Empowering the Customer or
Empowering the Telco
State of the Internet 2002: Assessing the Technical, Economic and
Policy Consequences Behind the Collapse of 2001
In its examination of the impact of Internet technology on global
telecommunications during 2001, this report will bring into focus
changes that are reshaping one of the world's largest and most
critical industries in ways unforeseen only a year ago. Neither the
Internet nor the phone companies are going away. However, while
technology continues to reshape possibilities for industry markets,
it is having economic impacts in 2002 that will increase the risks
and opportunities for informed managers, financial planners and
policy makers.
As the reverberations from the collision of the tectonic plates of
Internet and telco seek to establish some new equilibrium, the
architecture of the Internet is shifting and becoming more complex.
Issues of control seem more and more important. To the extent that a
nethead versus bellhead philosophy is still meaningful the difference
between the two is reflected less in the technology being used and
more in ideas about where control is to be located.
Trends: Technology and Economics
The most significant technology trend that we see is one that will
present managers, investors and policy makers with a choice pointed
out by the title of this report. Empower the user. Or empower the
telco. Choices are being made. The technologists are driving
control of lambdas into the hands of end users. Peer-to-peer, as
software and infrastructure, is enabling the formation of communities
of users at the network's edges. Here the goal is generally to make
the center and anything associated with it disappear. Huge fortunes
are being wagered on the web based client server model. The bell
heads and walled garden guardians may find out too late that their
centralized content control model is not the only way to do business.
The impact of technology on network architecture will be the most
important trend to watch in 2002.
But, as many have found out to their dismay, we can no longer make
intelligent decisions in telecommunications absent a thorough
understanding of the industry's economic picture. Indeed analysis of
technology trends done without understand of their economic impact,
are, in this climate, of limited use. Therefore, the remainder of
this summary will turn to economic issues.
The COOK Report started publication a decade ago as the Internet was
in its early stages of commercialization. Ten years and a trillion
dollars in global investment later we have witnessed dramatic changes
in global telecommunications. But what we have now is not what any
reasonable person would call success. The old technology did not
collapse under the onslaught of a triumphant new global packet
network bringing vast amounts of inexpensive bandwidth to every home
and business.
One reason it did not was that the technologists were so certain of
the superiority of their product and were so good at driving the hype
that got them their early stage capital investment they were able to
sail forward without a long term viable business model for what they
were doing. Build it and you will be saved - somehow. The
provisioning of vast amounts of cheap bandwidth was seen as a
sustainable business model for the Internet.
The problem is that ten years on the bandwidth business model has not
proven to be a viable one. The question is whether bandwidth is
something on which a business model can be built? Or is bandwidth,
like a highway, just an enabler? We started out a decade ago talking
about the information super highway and then proceeded to try to
build multiple global privatized versions. Imagine if Ford had spent
tens of billions building a global interstate for its cars. While
GM. Daimler-Chrysler and Honda and Toyota had each done the same
thing. What has been built are highways with largely identical
performance and capable of huge indiscriminate through-put of
vehicles or packets. They have lead to an unsustainable business
model. Become a customer of my commodity system. No. Not his.
Mine. I just doubled the speed and I will sell you access for 20%
less. I only had to borrow another billion dollars against my non
existent profits. Yes we have a train wreck. Any wonder?
But remember after all the investors were being sold a product that
moved at 'Internet speed' and hyped as a global, winner-take-all,
economy-of-scale, build out where one year in Internet time was said
to equal seven ordinary years and where there would be a 'winner
with first mover advantage. The new Internet world was hyped as one
where regulation was unneeded because it would slow the rate of
adoption of the new technology.
Consequently, all the big players operated in their own informational
vacuums. Through an informal old boy-girl network,
