countries have had "beauty contests" to spread benefits more widely. 3G in Sweden, low population density, cheaper.

In UK there’s an incentive to extend life of copper loop as long as possible as a sunk cost. Keep it going until OPEX of copper too high [it gets wet underground, folks!] or it can’t support the required services.

OFCOM should direct its efforts to minimise costs of capital. When fibre is delivered to a community the copper should be forced to be switched off. Price floors below which regulator promises not to intervene to reduce costs. BT should be forced to open access to ducting. Rural areas should be funded by 2-5% levy on FTTH projects.

[Notably no real discussion of innovative ownership structures, Paradox of the Best Network, etc. This discussion isn’t grounded in the key tectonic issues.]

Q: How many complaints come from an inability to get through to the operator at all? Overloaded customer service, incompatible web sites?

A [France]: Have about 80 cases a week, but about 1000 calls. Those are very often that can’t get through to complain, take an order. Ombudsman knows alternative ways into the operators. Would be sad if these get escalated through complaints procedure.

Q: [Orange]: What is the role of regulators to protect consumers who don’t spend the time to understand or investigate what they are buying? BT 20 years ago was simple pricing, now much choice = many pricing options. Should we nanny consumer?

A: [France]: For many a few pounds make a big difference. Don’t expect companies to nanny consumers. But companies don’t go out of their way to make tariff structures simple. [A telco sinks capital and then price discriminates network traffic, it’s the raison d’etre of commercial telecom!] Consider the "reasonable consumer" and balance of probabilities.

Q: Would emphasise similarity between financial services industry and telecom. Similar product complexity.

Q: Lack of clarity of what comes out of OFCOM etc. Lack of plain English.

Q: Advised Carphone Warehouse when they were small. One core thing was to guide people through the complexity and confusion. Reflected in their success.

Q: Strategic review looks at geographic areas. Might pay different amounts in rural and urban areas.

A: [Mochan] Believe you should have floored pricing, and use universal service levy to maintain it.

A: [Milne] Could experiment with geographic de-averaging. Operators don’t tell us exactly how unprofitable it is. Allow prices to diverge, increase range of operator investment options. Start with a 10% range.

Q: [London School Economics] What would a consumer’s charter look like if written down?

A: [Milne] Not an original idea. Some of he places that have them include California and Australia. May not be role models, but do work. Somewhat new.

Q: [BT, but talking as a consumer] Personal experience of contract complexity. Get drawn to the bits you want to see. Kids see “free texts!” but ignore the price of the calls. How to deal with this?

A: [France] Yes, you are right. Companies could be clearer. Misunderstanding in mobile market around credit limits. Used for company’s benefit, not consumer’s benefit. Phone not cut off when credit limit reached. Paying by direct debit, credit limit rises. Father with three teens needs to know credit limit means something. Should act more like credit card companies who phone you up when there’s unusual behaviour.

Q: [Carphone Warehouse] In a competitive market in consumer space, good customer service. Price comparison engine, uSwitch only company in the market. Which? soon providing similar service. Are these meeting the need? What is really expected?

A: [Mochan] Will consumers know what the bill will look like at the end of the month. Can’t find out before then. Have to wait. Doesn’t relate to how the individual thinks of it. Minutes aren’t the value that’s in people’s heads.

A: [France] Some of the more recent fixed and mobile products trying to be simple, but still gotchas like non-geographic numbers. Websites very hard to search and navigate.

A: [Milne] Haven’t yet seen a mobile site that can let you move over your existing phone. Always assume you don’t have one, need a new one. Needs more flexibility. Companies not willing to tell you what’s the best package for you based on historical usage, and certainly don’t do it automatically. Operators know who their markets are, but it can be hard to know if you’re really the one being targeted.

Stephen Carter, CEO OFCOM
Update on Strategic Review

[He really talks fast, so apologies for errors and omissions.]

Telecom can be dry. Communications Act – lots of interest when TV (ITV regulation), not when debating the telco bit. Telco only gets attention when it goes wrong: pricing scams, networks down. Few people care about the success or otherwise of telcos and infrastructure. Public, media and analysts view telecom as a utility sector, very different from late 1990s.

Risks and rewards in telecom are not that of a traditional utility. More of an “Ow!” factor than a “Wow!” factor today, though. Culture and creativity will remain, but in 10-15 years we hopefully won’t need full-day conferences about telecom regulation.

Predecessor regulators left a hostage to fortune in saying sector-specific regulation would go away, e.g. RPI-X price regs for BT. OFCOM has 3 other statutory reviews under process, and this was an extra one. Surely EU regs comprehensive enough, some say? Became apparent this wasn’t the case, only had high-level principles and a toolkit. Didn’t have detailed UK analysis, identification of real competition barriers.

Also needed review because of technology change in network architecture. BT potentially ahead of other countries. Discussion of topology of networks confusing. Transformative changes. Bigger than that of analogue to digital TV which gets more public attention.

For all of regulation efforts current structure of fixed line access not sustainable.

Three options: 1. Regulatory forebearance, use ex-post regulation; 2. Referral to competition commission for structural review; 3. Open and equal access.

Second option is not a bogeyman to force BT cooperation. It’s a real possibility, and designing how process would operate.

What are attributes of a functioning market? Prices down, poor quality service reduced. Remain important concerns, but consumers also want innovation, diversity and choice. Many flavours of voice product, platforms; quicker, more portable. Should we focus on promoting competition, not consumer protection? Law says competition is only a means to an end. But believe only a market based on true competition can deliver what consumers desire.

Could in theory intervene directly. But too hard to permit innovation while doing this.

Have in 20 years had a period of managed duopoly; then access competition; then [retail?]. Ideally would be scope for competition at every level: service, access, core. Competition issues in mobile an order of magnitude less than fixed. Why?

Tried a similar approach in fixed market with competing access infrastructure (cable) with expectation of wireless to come on stream. Could discuss what might have happened if this had been pursued more aggressively, but have 50% coverage. See no imminent likelihood of same UK coverage of cable as USA, Netherlands, Belgium.

OFCOM enthusiastic about wireless, but not sensible to predicate basis for competition on technically and economically unproven technology. Spectrum liberalisation to speed this up.

BT’s access network will remain a natural monopoly and bottleneck for near term. Need continued regulation. Core network more competitive.

Hardly headline news. Proposals are more than old wine in new bottles. Principle of no undue discrimination will be made more effective in its practical operation.

Regulation itself has impact on competition. Several phases of regulatory approach, causing different business models and regulatory dependence. Conflict of regulatory dependencies, and then regulator makes incremental changes to keep everyone happy. Rewards to scale that market would naturally deliver don’t arrive. Instead have fragmentation. Regulation as much part of the problem as the solution.

Preferred choice is equality of access. Product equivalence, and equality of access.

No ultimatum to BT. Changes to behaviour and governance would flow from structural and procedural changes at BT. BT mandated to come up with its own suggestions, as an expert in its own structure.

Product equivalence has attracted less attention, despite being more important. Differentiate from equivalence of inputs and outputs. Prefer the former, but not possible for some legacy products because of cost. Wholesale line rental an example. We’re five years into this already.

Need to move wholesale regulation upstream of bottlenecks. Not into horse trading with BT. Deregulation justified on a stand-alone basis.

Regulation creates uncertainty, and that repels investment. A review of BT’s 21CN plans. How to regulate prices of that.

Little prospect of new access networks against copper. Costs should be set against cost of new network build. Will not artificially price to encourage new networks that are unlikely to materialise.

What if BT can’t deliver (which I don’t believe will happen)? Much of the access and product equivalence can be delivered by existing statutory powers. But to impose these would be painful, product by product, market by market.

Analysis suggests endemic problem of BT control of bottlenecks. Best if Enterprise Act [i.e. BT demerger] used rather than trench warfare.

Will need to time to avoid likely UK election.

LLU in UK. Was dead in water, IPStream working but complaints, DataStream pricing wrong. Approached from a strategic standpoint. Not to create short-term arbitrage, but strategic approach. New adjudication structures.

Don’t want adversarial approach to BT. Believe BT wants competition to grow pie. Smaller slice of larger market. Some human error, but organisational commitments. BT deserves credit for retail BB take-up. Wholesale a different game. Need deliverable KPIs. “Right first time” and “throughput”. Former at 65%, should be 95% by March. Second is order processing. Have milestones.

Increased LLU competition means BT could geographically de-average DataStream product. Incumbent can disrupt market by announcing pricing plans, create uncertainty for other operators using LLU.

Universal service for BB? Political stakeholder interest. We’re a long way from this. A matter for government. Can take two forms. Obligation to ensure availability to all through subsidy. In OFCOM view, no justification as BB penetration below 20% so no exclusion of the poor. Was a hot political issue, less so now. But a mistake to believe universal coverage of low-megabit BB is good enough. Should have more focus on BB and less on TV broadcasting following the election.

Q: Elaborate on broadcast vs IP distribution.

A: Have legitimate concerns about move first to digital TV broadcast and then to IP distribution. Currently outside remit and powers.

Q: Aren’t regulators opposed to averaging of costs and returns? Won’t we have micromanagement?

A: Yes, to get out we might initially need to get further in. Supposedly "light touch regulator", but not sure what it means. More merit in being a strategic regulator than a microregulator. Sometimes need to get deeply involved to make right decisions and then get out of the way. Tensions between operators here in ensuring integrity of tariff models. Balance with competitive concerns. Preference is self-regulation wherever possible. Works better in some markets than others.

Q: Only took 5-10 years for mobile to go from nice to mass. How long does BT have before argument diluted by new technologies?

A: Don’t know – ask BT. Can extrapolate current 60k BB connections per week. Would contest 5-10 year outlook – took Vodafone 10 years to get 1m customers. But accept broader point. Took 3 years to get UK bill, 4 years EU, 18 months for OFCOM to find its feet. If I know what the winning technologies were I wouldn’t be doing this job.

Q: [Wanadoo] A climate of consultation now. Most telling is with NGN in BT. More than anything illustrates need for regulatory contract and settlement.

A: All this will add to nothing if we don’t get 21CN interconnect regime right. Knowledge asymmetry between regulator and regulated. Demands a level of engagement from incumbent player.

Q: To what extent will radical change of 21CN drag us back to regulatory trench warfare?

A: Hasn’t happened yet, opportunity to build in processes and systems at point of conception. Rather than build obsolete transient OSS and BSS systems, focus on getting next generation right.

Westminster eForum Session 1 Notes

Today I'm at the Westminster eForum just round the corner from the Houses of Parliament in London.

It’s a public policy forum to liaise between government and industry. About 98% of the attendees are in suits, and I'm in full blogger uniform. You'd be proud. I'm also the only person of well over 100 with a laptop! This isn't an audience at the cutting edge of technology, I sense. It’s also the traditional non-interactive conference format with panels and keynotes. Apparently all the wisdom is in the speakers and we’re only here to absorb it. Oh how I wish for a backchannel screen to write rude comments and talk about Skype while the BT CEO is talking later on!

What you wouldn't be proud of is the Wi-Fi access, which costs GBP5 for an hour using a scratch-off card. The cost is almost of secondary issue to me than the inconvenience of not being connected all day. Just let me pay, man!

These notes don't capture everything, as they plan to issue a transcript. Just enough to capture the essence and give some context to my comments and ideas.

Alex Blowers - Head of Policy Development, OFCOM
Shape of 21st century telecoms regulation

For US readers, he is the equivalent of Robert Pepper at the FCC.

OFCOM - criticised for being starry-eyed on technology, but remain enthusiastic. Massive increase in consumer choice and expectation

Looked at a range of technology scenarios, selected the likely ones. Aimed for a "Regulatory Settlement". Re-focus regulation on core problems of enduring economic bottlenecks. Regulate a few things effectively rather than many things badly. Create more clarity and incentive to invest.

Demand side needs to function, not just supply side. Telecom is a complex market, difficult to understand. Consumer info may not be transparent and comparable.

"May be weak demand for the services may be offered on next-generation broadband access networks." [Hey, Paradox of the Best Network, man. The network owner won't be the one offering the services or price discriminating._]

Should we have BB universal service obligation? Too early to say.

Matthias Kurth, President RegTP (German federal regulator)

Different inter-modal competition scenarios in different countries. Have to avoid being technology-specific, as too hard to predict technology outcomes.

Have a telco competition imbalance. Lots of backbone competition -- too much! Bridging the last mile and incumbents unsolved. [POTBN! Price discrimination is at the retail edge.]

LLU in 1998, slow start, now 2m lines. Fair pricing model, cleared abusive technology practices. Unbundling works, particularly in cities. Others have failed because [they screwed it up, reading between lines]. Rural/urban issue created.

Structural separation, can divide in the wrong place. Example of US local and LD separation. Cleaved the technology in the wrong place, although mismanagement too.

Price regulation can still have a role. Dumping cases, false pricing. Some ex post control also needed.

Regulation should be predictable. Evolution of regulatory strategies, not revolution.

Clive Ansell, Group Strategy Director, BT

BT has an issue in addressing strategic review. Afraid to write something down in case it gets "trousered" -- becomes fixed. Want an open debate. [This is all a bit cryptic. He’s having an indirect dig at OFCOM, I think].

Phase 2 regulation proposal from OFCOM. A paradox. UK has satisfied customers, choice, low prices. But the future is so dire we need to look at structural change to BT! OFCOM wants more large competitors to BT, own networks and services, less BT resale. Obstacle is lack of confidence that BT will supply right form of wholesale access at right form and right price.

Want to move from service-specific networks to one IP network (NGN), alias 21st Century Network for BT. A proliferation of innovation. 21CN will be expensive to implement, as will competitors' networks. Confidence is an obstacle to BT. OFCOM can provide stability. Controlled and phased implementation, clear and verifiable conditions all can understand.

"Cost of Copper Study" and "Cost of Capital Study". Somewhat abstruse. Confidence can be undermined unintentionally. OFCOM believes cost of capital should fall because risk is falling. Disagree. Not seen in context of strategic review. How can we afford to invest if returns won't be hoovered away by some future change to cost of capital?

[WTF has this got to do with cost of legacy network? Shouldn't 21CN have a stand-alone business case? How can the public be sure BT will not to a Verizon, and will follow through on the investment funded by price rises?]

We say BT Retail doesn't have preferential access, others disagree. Need to transparently need to demonstrate. Plan to clear the air on future portfolio, plans and pricing.

AT&T broken up because had perfect lawyers and compliance. Everyone instructed what to do. Then an unthinking executive wrote in minutes "screw the bastards!". So people believed they didn't really mean it and wouldn't be fair. BT commitment to not just superficial compliance. [Stop giggling down the back, please. BT is warm and cuddly, really.]

Objective of OFCOM should be an outcome. 10s of thousands of service providers meet millions of customers over multiple service platforms. [What’s a service platform? Windows? Why can’t we talk about connectivity separately from service?]

Paul Franklin, Group VP Regulatory Affairs, Orange

Mobile in good shape. One newspaper said mobile phone market ignored in OFCOM Phase 2 review. Wasn't ignored -- just noted 5 competing operators and 7 MVNOs. Competition exists, and is a success. [True, but only framed within an enclosure of the commons model of spectrum.] Prices falling fast. Everyone who needs one can have a mobile phone. 3G is here. Offers fast access to email, entertainment, and video.

Review should focus on aspects of market where bottleneck has not been fixed -- infrastructure competition cannot or does not exist. Ultimate goal is withdrawal from regulation. But OFCOM doesn't go far enough. Doesn't have complete faith in market forces, and keeps powers in reserve. People want certainty, and the one thing certain about the mobile market is competition. [Oh boy, just wait until people want open spectrum or underlays for meshes, and see how they scream for regulatory interference!]

Consumers coming to expect BB everywhere. [Blah blah.]

Questions

Q: PPL, Music industry: Need investment, last mile. Difference between mobile and fixed; music has similar investment issues. Downloads still a tiny revenue stream. Consumers think everything is free on fixed, pay on mobile. Comments?

A: OFCOM: OFCOM interested in business models for content, not to interfere and justify existence. How content creation happens across platforms, issues and barriers to new business models emerging. Need more work and analysis. Looking at merging business models on various digital media platforms as a learning exercise. Just research to move forward body of human knowledge. Don't want to take a premature view [i.e. you’re f*ck*d mate, and we can’t help you].

A: Orange: Mobile by its nature covers an area, fixed goes to a single point. Fixed -- more services over same infrastructure, displace other access structures already paid for. Mobile they are being built out together. Fundamentally different economic models. [Still the POTBN to face, though.]

Q: Wanadoo: 21CN, BT CEO said the more it facilitates competition the bigger the risk to BT, thus the higher the permitted returns. What's German view? Is it a legitimate position?

A: RegTP: Keep hearing that incumbents will only invest if regulation looser, prices higher. Michael Powell argued this. Have cable investment, different technology platform. Doesn't work everywhere -- Wyoming, some of UK. Black spots where intermodal is not feasible. [Community nets and meshes don't exist, folks. You're imagining things.] Have to avoid re-monopolisation. Playing with fire to follow these arguments. What is a fair risk? Should you have a premium? Would instead argue for LRIC cost model. Interest rate with own capital higher than bonds, a premium. Look to electricity and gas, different risk factors. Is possible to solve. Incumbent does then have confidence.

A: MP: Should BB be an inalienable right? Not yet at the level of gas and electric. Moving that way.

Keynote - Peter Rodford, European Commission

Sit in regulatory directorate for e-communications. [Describes org structure.]

Lisbon Agenda -- heads of govt set out plan to increase European competitiveness. Telco part of this. EUR800bn for ICT, growth of sector about 4.5%. Overall economy about 2.2%. Relative growth. Fixed growth 11.5%, mobile 7%.

[Seriously dry presentation, lots of stats and charts.] Fast penetration growth. Correlated with infrastructure competition.

Technology-neutral regulation. Keep regulation done by national regulators. Aim to eliminate regulation and eventually move to just competition law. 4 member states have failed to adopt primary legislation, 8 still need secondary regulation. Infringement proceedings in the offing.

“UK transposition substantially completed”. Overall positive impression of Ofcom. Create approach. Checking UK law is in conformity with EU law.

Where state has a shareholding have conflict of interest, need to separate interest of shareholding and regulation. Calls into question full independence of national regulator. Sometimes legislation doesn’t provide full powers that it should. Lack of appeals mechanisms.

12 member states haven’t even started their market reviews; 13 have.

Specifically mandated that national regulators do not regulate market participants without market power. Emerging services should not be regulated.

Structural separation: what happens if wholesale side decides to offer retail services?

EU framework tries to think in terms of services, not networks. [Uh, oh – are they assuming smart price-discriminating application-layer services tied to networks? The term “services” is too ambiguous. The incumbents can get away with things because the regulation isn’t horizontally layered, doesn’t even have the language to talk about it.]

Universal service issues. Want to minimise distortion.

Not currently reviewing spectrum. [Isn’t this the biggest burning issue – your freedom to connect is massively impaired if the one user-built network option is foreclosed!]

American Spam & Spoil

I can't remember where this bookmark came from, but it's worth a passing comment.

It's an interview with the CTO of AT&T, Hossein Eslambolchi. Once you get past the hagiograpy, there are really two things of note. First, AT&T are really proud of their ability to cut costs. Shrink your way to excellence! A standard part of today's telco repertoire.

More interestingly, he hints that they see value in future in creating a "secure" network:

Mr. Eslambolchi is also pushing engineers in Bell Labs to develop software for computer firewalls and security systems that detect viruses days before they attack a corporate client's servers.

In other words, they add value by throwing packets away. According to the Freedom to Connect conference agenda (my emphasis added):

Freedom to Connect begins with two assumptions. First, if some connectivity is good, then more connectivity is better. Second, if a connection that does one thing is good, then a connection that can do many things is better.

Whilst this appears to be self-obvious, and I would hope this is true, I'm uncertain as to whether we have such evidence. As I have mused on previous occasions, it is possible that there is a Paradox of the Paradox of the Best Network, and that value does not always increase with more pervasive and frequent connectivitiy possibilities.

My only hope is AT&T's "dumb for packets, smart for antipackets" network will preserve the end-to-end principle by allowing end users to opt out of any and all filtering. Some chance!

The second assumption is also not a slam-dunk, as described in the Good Experience blog:

Barry Schwartz is the author of "The Paradox of Choice," an
outstanding book just released in paperback [...]

He spoke with me about the paradox of choice and how it affects the customer experience.

Q - What is the "paradox of choice"?

Everyone agrees that having choice is better than not having choice. It seems evident that if choice is good, then more choice is better. The paradox is that this "obvious" truth isn't true. It turns out that a point can be reached where, with more choice, people are worse off.

People can't ignore options - they have to pay attention to them. If they make a choice, is there another choice would have been better? There's more effort put into making decisions, and less in enjoying them. What's nagging is the possibility that, if they had chosen differently, they could have gotten something better.

The existence of RFCs etc. to define standards that are hard to deviate from helps to collapse choice. The user may have many email clients and servers to choose from, but only one email system. So the flexibity of the network and an "excess" of choice get eliminated by natural mechanisms. But there isn't any inevitibility to this process, and you wonder what markets and communications tools have failed to achieve mass adoption simply because of an inability to congregate around a smaller set of user choices.

Boxed in

I was strolling down Holborn in London today when I spotted this phone box:

Now Internet phone boxes have been around for a while and aren't anything new. What really caught my eye was the marketing message:

(For family viewing the, um, racy calling cards of local ladies at the forefront of British service industry are just out of view. Why they waste their effort soliciting the upstanding senior criminal lawyers who occupy the exclusive offices in Holborn, I can't imagine.)

Anyway, use this Internet phone box to conduct hotel, tour and ticket transactions and you won't be explicitly charged for the connecivity. It's a simple extension of the 0800 freephone model for the 21st century. To the extent that connectivity is scarce while mobile (another day's rant!) it makes sense. BT differentiates itself by raching the parts other telcos can't reach.

I guess what BT is heading towards is a "transaction terminal", a bit like a general-purpose ATM. Even if you have a 3G mobile, the restricted user interface makes complex on-the-go transactions painful. Finding an internet Cafe is probably overkill, and typing "hotel london" into Google is likely to get you pages of unhelpful fruits of search engine optimisation. BT have done the legwork of selecting a trustworthy partner for you. You know it won't be cheap, but equally it won't be a fraud. A nice extension of their brand.

It also fits with the core business model archetype of "distribution" for telecom. It extends the geographical reach of certain transactions. The application-layer equivalent of putting cellular relays in the subway tunnels.

I can't help but notice they haven't learned from Verizon's deployment of free Wi-Fi in New York phone boxes for their landline subscribers. BT seem to be missing a simple trick here to leverage their subscriber base -- maybe there's some refulations in the way I don't know about.

But what really fascinates me about this is that it seems to illustrate a trend. The Paradox of the Best Network suggests that over time you will be forced to run an ever stupider and less profitable network. If so, then any profit is likely to exist in adjacent industries. For instance, consider James Enck's long held views on telcos and advertising. Since telcos with stupid networks and similar coverage/services can't differentiate their offerings easily, and don' want to compete on price, they turn to Madison Avenue to try to separate out the market.

As the maws of the Paradox close, increasingly the money's in the blue jeans and picks, not the network gold mine. BT becomes a distributor for travel services, with an eye to extending to other markets if it plays out well. They could even be buying dumb pipe connectivity from a third party. For once, I'm quite impressed.

Can done

Today I was at the CANdo colloquium in rural Lincolnshire.

This was a well-attended gathering of over 30 people actively building community access networks in the UK.

As it's past midnight, I have a plane to catch in the morning, and I still need to re-pack, I won't spill the beans yet. But it was an interesting meeting, and I took copious notes. Watch this space.

OPINION://Arranging atoms

This extended essay is an edited version of some posts I submitted to a private email list. I thought I'd share them with you as the questions raised are important, and it's a debate worth having.

There's a gaping hole in our understanding of telecom. A yawning, jagged, iceberg-sized rip in the fabric of our knowledge. We've no idea how the world of bit-shifting interacts with the world of atom-arranging. How do telecom and transport substitute or complement one another?

This is kind of important. Trillions of dollars of immobile capital infrastructure are at stake if we misunderstand the relationship between physical and virtual transport. Would uncontended gigabit connectivity everywhere make cities' populations explode or implode? What if all those freeways to the suburbs become roads to nowhere (ever more than they are now)?

Substitution and elasticity, an introduction

Many have claimed that slightly counter-intuitively, telecom and transport are complements, not substitutes. For example, cyberguru Andrew Odlyzko writes (p10):

While telecommuting and videoconferencing are likely to grow, that will not reduce road congestion. There is this strangely persistent myth (which I have traced back to the 1830s, and its origins are surely even earlier) that telecommunications and transportation are substitutes for each other. They are not, and are in fact positively correlated. Hence we should expect growth of travel at the same time as telecom usage is booming.

I'm not sure if this is always true. The exceptions to the above claim might be important for how our human geography changes.

Three definitions that enable us to have a meaningful debate. Income elasticity is how the fast consumption of a good varies with total income. Price elasticity is likewise, but for price. Price cross-elasticity is how the demand varies with the price of some other good. It is the direction of the cross-elasticity that defines whether a good is a complement (guns and bullets), or a substitute (guns and crossbows).

Reasons to be suspicious of the claim

So why should we doubt this claim about telecom and transport being complements?

Firstly, correlation isn't causation. After all, the stork population of Denmark apparently tracked the birth rate rather well for a long time.

There is also a misunderstanding what substitute or complementary goods really are, in the technical sense. The positive income elasticities of travel and communications may swamp any substitution cross-elasticities in a period of rapidly rising incomes. This is to say, the effects of getting richer outweigh the effects of getting relatively cheaper. Trending over time isn't enough to separate out the cross-elasticity from the income elasticity.

Indeed, it is not uncommon for goods to have opposite price and income elasticities, and in the extreme this can lead to the paradox of Giffen goods where consumption actually rises with price at the same time as real incomes fall. Telecom might possibly be such a good; it would be very exciting if it were demonstrated to be so, since real examples are rare to non-existent. It would be interesting to track the price and usage of telecom in places like Iraq where 20%+ income falls are the norm.

Secondly, we're only just beginning to have telecom of a grade where the sense of "being there" resembles in any way a substitute for actual travel. There may be a point in the graph where past relationships break down. We could sub-segment our market into "travel for information exchange" vs. "travel for sense of presence", and might find substitution occuring in the former already, and the latter impending.

Thirdly, there may be a hysteresis effect. Telecom and travel have large fixed capital assets, but telecom has low operational costs. Rising incomes stimulate telecom demand in a virtuous circle. But falling real incomes don't make the infrastructure go away, and the low operational costs of telecom may indeed cause substitution. This scenario would be in play following a large oil price shock.

Fourthly, we can also see limits to growth in travel that don't exist in telecom. If there are complements, travel is going to run out of runway:

• Some travel is a fixed in supply for physical or historical reasons; only 100,000 people can ever squeeze into Princes Street in Edinburgh to see the fireworks at New Year. Be the 100,001st and you won't have a ticket, so you won't see much, and won't bother going.

• Some travel may be a positional good. If the Queen Mary was the most luxurious liner, there was only one state suite and one state suite occupant. The whole point of the state suite was to announce you were top dog. Build a second one and there's no point to it. No telecom good I can think of is positional. We're not making private tropical islands any more, as Mark Twain might note. But we are laying new fibre.

• The physcial environment can't sustain infinite footfall. Meshes have no theoretical throughput limit. Rationing of campsites in national parks is already a norm. Spectrum has usage allocation, but landline connections don't. So there are limits to growth in volume in travel and transport; the limits in terms of value are harder to discern. At some point out correlation with telecom is going to peter out, and that point is not unimagineably far away.

Meaningful debate needs meaningful terms

Lastly, and most importantly, "travel" and "telecom" are not necessarily single monolithic things that can be meaningfully reasoned about side-by-side. Travel comes in three broad forms, each of which has different price, income and cross elasticity. The three forms are "travel as producer transport", where the travel is incidental to your producing some other economic good; "travel as consumer transport", where it is incidental to consuming other goods and services (e.g. shopping or restaurant visits); and "travel as consumer application", where it is an end in itself (e.g. going to Greece on vacation).

These last two are clear telecom complements via e-commerce and social computing. Travel incidental to consumption is only substitutable to the extent that the desired end good or service can be replaced by an information good. But Zagat restaurant guide isn't much of a replacement for a real dinner, so this isn't normally the case. Information goods are normally deficient substitutes for physical consumer experiences. Plus there's no real telecom substitute for actually standing in the Parthenon. The income effects of better information and network technologies swamp the price substitution effects anyway. The more you earn the more you travel to consume, regardless of marginal price substitution of travel and telecom.

The exception case is "travel as producer transport". This appears to have unusual and interesting price and income elasticity curves, which may contradict the claim that travel and telecom are complements.

At the very low end the ability to travel at all is a status symbol. But for the worker classes in developed countries, people have to be paid to commute or stay in business hotels because it is boring and unpleasant. Every management and IT consultant out on the road whinges endlessly about the travails of travel. The inconveniences of being an oil explorer or truck driver generate premium wages compared to comparatively skilled occupations. You only seek to spend time with work acquaintances in inverse proportion to having a real life. But go a bit higher up the income scale and the boss will stay at the head office while the salesmen run around the client sites. At the very high end, you want to show off the executive jet, and travel becomes desirable again. This makes for a strange, wiggly income elasticity curve. Substitution may occur in patches.

To make a higher personal income you need to specialise, and that means your contacts come from a smaller global pool that you're more likely to have to travel to meet. So as incomes rise people are obliged to do more of it despite its increasing unattractiveness with respect to leisure alternatives. It's a hard call on as to whether commuting and business travel is an "inferior" good (negative income elasticity -- willing to pay less as income rises).

Does substition exist?

Thought experiment/sanity check: if we had universally accessible and perfectly immersive VR meeting and presence systems available (i.e. a huge drop in telecom prices), would business people, consultants and workers travel as much? Probably not, unless there was a free lunch involved. So these appear to be price substitutes, not complements, when you factor out income effects.

So we can at least dream of a case of substitution occuring, as an existence proof. In my mind I already have several more concrete existence proofs of substitution:

• I used to have to physically travel to support the IT systems of some banks because they did not offer dial-back modem access for doing telnet. Cheap connectivity makes me less likely to undertake such journeys. So we've passed an early milepost.

• I've seen someone make a plane journey to pick up install CDs because transfer over a modem was too slow, and the cost of getting fast network access too high. Still a nuisance, which is why we get DVDs from Blockbuster as well as BitTorrent. Cheaper connectivity = fewer trips to the video store.

• And the textbook example, too: I'm visiting a client in the US this week. They happen to also be building a state-of-the-art video conferencing suite near London. I might not be flying if the completion date for their own video conference centre wasn't 2 weeks after the meeting. But without cheap connectivity, I'd be burning kerosene regardless. (Remember folks, price cross-elasticity does not equal income elasticity.)

Much business travel is very mundane and once you've established an in-person rapport the only reason for continued physical presence is because today it's too darn hard to mimic a whiteboard and manic arm waving using NetMeeting. Even eye-to-eye sales can see substitution: you get telemarketing calls trying to sell you double glazing as well as door-to-door calls. Changes in the prices of oil and phone calls would change their relative demand. These may be complements and substitutes in different situations. But when? I don't know.

Price shocks to test cross-elasticity

Suppose we anticipate a two price shocks. The first is a massive universal decrease in the cost of connectivity because of cheap long-haul fiber and user-built municipal meshes. Everyone gets a zillion-dollar OC-192 into their home for ten bucks a month. This would probably greatly erode the desire to commute, reducing the attractiveness of central business districts and increasing the wish to live in smaller towns near to recreation and shopping facilities. So your billion-dollar fixed public transport network with a hub-and-spoke architecture might be a waste of money. Or in other words, y'all move to the Red States.

The second possible price shock is a calamitous increase in the cost of travel because of the hypothesised Peak Oil effect and lack of scaleable energy substitutes. (The jury's still out, you make up your own mind.) This will have a large negative income effect on society. This might greatly increase the demand for business travel as people strive to reclaim the former income levels. The effect on telecom depends on whether it turns out to be a Giffen good -- to me, an open question. The price effect of a substitute good (business travel) rising in cost might boost the demand for telecom. Who knows - it's hard to tell which effect wins. But the Blue States look like nicer places to live in this scenario. (If you're broke and homeless, at least you can sleep with the beautiful people.)

Conclusions

The separation of the "tele" from the "com" suggests we should be looking separately at the layers of the architecture. That means considering the information services separately from the bit haulage. What's the price cross-elasticity of going to NASCAR races with car-racing TV shows and video games? And will that have the same effect on connectivity demand? I suspect the answer is we know even less at this level of detail than we do at the aggregate level.

As Andrew Odlyzko also observed (p8), nobody's ever properly studied and documented the history of price discrimination in network industries.

There is no definitive treatment of the history of pricing in various network industries. Even some basic questions, such as the nature of the "just price" doctrine of medieval scholars, are still being debated.

Unfortunately, I've also yet to see a good model for how telecom and travel are related, which might cost us dearly in the future. This is despite it being the core motivator for (at no exaggeration) trillions of dollars of annual economic activity. It would be no surprise if we were equally in the dark about telecom and travel cross-elasticity.

If someone isn't working on a PhD thesis in this area, they should be.

In conclusion, (i) blanket statements about how bit movement and atom movement relate are unlikely to be valid, (ii) even given our low level of knowledge, there are likely to be significant (read: "billions of dollars") local substitutions as incomes and relative prices vary, even if globally aggregated data hides those (iii) the interesting problem is finding under what circumstances information goods substitute or augment the consumption of physcial transport, and, (iv) there's a lot of money riding on this.

Get connected

I notice that David Isenberg has just launched the registration for Freedom To Connect, this spring's communications policy and technology tribal gathering in Washington DC.

Every event David runs that I've been to is a bit like taking a red pill and seeing the world rather differently. Unmissable. See you there.

Put that phone down!

We were Skyping my in-laws this morning when I suddenly noticed another way that the traditional phone network has brainwashed us about how telephony should work. My wife wanted to tell her parents that she was coming on a surprise visit tomorrow while I head off to see a client in the USA.

Someone called my father-in-law on his cell phone while my wife was talking to him. As an artifact of two disconnected voice systems, we could hear what was going on, and could pick up the conversation easily afterwards. Unlike putting a call on hold and us hearing silence, we could have interrupted the caller and said we're off. But there's no "asymmetric 3-way calling" feature on the PSTN, where existing family calls take priority over outside interrupters, can hear both of the other callers, but can be heard by only the first caller. We should be treated as if we're in the room with my in-laws. Putting us in the telephony equivalent of a sensory deprivation tank doesn't make me feel like I'm in the virtual family home.

When she had finished talking she didn't end the call. In fact, at first I hadn't realised they were still connected when I barged in. I guess grandparents enjoy eavesdropping on the everyday lives of their sub-offspring. "No, that's daddy's -- leave it alone on the table." And then you hear a cough from 1100 miles away through the PC speakers.

So, the finish of the conversation wasn't the end of the call. But why isn't the converse true? Why does ending the call finish the conversation? Why can't I just re-open the audio channel to Vilnius whever I like? Why does anyone have to "answer" a call? Why can't I just call out "coooeee! you'll never guess what your granddaughter just did!" whenever I can hear they're around?

I want something more like my late grandmother's set-up at home. Her farmhouse was attached to my uncle's house, with a doorway through the kitchen between the two. Sometimes they wanted privacy and the door was shut. Sometimes they just called through the portal. And sometimes they went into each other's houses. Skype should be my virtual door into other places. Telephony as worm-hole and time-tunnel.

So despite the plaudits Skype has deservedly received (if only for ease-of-use), it's still partly trapped inside pre-conceived ideas of what telephony is and what it should do. We haven't yet seen what the stupid network is really capable of.

Blue screen of brain death

I really dislike watching TV. I went cold turkey in 1989 when I went to university. Before that I was a certified TV addict, receiving the standard-issue dose of BBC 1 and 2 each day, with some dabbling in Channel 4 at weekends. (I gave up video games too in 1992, and now just watching Half Life makes me feel motion sickness, and Tetris gives me the trembles.)

What really turns me off is the linear nature of TV, the lack of control, and the emotional manipulation. I feel like The Gimp, trussed up and passively ready to please.

Anyway, there's a whole bunch 'o stuff on mobile and IP TV today. Here's the nuggets. First up, The Economist, with a very straight-laced report on the telco roll-out of wired and wireless TV:

There is going to be a tremendous amount of turbulence, driven by the convergence of telecoms, television and media,” says [Andrew Cole, of A.T. Kearney].

Uh, oh. 501 Bad Concept Error. See here for what I think about "convergence".

James Enck muses that Sky TV's hook-up with Blinkx search technology will make viewers aware of the more interesting peripheral content around the packaged TV shows, and draw attention away from the TV:

Looks like the TV industry is warming up to internet distribution models, though, bear that I am, I have to question whether this will generate incremental viewing, or in the case of subscription services like Sky, will mark an incremental step towards pushing viewers away from the core TV offering.

Next in our star lineup, via Arts & Letters Daily, is a long essay on why personalised media (TiVo, iPod, etc.) is destroying the cultural value of art, devaluing shared experience, and stultifying critical thought:

In the process we are encouraging the flourishing of some of our less attractive human tendencies: for passive spectacle; for constant, escapist fantasy; for excesses of consumption. These impulses are age-old, of course, but they are now fantastically easy to satisfy. Instead of attending a bear-baiting, we can TiVo the wrestling match. From the remote control to TiVo and iPod, we have crafted technologies that are superbly capable of giving us what we want. Our pleasure at exercising control over what we hear, what we see, and what we read is not intrinsically dangerous. But an unwillingness to recognize the potential excesses of this power—egocasting, fetishization, a vast cultural impatience, and the triumph of individual choice over all critical standards—is perilous indeed.

You'd think that someone in the teleco product planning departments would have got round to reading Content is not King by now -- they've had four years to spot it. Why the sudden rush to deploy the dying medium of TV? As major league baseball demonstrated, you don't need a carrier or TV network's blessing to distribute premium video content.

Let's put these trends together. What I'm thinking is that there's a possibility that TV is the next smoking. It just happens to cause death of the brain, not the lungs. Losers watch TV. That TV is crap will become the received wisdom. Cool people don't watch TV. Giving TV to young kids will be like smoking during pregnancy. It happens, but it's shameful. Anyway, British kids are too busy taking real narcotics and shoplifting to have time for TV.

Video killed the radio star, but the Internet won't kill the video star. Fashion will.

Persistent presence problems

Here's another presence problem. I have two Windows PCs at home, a desktop and a laptop. I sat in front of the desktop this morning to eat my muesli and read the news and e-mail. I then powered up my laptop to edit a client document and mail it off. The laptop was then shut down. Now I'm back at my desktop PC.

Guess what I can see? Each IM client has a window telling me I've been logged off because I logged in somewhere else. Bloody useless! I'm BACK! HELLO! Why not just register my presence wherever I am?

Has nobody at Yahoo! or MSN ever actually studied how people use their products? Methinks not.

Giving birth to a new Internet

For those unaware of the effort, I thought I'd point out the existence of an interesting research facility called PlanetLab. In a sense it's the next generation of clustering or grid technology -- the ability to harness overlays of computing power to create virtual distributed computing resources. Somewhat confusingly the name PlanetLabis used to refer to all three of the following:

• the overall project they are running,
• the technology they are developing, and
• a few hundred servers scattered around the world running some neat virtualisation software.

There's a stupid network spin to this. Instead of the stupid network connecting smart devices, it ends up connecting smart virtual devices. What that means is that the next wave of decentralisation is being hatched.

The Internet grew from the ARPANET et al. Planetlab is to Internet Mk2 as ARPANET was to Internet Mk1. It's an embryonic version of a future phenomenon. Let's say PlanetLab is commercialised, and also grows like the Mk1 Internet. Taken to an the same extreme, you can imagine there wouldn't be data centres filled with expensive fire supression systems and redundant power supplies. You just smear your data and processing across the virtual computing environment and let the natural redundancy of the Internet deal with the consequences of danger and disaster.

So if you're looking for futures giants of data storage or application serving, it'll probably come out of an initiative very much like this. Instead of hording data processing or computing power behind the corporate moat, the next iteration will turn that world inside out -- the power will truly be at the edges. Some of the winners of the first waves of client decentralisation (Sun, Oracle, BEA, etc.) are likely to be hurt by this wave of server decentralisation. Probably too early to rejig your portfolio (and too late if you hold Sun stock). But one to watch.

Imagine if every corporation you dealt with had to store your data in a virtual data store under your own control? I look forward to the day!

UPDATE: Take a look at this excellent summary of the state of play in distributed content distribution. We really are in the midst of a huge technical and social change. Three massive shifts, one after another -- many-to-ones (the Web), one-to-one (VoIP) and one-to-many (P2P). Each displacing whole industries in the process, and creating new ones previously unimagined. All enabled by Stupid networking. What a time to be alive!

Presence problems

Time for a rambling rant on the failures of presence.

I've just upgraded to Skype 1.1, which has the little pop-up presence indicators in the bottom right of your screen when buddies come online and offline.

I also have Yahoo! IM. Some people (like my parents) are on both. We use Yahoo! for the webcam and general IM, and Skype for talking.

But now I get a blizzard of presence notifications every time they come and go. Not what I want. Sounds like Windows should be doing the job, and mediating all the presence change notifications. Although Uncle Bill would no doubt claim that as I've got MSN Messenger bundled in for free, why would I want to use anything else...

Another problem I've got is that I have quite a long buddy list on Yahoo! IM. Many of these are readers. Much as I love you all, I really don't need to know every time you reboot your PC. But IM programs don't model this relationship well at all. I'm happy for everyone to see my presence and occasionally seek turds of wisdom from me. The reverse isn't true; but I can't turn off notification for selected individuals.

IM is a first-generation social networking tool that suffers much the same issues as the second-generation ones (Friendster, LinkedIn et al). Real social relationships vary across a spectrum from "let's breed babies together" to pop fans, salesmen and spammers. Buddy lists don't really encompass that well.

Since buddies are such a narrow social model, it's a bit of a shame that Skype didn't advance the art in the out-of-the-box product. Buy the genius of the APIs is that other people can. If you want a system to schedule inbound calls, someone else will build it for you. Prediction: Skype will make more money by selling access to APIs than they will from direct consumer revenues.

For an example of what presence in 2015 might look like, I'm sure there's a ton of money in enabling people to feel the "presence" of a celebrity. How much would some people pay to see a real-time feed of Britney's wristwatch heart-rate monitor? You don't think this would happen? Just wait! You'll pay to see a fuzzed-up image and scrambled sound of your idol's kitchen, just to know they're there and reachable. Privacy is a fungible commodity for sale.

I've just slapped a Yahoo! presence icon onto the Telepocalypse home page. But the disconnectedness of the whole presence system we have troubles me. I've no means of advertising it's existence to you in a machine-readable format (unlike, say, the RSS feed of the site, which your reader will pick up automatically). It isn't very extensible or semantic. There's a world of improvement still to be made.

In the long run, VoIP is really a bit of a side show in IP communications. Sending a bidirectional audio stream over session controllers and firewalls is dull, yesterday's news. It only gets all the attention because of the legacy PSTN charges and the fools' goldrush to mine them. Identity and presence are the real stories.

This week we've seen the effective merger of the two biggest Stateside technogear shows: Comdex (the PC world) and CES (the Gizmo world). I wonder if in ten years from now we won't have separate shows like VON and Digital ID World. There will be just two big shows, CES for consumers, and a "picks and shovels" supplier-fest for the components you need to be an IP revolutionary. I just hope someone by then will have fixed my presence problems, too.

OPINION://A wave of discontent

A tragicomic excerpt from Private Eye magazine (a scurrilous UK satirical bi-weekly) neatly shows how computers are not social, and only people are. (The jury's out on the replicants, though.)

The tsunami disaster seems to have gone unnoticed in the Daily Telegraph's advertising department.

Three days after the waves retreated, with the death toll standing at 60,000 and rising and most of the Telegraph's news section devoted to the devastation left behind, the paper's front page was inviting readers to "Have your DAMP PROBLEM solved the clean, green way! Although you rarely see this hidden enemy approaching, winning the war against condensation, rising damp, and mould can prove troublesome and costly, but not with the Schrijver Systeem®."

Over on the paper's website things were not much better. Their "targeted advertising" system, which selects products according to key words in news stories, decided that a suitable accompaniment to the tsunami coverage was an enticement to "relax with a soothing Ocean Waves CD".

Offensive? Not really. Tasteless? A bit. Insensitive? Definitely. Obvious to you and I, but not a computer.

So, do you really plan on trusting your online personal reputation to these same machines? Scared yet?

The stupid network doesn't end at a smart PC, phone or server. These are stupid too. You need a cerebral cortex to be smart. In the original end-to-end paper, the authors almost get there:

Identifying the ends

Using the end-to-end argument sometimes requires subtlety of analyis of application requirements. For example, consider a computer communication network that carries some packet voice connections, conversations between digital telephone instruments. For those connections that carry voice packets, an unusually strong version of the end-to-end argument applies: if low levels of the communication system try to accomplish bit-perfect communication, they will probably introduce uncontrolled delays in packet delivery [...] The natural redundancy of voice, together with the high-level error correction procedure in which one participant says "excuse me, someone dropped a glass. Would you please say that again?" will handle such dropouts, if they are relatively infrequent.

They then contrast this with a system that forwards voice messages, which would use TCP/IP since you can't ask the sender to repeat themselves when listening to a voicemail. So humans do make a guest appearance in the argument. But we don't really get into the hard stuff of defining what the "ends" really are -- just allusions to the issues.

However, in a 2002 clarification of the paper, David Reed writes:

It's easy to resolve some of the confusions. Two are: what about servers that are owned by the network provider, and what about multipoint protocols. Well, the end-to-end principle never talked about ownership. So "economic bundling" has nothing to do with a service being "provided by the network" - the server is not "in the network". [...] One can discuss the ensemble of endpoints (even heterogeneous classes like SMTP relays [and email clients]) as the set of endpoints treated by an end-to-end argument used in the design process.

It would be nice if the technical design world were "closed" and isolated from the rest of the value system. But it's not. People build networks and endpoints because of economic and social need. Fail to model these, and your model is incomplete.

If the end-to-end principle is such a powerful design Occam's razor, then you have to ask yourself why so much of the communications world is not arranged according to its precepts. Why do we have 3GPP committees re-inventing smart network models? Why do we have the Bluetooth debacle? Why is SIP such a complex tangle of functionality across multiple layers? The answer is that you can't separate the technical from the human, economic and political spheres, as the Daily Telegraph found out the hard way.

The flexibility to accommodate future requirements and change that the end-to-end principle enshrines begs an important question. Flexibility for whom? Whose changes? What the media companies and telcos are discovering is that there are many ways of anulling the user's flexibility of a dumb pipe. DRM, network-owned retail stores and distribution, closed portals and unchangeable home pages, undocumented iPod hardware, DVD player patent licensing, etc. There's a long and familiar list.

The result is that economic bundling is in effect inseparable from technical integration. Just like giving away Internet Explorer with Windows was all Microsoft needed to do; the faux technical integration wasn't needed. They controlled the distribution. What if your mobile phone's media player can only understand vodafone.com URLs? How does that materially differ from technical integration with the network? It doesn't.

The end-to-end paper talks about applications defining new functionality. They don't. Only people do this. The original paper implicitly assumes the goal is to maximise the system's lifetime value to the end user. This is achieved by placing flexibility where the user has the greatest control over it.

This made sense when the Internet was a user-owned network. The universities and military weren't trying to turn a profit. It makes sense for a municipal network of the future. What it doesn't do is explain how commercial networks today are designed. For that, you need to look outside the technology box and see the whole picture: economic, social and political.

Join the dots

I'll pick on two of David Isenberg's recent entries, but there are many others that illustrate the same point.

First quote:

The Death of Distance first appeared in The Economist about a decade ago. In that decade we've seen international telephony prices fall from dollars per minute to Skype-free, while we think nothing, nothing, nothing of accessing a website halfway around the world. Minutes are dead. Area codes mean nothing. Country codes are fading.

Indeed. I read Frances Cairncross's similarly-titled book on the matter a few years ago and enjoyed it immensely.

What it missed, however, is shown by the next quote:

What does wireless broadband have in common with water and solid waste management? Like the first two items, wireless broadband is becoming a municipal utility as dozens of cities have started the process of creating public wireless networks.

The city of Cerritos, California started the trend early in the year and, by year-end, dozens of U.S. cities had jumped on the bandwagon. [...]

What this tells us is that, short of pervasive wireless broadband utopia, where you are really matters. If you're in the right coffee shop, community or city, you're in luck; you can connect quickly and cheaply. If not, tough.

So where you are matters, whereas the distance to where others are doesn't. The death of distance is fuelling the rise of geography. It really matters if you're in Cerritos or the next-door town. (But when you Skype someone over that municipal wireless network they could be anywhere in the world. (Indeed, you can't even tell where the callee is without calling them to ask! A weakness in Skype's presence system and an oportunity for a premium feature of enhanced presence?)

If you can work anywhere, wouldn't it be nice to have a beachfront home? How about some well-heeled and community-conscious neighbours? These things are in short supply, however. Even worse, they are often positional goods. There is a best beach, or poshest district. No amount of sand trans-shipping or landscape gardening will change that.

The rapid spread of broadband may indeed do as much to alter human geography as the internal combustion engine changed our physical environment. There will be more intense clustering, and churning of existing land use. Building and roads may stay fixed; their occupants less so.

I wonder even if the next wave in urban geography is the death of the city suburb. A century ago you would have been brave to predict the motor car would turn teeming downtown areas into semi-derelict relics. But who wants to spend their life communing? Why not live right next to the facilities in the city or a small town, or get out entirely and live somewhere more rural? Perhaps after the suburbs and exurbs come the ultrurbs?

Taking the earlier analogy between sewage and Internet content a bit further (and why not!), let's speculate on what they year 2104 looks like. Well, in the city centre we pay homage to my Victorian ancestors and their municipal sewage systems. Municipal networks rule. High urban densities make these networks economically feasible. Out in the countryside you build your own septic tank and soak-away system. User-owned networks dominate. (Take away universal service funds and the uncontrolable urge to lay twisted copper everywhere gives way to a more rational wireless approach.) And in the suburban middle? Only the losers of society live there now, glued to their old-fashioned cable TVs and telephones.