ICE ICE (Information, Communications and Entertainment)(Information, Communications and Entertainment) MELTDOWN and MELTDOWN and CONVERGENCE: CULTURAL, CONVERGENCE: CULTURAL, TECHNOLOGICAL and TECHNOLOGICAL and BUSINESS CHALLENGES BUSINESS CHALLENGES

A Presentation at the 35A Presentation at the 35thth Annual Conference of the Annual Conference of theInternational Institute of Communications International Institute of Communications

Montego Bay, Jamaica Oct. 11, 2004Montego Bay, Jamaica Oct. 11, 2004

Rob Frieden, Pioneers Chair and Professor of TelecommunicationsRob Frieden, Pioneers Chair and Professor of Telecommunications Penn State UniversityPenn State University

rmf5@psu.edurmf5@psu.edu; ; http://www.personal.psu.edu/faculty/r/m/rmf5/http://www.personal.psu.edu/faculty/r/m/rmf5/

Convergence Requires Inter-cultural Competency Bellheads Netheads Contentheads  

Slogan The System is the Solution

The Net Rules Content Rules 

Mindset Traditional; conformist

Iconoclastic; nonconformist

Creative 

Political Philosophy

Conservative Libertarian Liberal 

Business Strength

Effective mgm’t of large organizations;

Aggressive; entrepreneurial

Creative 

Business Weakness

Lack of innovation; nimbleness

Lack of follow through; appreciation for laws, limitations

Lack of business fundamentals

 

Favorite Locale Company HQ Silicon Valley Hollywood  

Technology Adoption

Mainstream Early Adopters Early Adopters 

Gets Excited About

Retained earnings and profit

Killer Apps and the Next Best Thing

Movie treatments; ratings; box office receipts

 

Attitude About Regulation

A necessary evil that can be exploited for private gain

Disdain Upset when it affects creative expression

 

Favorite Car Cadillac BMW Porsche  

TECHNOLOGICAL EXPLANATIONS FOR TECHNOLOGICAL EXPLANATIONS FOR THE DOTCOM & TELECOMS IMPLOSIONTHE DOTCOM & TELECOMS IMPLOSION

Moore’s Law Applies to Both Information and Moore’s Law Applies to Both Information and Telecommunications Technologies.Telecommunications Technologies.

Digitization and “Killer” Applications Ruin Business Plans.Digitization and “Killer” Applications Ruin Business Plans. Technological Innovations Failed to Stimulate Sufficient Technological Innovations Failed to Stimulate Sufficient

Demand.Demand. Convergence Proved Difficult to Implement and Exploit.Convergence Proved Difficult to Implement and Exploit. Most Technologies Still Have High Sunk Costs.Most Technologies Still Have High Sunk Costs. Legacy Facility Retrofits Proved Costly and Difficult to Achieve.Legacy Facility Retrofits Proved Costly and Difficult to Achieve. Irrational Exuberance Created a Bubble and Bandwagon Irrational Exuberance Created a Bubble and Bandwagon

Mentality.Mentality.

The Impact of Moore’s Lawin Data Processing

aa

1G

100M

10M

1M

100K

10K

1K

1970 1974 1978 1982 1986 1990 1994 1998 2002

1000

100

10

1

0,1

0,01

0,001

10000

100000

cost for1 MByte RAM($)

Transistorper chip

µELAB.

$ 3,15

$0,003

MERCED$ 41

RAM

$ 62,500

1k

256k

64k

16k4k

1M

256M

64M

16M4M

1,7G

8080 80858086

68000

6806080486

6804080386

6802080286

PENTIUM 2

Moore’s Law Applied to Telecommunications

a

1

TAT-9

Transmission capacity increase

Cost per circuitin dollars

10.000

1000

100

10

1

2010200019901980197019601950

Years

Number ofvoice circuits

10.000.000

1.000.000

100.000

10.000

1000

100

10

Bit rate(Gbit/s)

1000

100

10

1

0.1

0.01

0.001

Telegraph

COPPER TAT-12

TAT-8

TAT-7TAT-6

TAT-4

TAT-5

TAT-3TAT-2

TAT-1 FIBER

TAT: TransAtlantic Telephone Cable

Marketplace ExplanationsMarketplace Explanations

Flawed Assumptions, False Expectations, Empty PromisesFlawed Assumptions, False Expectations, Empty Promises

One Stop Shopping Proves Difficult to Implement and Sell.One Stop Shopping Proves Difficult to Implement and Sell. Advertising Supported Access to Content Not Always Viable.Advertising Supported Access to Content Not Always Viable. Gold Rush Exuberance Drove a Quest For Shelf-Space Without Gold Rush Exuberance Drove a Quest For Shelf-Space Without

Regard to Near Term Revenue Prospects.Regard to Near Term Revenue Prospects. Low Interest Rates Triggered a Migration From Bonds to Stocks Low Interest Rates Triggered a Migration From Bonds to Stocks

and Venture Financing; Vendors Willing to Finance Deals.and Venture Financing; Vendors Willing to Finance Deals. Business Fundamentals Apply to ICE Industries.Business Fundamentals Apply to ICE Industries. Executives Talked Up Stock Prices So That Options Paid Off Executives Talked Up Stock Prices So That Options Paid Off

Handsomely.Handsomely. Y2K Stimulated a Short Term Cash Infusion Possibly Y2K Stimulated a Short Term Cash Infusion Possibly

Misinterpreted as Evidence of the Information Revolution.Misinterpreted as Evidence of the Information Revolution.

LEGAL/REGULATORYLEGAL/REGULATORYEXPLANATIONSEXPLANATIONS

Flaws in the many nations’ Flaws in the many nations’ Telecommunications Laws.Telecommunications Laws.

Legislatures considered telecoms a Legislatures considered telecoms a cash cow, e.g., 3G spectrum auctions.cash cow, e.g., 3G spectrum auctions.

Incumbents less willing to relinquish Incumbents less willing to relinquish near captive markets in exchange for near captive markets in exchange for new market opportunities.new market opportunities.

Prior regulatory compacts typically Prior regulatory compacts typically offered guarantees, or at least offered guarantees, or at least safeguards on the downside.safeguards on the downside.

New markets opportunities ended up New markets opportunities ended up being less profitable and less desirable being less profitable and less desirable than previously anticipated. than previously anticipated.

Procompetitive and trade initiatives Procompetitive and trade initiatives (reduced restrictions on foreign (reduced restrictions on foreign ownership) reduced market entry ownership) reduced market entry barriers and contributed to the supply barriers and contributed to the supply glut.glut.

Many users consider the Web a source Many users consider the Web a source for free content.for free content.

In the U.S. stakeholders In the U.S. stakeholders dissatisfied with the deal they dissatisfied with the deal they negotiated litigated and negotiated litigated and stalled.stalled.

Appellate courts accorded the Appellate courts accorded the FCC little deference and FCC little deference and rejected “rough justice” rejected “rough justice” policies.policies.

Resale opportunities may have Resale opportunities may have reduced incentives for reduced incentives for facilities-based competition.facilities-based competition.

NEAR TERM OUTCOMESNEAR TERM OUTCOMES

Incumbents Leverage Investment in Exchange for Favorable Incumbents Leverage Investment in Exchange for Favorable Deregulation and Relaxed Antitrust Enforcement.Deregulation and Relaxed Antitrust Enforcement.

Legislatures and Regulatory Agencies Appear Willing to Abandon Legislatures and Regulatory Agencies Appear Willing to Abandon Procompetitive Policies in Exchange for Network Investment Promises Procompetitive Policies in Exchange for Network Investment Promises by Incumbents.by Incumbents.

Telecommunications has Lost Its Public Utility, Low Risk Status as Telecommunications has Lost Its Public Utility, Low Risk Status as Well as Its Growth Market Cache.Well as Its Growth Market Cache.

Technological and marketplace convergence has become a reality, but Technological and marketplace convergence has become a reality, but some of the winners win by exploiting inconsistent regulations, e.g., some of the winners win by exploiting inconsistent regulations, e.g., VOIP, Internet access via cable television vs. telephone networks.VOIP, Internet access via cable television vs. telephone networks.

Convergence ruins regulatory regimes based on mutually exclusive Convergence ruins regulatory regimes based on mutually exclusive categories, e.g., streaming video vs. broadcasting.categories, e.g., streaming video vs. broadcasting.

Incumbents must strive to retain market share and relevance.Incumbents must strive to retain market share and relevance.

GOOD NEWS: NEW OPPORTUNITIES GOOD NEWS: NEW OPPORTUNITIES

Content rules; despite a plethora of options, most consumers Content rules; despite a plethora of options, most consumers stick with a few web portals and a handful of video sources.stick with a few web portals and a handful of video sources.

Incumbents can leverage free spectrum, market share and Incumbents can leverage free spectrum, market share and brand.brand.

New content access options rely heavily on incumbent sources, New content access options rely heavily on incumbent sources, e.g., web and mobile video.e.g., web and mobile video.

A more sober growth posture favors incumbents who diversify A more sober growth posture favors incumbents who diversify intelligently.intelligently.

Less broadcast/cable consumption generates more consumption Less broadcast/cable consumption generates more consumption of related media.of related media.

DVRs force changes in advertising, e.g., product placement, not DVRs force changes in advertising, e.g., product placement, not the demise of advertising.the demise of advertising.

Convergence changes and diversifies distribution channels, not Convergence changes and diversifies distribution channels, not the thirst for content.the thirst for content.

THE WAY FORWARDTHE WAY FORWARD

Regulators need to maintain a “level” competitive Regulators need to maintain a “level” competitive playing field.playing field.

While properly striving for regulatory symmetry While properly striving for regulatory symmetry between competing technologies, regulators should between competing technologies, regulators should not abandon procompetitive interconnection and not abandon procompetitive interconnection and facilities access policies.facilities access policies.

The EU horizontal regulatory model makes sense in a The EU horizontal regulatory model makes sense in a convergent environment: emphasize competition convergent environment: emphasize competition policy rather than regulate by category.policy rather than regulate by category.

Legislatures should concentrate on creating Legislatures should concentrate on creating incentives to invest in the sector through coherent incentives to invest in the sector through coherent ICT development strategy.ICT development strategy.

Best Practices in ICE Development—Best Practices in ICE Development—Government RolesGovernment Roles

Successful ICE development requires a government role as incubator, Successful ICE development requires a government role as incubator, steward, partial underwriter and anchor tenant without being central steward, partial underwriter and anchor tenant without being central manager.manager.

Government develops a vision and executes a multi-faceted strategy to Government develops a vision and executes a multi-faceted strategy to achieve articulated goals.achieve articulated goals.

Government funds partially support specific projects, but emphasizes Government funds partially support specific projects, but emphasizes private enterprise and facilities-based competition.private enterprise and facilities-based competition.

Funding reaches a variety of different grant seekers and supports Funding reaches a variety of different grant seekers and supports digital literacy and not simply installation of equipment.digital literacy and not simply installation of equipment.

Creates incentives for investment and disincentives for litigation and Creates incentives for investment and disincentives for litigation and other delay tactics.other delay tactics.

Initial government services offered via ICE include healthcare, Initial government services offered via ICE include healthcare, education, access to information, licensing education, access to information, licensing and broadcasting.broadcasting.

Government revises and reforms safeguards to promote trust, security, Government revises and reforms safeguards to promote trust, security, privacy and consumer protection in ICE services, especially e-privacy and consumer protection in ICE services, especially e-commerce.commerce.

Best Practices in ICE Development—Best Practices in ICE Development—Non-Government RolesNon-Government Roles

Entrepreneurial and development hot beds such as Silicon Valley show Entrepreneurial and development hot beds such as Silicon Valley show that the U.S. ventures can successfully incubate ICE.that the U.S. ventures can successfully incubate ICE.

Academia and commercial ventures can collaborate and exploit favorable Academia and commercial ventures can collaborate and exploit favorable and transparent rules of the game, i.e., a meritocracy that rewards talent and transparent rules of the game, i.e., a meritocracy that rewards talent and ability coupled with laws and regulations that support access to and ability coupled with laws and regulations that support access to capital, research and development, risk taking and even failure.capital, research and development, risk taking and even failure.

A critical mass occurs when a talented work force and entrepreneurial risk A critical mass occurs when a talented work force and entrepreneurial risk takers gravitate to the same region that openly welcomes innovation.takers gravitate to the same region that openly welcomes innovation.

ICE development requires a specialized business infrastructure serviced by ICE development requires a specialized business infrastructure serviced by consultants, lawyers, venture capitalists and executive recruiters.consultants, lawyers, venture capitalists and executive recruiters.

Despite traffic congestion, high costs and a relentless pace hot beds Despite traffic congestion, high costs and a relentless pace hot beds provide a high quality of life.provide a high quality of life.

ConclusionsConclusions

Promoting near term availability of nearly ubiquitous broadband Promoting near term availability of nearly ubiquitous broadband infrastructure does not require “heavy handed” “command and control” infrastructure does not require “heavy handed” “command and control” centralized management by the federal government.centralized management by the federal government.

It requires a cohesive “top-down” vision coupled with “bottom-up” It requires a cohesive “top-down” vision coupled with “bottom-up” community champion projects that aggregate supply of services and community champion projects that aggregate supply of services and demand for them.demand for them.

Broadcasters need to think about their role when broadband networks are Broadcasters need to think about their role when broadband networks are readily available; use spectrum for both a digital signal and supplemental readily available; use spectrum for both a digital signal and supplemental services?services?

Incumbents may not be able to leverage future investment in exchange for Incumbents may not be able to leverage future investment in exchange for even more regulatory forbearance.even more regulatory forbearance.

Governments achieve ICE incubation success through diverse funding Governments achieve ICE incubation success through diverse funding strategies including direct underwriting, loans, favorable tax treatment, strategies including direct underwriting, loans, favorable tax treatment, financial support for research, development and technology demonstration financial support for research, development and technology demonstration projects (as was done with NSFnet).projects (as was done with NSFnet).

Government can train people to become suppliers and consumers of Government can train people to become suppliers and consumers of network-mediated services.network-mediated services.

More ConclusionsMore Conclusions

Universal service and ICE development policies generate Universal service and ICE development policies generate unintended and sometimes adverse outcomes, e.g., below cost, unintended and sometimes adverse outcomes, e.g., below cost, unmetered basic phone service in the U.S. blunts migration to unmetered basic phone service in the U.S. blunts migration to broadband while high, metered service elsewhere expedites broadband while high, metered service elsewhere expedites migration.migration.

Many nations did a better job than the U.S. in crafting a new Many nations did a better job than the U.S. in crafting a new telecommunications law and in implementing it. In the U.S. telecommunications law and in implementing it. In the U.S. stakeholders get several due process bites of the apple leading to stakeholders get several due process bites of the apple leading to litigation, delay and opportunities to conserve capital/postpone risk litigation, delay and opportunities to conserve capital/postpone risk taking.taking.

Nations achieving comparatively greater success in ICE Nations achieving comparatively greater success in ICE development demonstrate the effective and catalytic role of development demonstrate the effective and catalytic role of government.government.

Nations cannot simply throw money at the problem and declare Nations cannot simply throw money at the problem and declare victory.victory.

Uncertainty in mission and policy leads to delay, lost productivity Uncertainty in mission and policy leads to delay, lost productivity and competition in the courtroom instead of the marketplace.and competition in the courtroom instead of the marketplace.