Tag Archives: At&t

AT&T’s Exaflood Acquisition Good for Mobile Consumers and Internet Growth

March 21, 2011 ,

AT&T’s announced purchase of T-Mobile is an exaflood acquisition — a response to the overwhelming proliferation of mobile computers and multimedia content and thus network traffic. The iPhone, iPad, and other mobile devices are pushing networks to their limits, and AT&T literally could not build cell sites (and acquire spectrum) fast enough to meet demand for coverage, capacity, and quality. Buying rather than building new capacity improves service today (or nearly today) — not years from now. It’s a home run for the companies — and for consumers.

We’re nearing 300 million mobile subscribers in the U.S., and Strategy Analytics estimates by 2014 we’ll add an additional 60 million connected devices like tablets, kiosks, remote sensors, medical monitors, and cars. All this means more connectivity, more of the time, for more people. Mobile data traffic on AT&T’s network rocketed 8,000% in the last four years. Remember that just a decade ago there was essentially no wireless data traffic. It was all voice traffic. A few rudimentary text applications existed, but not much more. By year-end 2010, AT&T was carrying around 12 petabytes per month of mobile traffic alone. The company expects another 8 to 10-fold rise over the next five years, when its mobile traffic could reach 150 petabytes per month. (We projected this type of growth in a series of reports and articles over the last decade.)

The two companies’ networks and businesses are so complementary that AT&T thinks it can achieve $40 billion in cost savings. That’s more than the $39-billion deal price. Those huge efficiencies should help keep prices low in a market that already boasts the lowest prices in the world (just $0.04 per voice minute versus, say, $0.16 in Europe).

But those who focus only on the price of existing products (like voice minutes) and traditional metrics of “competition,” like how many national service providers there are, will miss the boat. Pushing voice prices down marginally from already low levels is not the paramount objective. Building fourth generation mobile multimedia networks is. Some wonder whether “consolidation of power could eventually lead to higher prices than consumers would otherwise see.” But “otherwise” assumes a future that isn’t going to happen. T-Mobile doesn’t have the spectrum or financial wherewithal to deploy a full 4G network. So the 4G networks of AT&T, Verizon, and Sprint (in addition to Clearwire and LightSquared) would have been competing against the 3G network of T-Mobile. A 3G network can’t compete on price with a 4G network because it can’t offer the same product. In many markets, inferior products can act as partial substitutes for more costly superior products. But in the digital world, next gen products are so much better and cheaper than the previous versions that older products quickly get left behind. Could T-Mobile have milked its 3G network serving mostly voice customers at bargain basement prices? Perhaps. But we already have a number of low-cost, bare-bones mobile voice providers.

The usual worries from the usual suspects in these merger battles go like this: First, assume a perfect market where all products are commodities, capacity is unlimited yet technology doesn’t change, and competitors are many. Then assume a drastic reduction in the number of competitors with no prospect of new market entrants. Then warn that prices could spike. It’s a story that may resemble some world, but not the one in which we live.

The merger’s boost to cell-site density is hugely important and should not be overlooked. Yes, we will simultaneously be deploying lots of new Wi-Fi nodes and femtocells (little mobile nodes in offices and homes), which help achieve greater coverage and capacity, but we still need more macrocells. AT&T’s acquisition will boost its total number of cell sites by 30%. In major markets like New York, San Francisco, and Chicago, the number of AT&T cell sites will grow by 25%-45%. In many areas, total capacity should double.

It’s not easy to build cell sites. You’ve got to find good locations, get local government approvals, acquire (or lease) the sites, plan the network, build the tower and network base station, connect it to your long-haul network with fiber-optic lines, and of course pay for it. In the last 20 years, the number of U.S. cell sites has grown from 5,000 to more than 250,000, but we still don’t have nearly enough. CEO Randall Stephenson says the T-Mobile purchase will achieve almost immediately a network expansion that would have taken five years through AT&T’s existing organic growth plan. Because of the nature of mobile traffic — i.e., it’s mobile and bandwidth is shared — the combination of the two networks should yield a more-than-linear increase in quality improvements. The increased cell-site density will give traffic planners much more flexibility to deliver high-capacity services than if the two companies operated separately.

The U.S. today has the most competitive mobile market in the world (second, perhaps, only to tiny Hong Kong). Yes, it’s true, even after the merger, the U.S. will still have a more “competitive” market than most. But “competition” is often not the most — or even a very — important metric in these fast moving markets. In periods of undershoot, where a technology is not good enough to meet demand on quantity or quality, you often need integration to optimize the interfaces and the overall experience, a la the hand-in-glove paring of the iPhone’s hardware, software, and network. Streaming a video to a tiny piece of plastic in your pocket moving at 60 miles per hour — with thousands of other devices competing for the same bandwidth — is not a commodity service. It’s very difficult. It requires millions of things across the network to go just right. These services often take heroic efforts and huge sums of capital just to make the systems work at all.

Over time technologies overshoot, markets modularize, and small price differences matter more. Products that seem inferior but which are “good enough” then begin to disrupt state-of-the art offerings. This was what happened to the voice minute market over the last 20 years. Voice-over-IP, which initially was just “good enough,” made voice into a commodity. Competition played a big part, though Moore’s law was the chief driver of falling prices. Now that voice is close to free (though still not good enough on many mobile links) and data is king, we see the need for more integration to meet the new challenges of the multimedia exaflood. It’s a never ending, dynamic cycle. (For much more on this view of technology markets, see Harvard Business School’s Clayton Christensen).

The merger will have its critics, but it seriously accelerates the coming of fourth generation mobile networks and the spread of broadband across America.

— Bret Swanson

Posted in: Exaflood, Mobile , Tagged: , , , ,

Neutrality for thee, but not for me

October 4, 2009 ,

In Monday’s Wall Street Journal, I address the once-again raging topic of “net neutrality” regulation of the Web. On September 21, new FCC chair Julius Genachowski proposed more formal neutrality regulations. Then on September 25, AT&T accused Google of violating the very neutrality rules the search company has sought for others. The gist of the complaint was that the new Google Voice service does not connect all phone calls the way other phone companies are required to do. Not an earthshaking matter in itself, but a good example of the perils of neutrality regulation.

As the Journal wrote in its own editorial on Saturday:

Our own view is that the rules requiring traditional phone companies to connect these calls should be scrapped for everyone rather than extended to Google. In today’s telecom marketplace, where the overwhelming majority of phone customers have multiple carriers to choose from, these regulations are obsolete. But Google has set itself up for this political blowback.

Last week FCC Chairman Julius Genachowski proposed new rules for regulating Internet operators and gave assurances that “this is not about government regulation of the Internet.” But this dispute highlights the regulatory creep that net neutrality mandates make inevitable. Content providers like Google want to dabble in the phone business, while the phone companies want to sell services and applications.

The coming convergence will make it increasingly difficult to distinguish among providers of broadband pipes, network services and applications. Once net neutrality is unleashed, it’s hard to see how anything connected with the Internet will be safe from regulation.

Several years ago, all sides agreed to broad principles that prohibit blocking Web sites or applications. But I have argued that more detailed and formal regulations governing such a dynamic arena of technology and changing business models would stifle innovation.

Broadband to the home, office, and to a growing array of diverse mobile devices has been a rare bright spot in this dismal economy. Since net neutrality regulation was first proposed in early 2004, consumer bandwidth per capita in the U.S. grew to 3 megabits per second from just 262 kilobits per second, and monthly U.S. Internet traffic increased to two billion gigabytes from 170 million gigabytes — both 10-fold leaps. New wired and wireless innovations and services are booming.

All without net neutrality regulation.

The proposed FCC regulations could go well beyond the existing (and uncontroversial) non-blocking principles. A new “Fifth Principle,” if codified, could prohibit “discrimination” not just among applications and services but even at the level of data packets traversing the Net. But traffic management of packets is used across the Web to ensure robust service and security.

As network traffic, content, and outlets proliferate and diversify, Washington wants to apply rigid, top-down rules. But the network requirements of email and high-definition video are very different. Real time video conferencing requires more network rigor than stored content like YouTube videos. Wireless traffic patterns are more unpredictable than residential networks because cellphone users are, well, mobile. And the next generation of video cloud computing — what I call the exacloud — will impose the most severe constraints yet on network capacity and packet delay.

Or if you think entertainment unimportant, consider the implications for cybersecurity. The very network technologies that ensure a rich video experience are used to kill dangerous “botnets” and combat cybercrime.

And what about low-income consumers? If network service providers can’t partner with content companies, offer value-added services, or charge high-end users more money for consuming more bandwidth, low-end consumers will be forced to pay higher prices. Net neutrality would thus frustrate the Administration’s goal of 100% broadband.

Health care, energy, jobs, debt, and economic growth are rightly earning most of the policy attention these days. But regulation of the Net would undermine the key global platform that underlay better performance on each of these crucial economic matters. Washington may be bailing out every industry that doesn’t work, but that’s no reason to add new constraints to one that manifestly does.

— Bret Swanson

Posted in: Net Neutrality , Tagged: , , , , , , , , , , ,

Does Google Voice violate neutrality?

September 26, 2009 ,

This is the ironic but very legitimate question AT&T is asking.

As Adam Thierer writes,

Whatever you think about this messy dispute between AT&T and Google about how to classify web-based telephony apps for regulatory purposes — in this case, Google Voice — the key issue not to lose site of here is that we are inching ever closer to FCC regulation of web-based apps!  Again, this is the point we have stressed here again and again and again and again when opposing Net neutrality mandates: If you open the door to regulation on one layer of the Net, you open up the door to the eventual regulation of all layers of the Net.

George Gilder and I made this point in Senate testimony five and a half years ago. Advocates of big new regulations on the Internet should be careful for what they wish.

Posted in: Net Neutrality, Uncategorized , Tagged: , , , ,

Agreeing with Kessler

August 21, 2009 ,

After challenging Andy Kessler over the Google Voice-Apple-AT&T dustup, I should point out some areas of agreement.

Andy writes:

Some might say it is time to rethink our national communications policy. But even that’s obsolete. I’d start with a simple idea. There is no such thing as voice or text or music or TV shows or video. They are all just data.

Right, all these markets and business models in hardware, software, and content — core network, edge network, data center, storage, content delivery, operating system, browser, local software, software as a service (SAS), professional content, amateur content, advertising, subscriptions, etc. — are fusing via the Internet. Or at least they overlap in so many areas and at any moment are on the verge of converging in others, that any attempt to parse them into discreet sectors to be regulated is mostly futile. By the time you make up new categories, the categories change.

Which naturally applies to one of the most contentious topics in Net policy:

Competition brings de facto network neutrality and open access (if you don’t like one service blocking apps, use another), thus one less set of artificial rules to be gamed.

Exactly. Net Neutrality could be an unworkably complex and rigid intrusion into this highly dynamic space. Better to let companies compete and evolve.

Kessler concludes:

Data is toxic to old communications and media pipes. Instead, data gains value as it hops around in the packets that make up the Internet structure. New services like Twitter don’t need to file with the FCC.

And new features for apps like Google Voice are only limited by the imagination.

The Internet is disrupting communications companies. Although yesterday I defended the service providers, who are also the key investors in all-important Net infrastructure, it is true their legacy business models are under assault from the inexorable forces of quantum technologies. Web video assaults the cable companies’ discrete channel line-ups. Big bandwidth banished “long distance” voice and, as Kessler says, will continue disrupting voice calling plans. On the other hand, the robust latency and jitter requirements of voice and video, and the realities of cybersecurity will continue to modify the generalized principle that bits are bits.

Even if we can see where things are going — more openness, more modularity, more “bits are bits” — we can’t for the most part mandate these things by law. We have to let them happen. And in many cases, as with the Apple-AT&T iPhone, it was an integrated offering (the exclusive handset arrangement) that yielded an unprecedented unleashing of a new modular mobile phone arena. Those 100,000 new “apps” and a new, open Web-based mobile computing model. Integration and modularity are in constant tension and flux, building off one another, pulling and pushing on one another. Neither can claim ultimate virtue. We have to let them slug it out.

As I wrote yesterday, innovation yin and yang.

Posted in: bandwidth, Innovation, Mobile , Tagged: , , , , ,

Innovation Yin and Yang

August 20, 2009 ,

There are two key mistakes in the public policy arena that we don’t talk enough about. They are two apparently opposite sides of the same fallacious coin.

Call the first fallacy “innovation blindness.” In this case, policy makers can’t see the way new technologies or ideas might affect, say, the future cost of health care, or the environment. The result is a narrow focus on today’s problems rather than tomorrow’s opportunities. The orientation toward the problem often exacerbates it by closing off innovations that could transcend the issue altogether.

The second fallacy is “innovation assumption.” Here, the mistake is taking innovation for granted. Assume the new technology will come along even if we block experimentation. Assume the entrepreneur will start the new business, build the new facility, launch the new product, or hire new people even if we make it impossibly expensive or risky for her to do so. Assume the other guy’s business is a utility while you are the one innovating, so he should give you his product at cost — or for free — while you need profits to reinvest and grow.

Reversing these two mistakes yields the more fruitful path. We should base policy on the likely scenario of future innovation and growth. But then we have to actually allow and encourage the innovation to occur.

All this sprung to mind as I read Andy Kessler’s article, “Why AT&T Killed Google Voice.” For one thing, Google Voice isn’t dead . . . but let’s start at the beginning.

Kessler is a successful investor, an insightful author, and a witty columnist. I enjoy seeing him each year at the Gilder/Forbes Telecosm Conference, where he delights the crowd with fast-paced, humorous commentaries on finance and technology. Here, however, Kessler falls prey to the innovation assumption fallacy.

Kessler argues that Google Voice, a new unified messaging application that combines all your phone numbers into one and can do conference calls and call transcripts, is going to overturn the entire world of telecom. Then he argues that Apple and AT&T attempted to kill Google Voice by blocking it as an “app” on Apple’s iPhone App Store. Why? Because Google Voice, according to Kessler, can do everything the telecom companies and Apple can do — better, even. These big, slow, old companies felt threatened to their core and are attempting to stifle an innovation that could put them out of business. We need new regulations to level the playing field.

Whoa. Wait a minute.

Google Voice seems like a nice product, but it is largely a call-forwarding system. I’ve already had call forwarding, simultaneous ring, Web-based voice mail, and other unified messaging features for five years. Good stuff. Maybe Google Voice will be the best of its kind.

There are just all sorts of fun and productive things happening all across the space. It was the very AT&T-Apple-iPhone combo that created “visual voice mail,” which allowed you to see and choose individual messages instead of wading through long queues of unwanted recordings.

But let’s move on to think about much larger issues.

Suggesting we can enjoy Google’s software innovations without the network innovations of AT&T, Verizon, and hundreds of service providers and technology suppliers is like saying that once Microsoft came along we no longer needed Intel. (more…)

Posted in: bandwidth, Innovation, Mobile , Tagged: ,