July 30, 2003

High-Tech Investment

Signs that there will be another telecom investment boom, someday:

BW Online | August 4, 2003 | Verizon's Gutsy Bet: ...Verizon plans to roll out fiber-optic connections to every home and business in its 29-state territory over the next 10 to 15 years, a project that might reasonably be compared with the construction of the Roman aqueducts. It will cost $20 billion to $40 billion, depending on how fast equipment prices fall, and allow the lightning-fast transmission of everything from regular old phone service to high-definition TV. No competitor yet dares follow suit, fearing it could be their financial Waterloo. "We'll watch them closely and go to school on them if they have found something economic," says Ross Ireland, chief technology officer at SBC Communications (SBC ) Inc., the second-largest phone company after Verizon. Seidenberg is being no less aggressive when it comes to the wireless technology that has consumers and companies equally abuzz -- Wi-Fi. In an unprecedented move, Verizon is blanketing Manhattan with more than 1,000 Wi-Fi hotspots that will let any broadband subscriber near a Verizon telephone booth use a laptop to wirelessly tap the Net for the latest news, sports scores, or weather report. If the rollout goes well, Verizon will duplicate this wireless grid in other major cities...

Posted by DeLong at July 30, 2003 12:17 PM | TrackBack

Comments

Foof. I suspect the fine print is something like, "You can have one of these connections if you're willing to commit to n years of service, ie take on n years of debt." (I used to be a Verizon customer, I know whereof.)

Fact of the matter is, fiber already goes to the block level, most places--it was funded by pulling out the copper and selling it. It's that final connection to the customer premises that's the big expense, and there's no way Verizon can pay for it unless they can bury the cost in DSL and video-on-demand contracts.

(BTW, does anyone else suspect that a fair number of those n-year contracts are apt to turn out to be so much bad paper?)

Posted by: Randolph Fritz on July 30, 2003 03:36 PM

This seems like an awfully bold move for the lazy, greedy and arrogant monopoly that I too have had the displeasure of doing business with in the past. Still, I hope it's true - if Verizon turns out to be as agressive in rolling out FTTH (Fiber To The Home) as promised, it may well prove to be the salvation of the I.T. industry.

For me, the striking thing about this announcement is just how low the estimated price tag seems to be. At the height of the telecom boom, I often wondered why it was that so many phone companies in Europe and the United States were willing to waste tens of billions of dollars on "3G" licences for which no real uses had yet been advocated, when it seemed obvious that this money would be better spent upgrading the old copper infrastructure to fiber wherever possible. The only rationale I could think of at the time was that the cost of upgrading might be prohibitive, but this new information leaves me thinking that the heads of the phone companies were simply caught up in the "me-too" herd-buying that was prevalent at the time.

Posted by: Abiola Lapite on July 30, 2003 06:41 PM

This is truly a bet-the-company decision by Verizon. I am not sure why exactly they need to commit themselves to such a project now--perhaps they can do it more economically by saying they will do all of the states up front, and the publicity buzz can't hurt either. But I would think that a more prudent approach would be to do this for high density areas first, where they are most likely to turn a profit, and then decide how to proceed in the rest of their markets. The risks of competitors entering, technology advancing, regulation changing, etc. are enormous.

The stance of Verizon's telecom competitors troubles me as well. SBC seems to be taking a wait-and-see approach, vowing to get in if Verizon is making money, but will they be too late? There may be money to make in some parts of the country as a monopolist offering comprehensive fiber connections, though perhaps as a duopolist these profits disappear. This leaves SBC with the potential choice of being marginalized by a Verizon monopoly or losing money as their direct competitor in fiber. Having either an antitrust concern or another spat of bankruptcies in telecom are the alternative outcomes here, neither good. I fear we are heading toward an unhappy ending in this next telecom investment boom, just as with the last.

Posted by: Dimmy Karras on July 30, 2003 08:00 PM

This is truly a bet-the-company decision by Verizon. I am not sure why exactly they need to commit themselves to such a project now--perhaps they can do it more economically by saying they will do all of the states up front, and the publicity buzz can't hurt either. But I would think that a more prudent approach would be to do this for high density areas first, where they are most likely to turn a profit, and then decide how to proceed in the rest of their markets. The risks of competitors entering, technology advancing, regulation changing, etc. are enormous.

The stance of Verizon's telecom competitors troubles me as well. SBC seems to be taking a wait-and-see approach, vowing to get in if Verizon is making money, but will they be too late? There may be money to make in some parts of the country as a monopolist offering comprehensive fiber connections, though perhaps as a duopolist these profits disappear. This leaves SBC with the potential choice of being marginalized by a Verizon monopoly or losing money as their direct competitor in fiber. Having either an antitrust concern or another spat of bankruptcies in telecom are the alternative outcomes here, neither good. I fear we are heading toward an unhappy ending in this next telecom investment boom, just as with the last.

Posted by: Dimmy Karras on July 30, 2003 08:01 PM

This is truly a bet-the-company decision by Verizon. I am not sure why exactly they need to commit themselves to such a project now--perhaps they can do it more economically by saying they will do all of the states up front, and the publicity buzz can't hurt either. But I would think that a more prudent approach would be to do this for high density areas first, where they are most likely to turn a profit, and then decide how to proceed in the rest of their markets. The risks of competitors entering, technology advancing, regulation changing, etc. are enormous.

The stance of Verizon's telecom competitors troubles me as well. SBC seems to be taking a wait-and-see approach, vowing to get in if Verizon is making money, but will they be too late? There may be money to make in some parts of the country as a monopolist offering comprehensive fiber connections, though perhaps as a duopolist these profits disappear. This leaves SBC with the potential choice of being marginalized by a Verizon monopoly or losing money as their direct competitor in fiber. Having either an antitrust concern or another spat of bankruptcies in telecom are the alternative outcomes here, neither good. I fear we are heading toward an unhappy ending in this next telecom investment boom, just as with the last.

Posted by: Dimmy Karras on July 30, 2003 08:01 PM

This is truly a bet-the-company decision by Verizon. I am not sure why exactly they need to commit themselves to such a project now--perhaps they can do it more economically by saying they will do all of the states up front, and the publicity buzz can't hurt either. But I would think that a more prudent approach would be to do this for high density areas first, where they are most likely to turn a profit, and then decide how to proceed in the rest of their markets. The risks of competitors entering, technology advancing, regulation changing, etc. are enormous.

The stance of Verizon's telecom competitors troubles me as well. SBC seems to be taking a wait-and-see approach, vowing to get in if Verizon is making money, but will they be too late? There may be money to make in some parts of the country as a monopolist offering comprehensive fiber connections, though perhaps as a duopolist these profits disappear. This leaves SBC with the potential choice of being marginalized by a Verizon monopoly or losing money as their direct competitor in fiber. Having either an antitrust concern or another spat of bankruptcies in telecom are the alternative outcomes here, neither good. I fear we are heading toward an unhappy ending in this next telecom investment boom, just as with the last.

Posted by: Dimmy Karras on July 30, 2003 08:04 PM

This is truly a bet-the-company decision by Verizon. I am not sure why exactly they need to commit themselves to such a project now--perhaps they can do it more economically by saying they will do all of the states up front, and the publicity buzz can't hurt either. But I would think that a more prudent approach would be to do this for high density areas first, where they are most likely to turn a profit, and then decide how to proceed in the rest of their markets. The risks of competitors entering, technology advancing, regulation changing, etc. are enormous.

The stance of Verizon's telecom competitors troubles me as well. SBC seems to be taking a wait-and-see approach, vowing to get in if Verizon is making money, but will they be too late? There may be money to make in some parts of the country as a monopolist offering comprehensive fiber connections, though perhaps as a duopolist these profits disappear. This leaves SBC with the potential choice of being marginalized by a Verizon monopoly or losing money as their direct competitor in fiber. Having either an antitrust concern or another spat of bankruptcies in telecom are the alternative outcomes here, neither good. I fear we are heading toward an unhappy ending in this next telecom investment boom, just as with the last.

Posted by: Dimmy Karras on July 30, 2003 08:04 PM

RCNC is already doing this.

Posted by: Bruce Ferguson on July 30, 2003 08:49 PM

"Still, I hope it's true - if Verizon turns out to be as agressive in rolling out FTTH (Fiber To The Home) as promised, it may well prove to be the salvation of the I.T. industry."

"At the height of the telecom boom, I often wondered why it was that so many phone companies in Europe and the United States were willing to waste tens of billions of dollars on "3G" licences for which no real uses had yet been advocated, when it seemed obvious that this money would be better spent upgrading the old copper infrastructure to fiber wherever possible."

Fiber is yesterday's news. Wireless is the clear long-term winner. And in this case, "long term" means "within 2 decades, at most."

If Verizon spent $30 billion on a satellite system to provide wireless broadband, they could provide Internet service to every person on earth:

http://bear.cba.ufl.edu/teets/projects/ISM6222S303/reganpc/future.html

It simply doesn't make sense to go digging trenches or hanging lines to every single house on the block, if a wireless system can provide even close to the same bandwidth.

There are now more (wireless) cell phones sold than there are wired phones. It isn't at all unreasonable to think that, within a couple decades at most, there will be more wireless Internet connections each year than wired Internet connections.

Would you rather run a fiber line from the road to your house, and then to all the rooms of your house, or simply install a receiver on the outside of your house?:

http://www.techtv.com/news/internet/story/0,24195,3389078,00.html

(Note: The part about, "that receiver is hardwired to a personal computer using standard CAT 5 wiring" could easily be replaced with a wireless setup.)

Here's another wireless system:

http://www.spectrum.ieee.org/WEBONLY/publicfeature/jun03/bb.html

"With six wireless hubs, four of them attached to the wireline Internet by 45-Mb/s connections, BBSC might have the largest single wireless network in the world. It covers 1500 square kilometers and 1.5 million people. Its customers pay as little as US $50 a month for bit rates of 1 Mb/s in each network direction."

"Which technologies, and which companies, will control the last mile is still unknown. But just as many first-time telephone customers bypassed wireline and went straight to cellular in places like Hungary, Brazil, and China, for many individuals and businesses around the world, the broadband Internet will be wireless."

If Verizon goes through with this fiber plan, sell short on Verizon! ;-) There's no way in the world that they'll ever recover the costs they sink into such a system, in the brief time before wireless becomes king.

Posted by: Mark Bahner on July 31, 2003 09:24 AM

Mark,

Wireless hubs are all well and good, and in fact I was a big fan of LMDS not so long ago, but it remains a fact that wireless simply cannot match fiber for sheer bandwidth. Imagine a day when not just carriers, but individuals in their own homes, can expect to run multiple wavelengths down the same fiber; we're talking 10s of Gbps of bandwidth here, to each and every single home.

From a physics point of view, I fail to see how anything comparable could be provided by an omnidirectional broadcasting medium like wireless, short of either using gamma rays or allocating an ungodly amount of spectrum for WiFi usage. Maybe I'm wrong, and some clever engineer has already thought his way around these objections, but until he steps forward, I say FTTH is the way to go.

Posted by: Abiola Lapite on July 31, 2003 10:33 AM

Wireless is going to be big, but they're not going to be running video telephones on it.

Posted by: Jason McCullough on July 31, 2003 10:55 AM

G3 has the bandwidth to run video. Even mobile video. See http://www.gsmworld.com/technology/3g/intro.shtml

I woke up realizing that they're probably planning to pay for this with long-term video-on-demand contracts, taking the market from the existing cable television services. It's not clear to me that this is a viable business model, but if the contracts are expensive enough to cover installation, and they don't get too many people bailing, it won't lose money.

My guess is they are in fact over-optimistic. I'm very much concerned that the US wireline network is going to go the way of the US railroads. And telecomm could be run much more cheaply and well as a co-op, y'know.

Posted by: Randolph Fritz on July 31, 2003 11:26 AM

In Robert X. Cringely's July 3rd column he advocates DTMD
(or Dynamic Time Metered Delivery) which "applies to copper phone
lines many of the spread spectrum techniques developed for
radio communication." It offer 22 megabits per second out to
22,000 feet from the substations on standard copper twisted-wire
phone line (and lower bandwidths at longer distances).

Further you can additively stack phone lines in parallel to get
higher bandwidth. That is if you really needed 100 megabits per
second then five phone lines to the same DTMD modem should do it.

The only equipment the phone companies need to change is "replacing
line cards in [the] DSLAMs" at their substations. And of course
the customers need DTMD modems.

Obviously this would cost only a tiny fraction of putting fiber
to the curb and further it could be implemented in a very short
timespan. As Cringley points out with this kind of bandwidth the
local phone companies could, among other things, compete directly
with cable in supplying visual entertainment.

This is only an option for the ILECs, like Verizon, because obviously
they own the copper wires. No one else can do it. Assuming Cringley
isn't seriously mistaken about the technology, whether it happens
is then a question of internal company politics and personalities.

(see http://www.pbs.org/cringely/pulpit/pulpit20030703.html)

Posted by: Mark Amerman on July 31, 2003 03:27 PM

"The only equipment the phone companies need to change is "replacing line cards in [the] DSLAMs" at their substations. And of course the customers need DTMD modems."

Writes someone who doesn't know telecom. There is one line card for each wireline telephone, guy--more than 100 million of them. "The only equipment," sheesh. The only additional cost involved in installing fiber is pulling the copper out and pulling the fiber in. But I think Verizon is planning to sell the copper they pull, just like was done at higher levels of the network, and that might pay for the relatively small amount of extra labor. You may be sure their accountants have run the numbers--it's the kind of calculation they do all the time.

Posted by: Randolph Fritz on July 31, 2003 11:31 PM

Well, Randolph Fritz, while I admit to not knowning telecom,
I'm echoing a guy, Robert X. Cringley, who probably does and who
certainly knows a heck of a lot more than I do.

To my naive eye, replacing the line cards looks a lot easier
and cheaper (I suspect by an order of magnitude) than putting
in fiber. Putting in fiber is going to be manpower intensive,
that is to say expensive. Making DTMD line cards means ramping
up automated production lines which is expensive for the first
unit and cheap by the millionth.

DTMD line cards are also finely incremental. That is if understand
this correctly they can install these as they get customers
asking for it, while new fiber would be installed whole blocks
and substations at a time.

Posted by: Mark Amerman on August 1, 2003 05:15 AM
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