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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
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
Tylite in the News - The Last Mile

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.

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 Its implementation is constrained first by capital, second, by an outdated regulatory structure, third, by physical barriers which keep those who could otherwise overcome the problems of capital and regulation, from getting their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.
  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.
  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.
  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?
  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.
  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.
  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?
  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.
  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.
  What to do?
  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.
  Guys like that can be beaten.
  It is time to invent a new type of company.
  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.
  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.
  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:
  • Capital Gigabit and multi-gigabit data expertise
  • CLEC status Home termination equipment
  • Access to PSTN Office termination equipment
  • Super high speed Internet service
  • Backbone Data transmission support
  • Telco technical support
  • Last mile solutions
  • Glass backbone networks
  • Bundling of services
  • Intra-latta and inter-latta virtual private
  • New services not previously practical
  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.
  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.
  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:
Cable Operator DTU
  • Cable plant Gigabit and multi-gigabit data expertise
  • Industry knowledge Home termination equipment
  • Access to programming Office termination equipment
  • Technical support Super high speed Internet service
  • Video on demand
  • Data transmission support
  • Bundling of services
  • Intra-latta and inter-latta virtual private
  • New services not previously practical
  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:
        1. Basic 1 Mb/s
        2. 10 Mb/s
        3. 100 Mb/s
        4. 1000 Mb/s
  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.
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.
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.
Fred Dunham
Illuminate your world with Tylite Inc P.O. Box 135, Liberty Lake, WA 99019 info@tylite.com or call 509.927.7837 fax 509.255.1177