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| Tylite's
subsidiary Ptera Wireless is developing Tylite's wireless
network system, including community NOC/data centers and POP
(Point of Presence) locations to provide the connectivity for
remote users in your new network. For more information on Ptera,
go to www.ptera.net |
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| Another
Tylite subsidiary is Priority Terabit Inc., which is
a CLEC for providing a range of services from simple telephone
to full video/TV/VOD. For more information on Priority Terabit
Inc, contact Jim Wilson at 509.927.7837 |
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| Tylite
in the News - The Last Mile |
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In
the near future, all audio, video, and data services will be delivered
over high-speed ethernet. While the current models for telephone,
cable TV, and internet provision will survive for a period of time,
they, and the companies that attempt to preserve them as their business
model, will become increasingly irrelevant. Companies that do not
believe, understand or accept this paradigm shift will simply die.
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The
technology to provide those services to government, business, and
even residences exists today. Its implementation is constrained first
by capital, second, by an outdated regulatory structure, third, by
physical barriers which keep those who could otherwise overcome the
problems of capital and regulation, from getting their service to
the user. The final barrier is more subtle. Those with the capital,
the regulatory expertise, and the ownership of the fixed plant and
rights of way that reach the user have a vested interest in getting
the last dollar of return out of that fixed plant, and therefore have
a disincentive to make it obsolete by building new plant. Inevitably
under deregulation, they would have to share this new plant with their
competitors, many of whom are much better at dealing with the new
technologies than they are. |
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Since
deregulation of telephone services, in the arena of large government
or corporate customer, new companies have been successful in competing
with established companies for the business. The relatively high return
has made the investment in new infrastructure worthwhile, and the
established companies have been slow to react to competition. These
customers tend to be more sophisticated and have more recognized need
than residential consumers. They are willing to take a chance on new
technology if they can realize a higher service level for the dollar.
They are educated in a manner that the typical homeowner is not; they
go to seminars that tell them what to do and how to do it. This is
where the initial skirmishes are being fought in the coming communications
war. The real battles, as always, will be fought in the neighborhoods.
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The
dilemma for the established companies is simple: do they (1) maintain
their current high return on investment by refusing to make more than
incremental upgrades to existing plant, a plan that pays handsomely
now but will inevitably lead to failure or at least irrelevance, or
(2) do they give up the present for the future, investing heavily
in new plant to replace, and therefore make valueless, their current
"cash cow", and in the process alienate their core investors and shareholders,
most of whom invested for safety, stability and return on investment,
and not for speculation. |
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The
dilemma for the new competing companies is equally simple: how do
they get their superior products and services to the user without
having to pay outrageous prices to their established competition for
infrastructure that cripples more than it delivers? |
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Against
this background, we see a cloud of dust in the distance, which holds
the potential for changing the fortunes of both in a most unpleasant
way. It is not the Mongol hordes coming over the horizon; it is AT&T/TCI. |
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With
the forced divestiture of its local exchange companies, AT&T has no
last mile infrastructure to constrain it from building the next generation
of fixed plant. With the acquisition (merger, if you like) of TCI,
it got ready made high-speed access into a large number of households.
It has done the math, and realized that, while there are millions
of businesses in this country, there are hundreds of millions of residences.
It has not forgotten that there was time when virtually all of them
sent a monthly check to AT&T. But how will it compete with its children,
the established companies currently holding its place? It will use
the infrastructure that it acquired from TCI, plus new infrastructure
that it will build with its vast capital reserve, to offer a combined
package of telephone, long distance, internet, and television cable
services, for a single low rate that cannot be matched by any combination
of similar services from other sources. It will have the obvious advantage
of allowing the consumer to pay for these services with a single check.
Since it already owns its own credit card service and bank, it will
quite possibly make even this check unnecessary. Finally, for its
users, it will make e-commerce as simple as charging their purchases
to their "telephone" (communications) bill. It has most of the pieces
in place: it has the will; it has the capital; it has the regulatory
and technical expertise; through its cable services, it even has the
medium in place to educate the public. This company does not intend
to compete with its children, it intends to eat them. |
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What
are the strategies that will allow the communications company of today
to be a viable player in the world of convergence that is soon to
be upon us? |
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For
the established companies, primarily the "baby bells", the strategy
is to protect, delay and acquire. They will protect their current
rate structures, while offering incremental increases in service through
innovations like XDSL, which, while a great improvement over current
data access for most people, is limited in scope and availability
and is clearly not competitive even with cable modems, beside lacking
the ability to deliver the combination of services that AT&T can deliver.
They will delay for as long as possible creating new and expensive
infrastructure, while carefully watching the new, aggressive companies
that are taking new technologies into the field of battle. They will
acquire the winners. |
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For
the other companies, primarily the CLEC's, small cable companies and
internet companies, there are few options. The CLEC's will be excluded
from the residential market by the inability to furnish a bundle of
services. They will do well in the business and government arena until
the big players have finished dividing up the rest of the market,
after which these companies will turn their attention to the traditional
CLEC market with new products and services. The result will be a dramatic
decrease in return on investment as that market quickly reaches maturity.
The small cable companies have been protected from competition until
now by the fact that it is usually not economical to overbuild an
existing cable plant. It becomes economical when the "per subscriber"
revenue is increased by the ability to sell a bundle of services.
The big players will make them an offer they can't refuse, or simply
overbuild them, one by one, and they will die. The traditional internet
service companies, like the CLEC's will be excluded from the residential
market by the inability to provide a bundle of services. While ISP's
are currently in the cottage industry stage, with every size from
the giant AOL to the two kids in a garage, in the foreseeable future,
all but a few large competitors will be irrelevant. |
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What
to do? |
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It is
easy to view the AT&T/TCI model and realize that there will be more
such marriages, and fierce competitors, as the strategies emerge.
It is somewhat more difficult to look at them and realize that they
have their own set of built-in weaknesses. Aside from the obvious
anti-trust implications, large organizations have some inherent disadvantages.
They are often hamstrung by internal bureaucracies that rival government
agencies in their inability to make a decision. They have constituencies
and vested interests that cannot be ignored. They are not well liked
by the general public. They make and change policy slowly. They are
among the most highly regulated companies extant. In anything they
do, in any service they offer, in any area they compete, they will
drag this regulatory baggage along with them like an anchor. |
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Guys
like that can be beaten. |
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It is
time to invent a new type of company. |
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Whatever
new entities arise to take advantage of the forces of convergent technology
that are descending upon the current carriers of electronic information,
the ones most likely to succeed will have certain predictable characteristics.
First, they will solve the capital problem, either through funding
from forward looking sources, typically already in the industry, through
joint ventures and strategic alliances with those same sources, or,
more likely, both. They will solve the access problem through these
same alliances, and by using new technology, break through the last
mile barrier. They will provide bundling of services in a way that
more regulated companies simply cannot do. By being separate entities,
they can and will build the new infrastructure while allowing their
strategic partners to protect the investment they already have in
the current tariffed infrastructure. |
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Their
biggest advantage, if they can maintain it, will be to stay out of
the regulatory morass until they are already firmly entrenched, at
which time it will be to their advantage to have artificial regulatory
barriers to entry erected. The simplest way to accomplish this is
to become a new type of information utility: a data transmission utility.
At present, and for at least the near future, the transportation of
data is totally unregulated. So long as the Data Transmission Utility
(DTU) can position itself and its customers so that it accepts only
data and hands off only data, it can, for the foreseeable future,
remain unregulated, and therefore limited in growth only by capital,
the ability to form alliances, and its technological know-how. It
can do this whether it is sending internet packets, telephone packets,
or entertainment packets. It can do it for business and residences,
so long as the customer owns (or leases) the equipment to convert
the information it wants to transmit into data, and the receiving
party or intermediary (which may be the CLEC) does the same. It does
not matter whether these packets are carried across the street, across
town, across the state, or across the nation. Under the present regulatory
programs, these packets will travel untaxed and unregulated. The importance
of this can be seen from the fact that the taxes alone on current
telephone access probably amount to more than the profit of the entire
telephone industry. |
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In looking
at the main areas in which these new companies will be active, the
first and most obvious one is the telephone industry. With the exception
of some satellite delivery, this industry is the current prime mover
of voice and data. It is a mature industry, and is doing quite well,
thanks in no small part to the Internet explosion. It faces the problems
previously discussed, but with the ability to bring massive resources
to bear, it is not particularly worried. Given this, it is likely
that the first alliances that the DTU will make are with the CLECs,
the companies that compete with the more established exchange companies.
CLECs will be able to provide the DTUs with access to the public switched
telephone network, to a high-speed passive backbone for data transmission,
and to a support team familiar with the problems of both the telephone
and the data industries. DTUs, in exchange can free the CLECs from
some of their regulatory burden, provide data transmission expertise,
provide a solution to the "last mile" problem, provide in-office and
in-home termination and equipment that will allow voice traffic to
enter the system as data, and to be transported that way, and, probably
most important for competitive purposes, bundle the CLEC's services
with other data and entertainment services so that people are more
likely to purchase them. As unregulated "data" companies, the DTUs
will not be limited to tariffs, but will be able to make special deals,
which are neither public nor reviewable by any agency. From a traffic
standpoint, the DTU will provide another level of diversity, extending
the capacity of the CLEC's own legacy system, while at the same time,
giving the CLEC additional routes and capacities for data, thus delaying
the time when the CLEC must expend significant sums for its own expansion.
Together, for the customers that own or lease their own equipment,
they will be able to provide untariffed transfer of telephone service
intrastate, interstate, or even internationally, at a fraction of
the current costs. In this partnership, the parties would be expected
to contribute at least the following: |
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| CLEC
DTU |
- Capital
Gigabit and multi-gigabit data expertise
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CLEC status Home termination equipment
- Access
to PSTN Office termination equipment
- Super
high speed Internet service
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Backbone Data transmission support
- Telco
technical support
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Last mile solutions
- Glass
backbone networks
- Bundling
of services
- Intra-latta
and inter-latta virtual private
- New
services not previously practical
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The
second area for DTU participation is the delivery of entertainment,
through the cable TV industry and the emerging video-on-demand service.
This is a prime part of the AT&T strategy. Not only does the cable
industry have the only currently available alternative access to the
American home, but that access is capable of much higher speed data
transfer than the PSTN. By combining the services that can be offered
over this cable plant, along with new services that will evolve, a
strategic alliance will provide great benefits to both the DTU and
the cable operator. |
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There
are currently 694 cable systems in the state of Washington. Many of
them are owned by AT&T or other large companies. Those systems cover
much of the population. On the other hand, many of the systems are
independent, or are owned by small groups. If these operators have
thought about it at all, they know that with their current level of
service, they cannot hope to compete with the bundled services of
the next generation. They face the rather dire future previously discussed.
Typically each of these systems must build and maintain its own "head
end", a relatively expensive part of their system. Each must make
its own contract with multiple suppliers of programming, as well as
the satellite delivery systems from which they receive signal. Their
cable plant consists of coaxial cable, or a hybrid fiber-coax combination,
some underground and some aerial. They do not relish adding the equipment
necessary to provide high speed internet services, nor do they have
the expertise to support them. They have not even thought about using
their systems as alternative telephone distribution plant. |
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An alliance
with a DTU, particularly one already allied with a CLEC, will solve
these problems for the cable operator. With the advent of gigabit
and multigigabit ethernet, video signals can be transported over long
distances, without loss and at low cost. One "head end", no matter
where on the system it is located, can supply programming for all
allied systems. Two can provide redundancy, something currently unheard
of in the industry for small operators. Multiple contracts can be
replaced with a single contract with the DTU. Insofar as the DTU's
network extends into the areas where programming is originated, satellite
feeds become unnecessary. In return, DTU's, and their CLEC partners,
get access to infrastructure that would otherwise be impractical or
impossible to create, and get access to video signals to utilize throughout
their systems, and to bundle with their other services. In this partnership,
the parties would be expected to contribute at least the following: |
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| Cable
Operator DTU |
- Cable
plant Gigabit and multi-gigabit data expertise
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Industry knowledge Home termination equipment
- Access
to programming Office termination equipment
- Technical
support Super high speed Internet service
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Video on demand
- Data
transmission support
- Bundling
of services
- Intra-latta
and inter-latta virtual private
- New
services not previously practical
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The
third area in which the DTU will be active is the data transfer industry,
including internet services. This is the area that is driving the
explosion in demand for bandwidth. As businesses become more sophisticated
in the uses of data communications, their need to transport signals
rises exponentially. So do their costs, under the current telco tariff
structure. At home, growth of use of internet service is exceeded
only by the amounts of data being viewed. Current technology in streaming
audio and video virtually begs for additional bandwidth. Tomorrow's
technology will scream for it. There is no end in site. For ISPs,
business is booming, but is also a major headache. They face the problem
of dealing with banks of balky modems, unreliable copper telephone
lines, and customers that don't understand or care about their problems.
They have one service to offer, and that is access. They can count
on someone down the street offering it for less money tomorrow. For
this industry the DTU can provide very high speed access to business
and home. The ISP can focus on the traditional and new services. The
bundled services referred to earlier are an example of the new services.
The access could be tiered at new levels very different from traditional
offerings, such as: |
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- Basic
1 Mb/s
- 10
Mb/s
- 100
Mb/s
- 1000
Mb/s
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Additional
levels may be added depending on need. The speed of connection in
this model for those in the DTU community could be much higher than
that to the Internet. |
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The
ISP is also in serious need of more bandwidth and is a natural partner
for the DTU. As more ISPs join with a DTU, the interconnection between
them eliminates the need to go "off net" into the PSTN for access
to data stored on the group's servers. This will eventually reduce
the expensive bandwidth they need to rent from the current backbone
providers, replacing it with a cheap private super high-speed ethernet
connection for all ISP's on the system. The PSTN connection, which
is now typically done by every ISP on its own, would instead be done
centrally by the DTU, moving data to this central point at gigabit
and multigigabit speeds, sorting it into on-net and off-net traffic,
and then putting the off-net data into the PSTN at prices that are
orders of magnitude cheaper than available to the individual ISP. |
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In summary,
a study of the communications industry as it now exists indicates
clearly that massive change is coming. Because the traditional players
in this industry have so much revenue and infrastructure to protect,
it is probably not going to come from them. The exception to this
is AT&T. History will in all likelihood record that the Justice Department
did it a tremendous favor by requiring it to divest its local service.
Its competition is, again, in all likelihood, going to be a new type
of utility, which we have elected to call a Data Transmission Utility.
This utility will work with the current providers of information services
to help them provide bundles of services to compete with the AT&T
model, at competitive prices. |
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Fred
Dunham |
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