By David S. Isenberg
From America's Network, September 1, 1998
"Intelligence at the Edge" is a series of columns about technology's progress, headlong but superficially smooth, from a world of dumb telephones and isolated 8-kilobyte machines to a pervasively gigalinked world of networked networks. It will be about changing methods and markets, and our understanding of what these changes are, and what they mean.
Furthermore, "Intelligence at the Edge" is about how the locus of control and valueof networks and organizations is shifting from the center to the edge.
This column also will be about people, people at the edgethe edge of what we know, the edge of what we assume to be true. It will be about the people that hone the edge, push the edge and live on the edge. It'll be about the people who have been cut by it, gone over it and been pushed off it. And it'll be about the poor Dilberts in the middle who aren't finding safety and security there, because these days even the middle is on the edge.
Back in ancient history, waaaay back in 20 BWB (Before the Web Browser), pundits observed that information-processing hardware was getting cheaper, and the shift toward software was on. But only one person (a geeky kid from Seattle) demonstrably understood the full impact of what that shift meant.
Now, another shift is hitting the fan. A new communications network architecture has appeared, based not on network features but on raw, dumb connectivity. Value is moving from the innards of the network to devices at its edges. This is due to three factors:
It used to be that the value of intelligent networks was based on central control of scarce, shared resources. This value isn&'t exactly shrinking, but it is being overshadowed by innovations that are suddenly end-to-end, unleashed into a network that nobody needs to ask permission to try things out on. I call this new, unplanned, featureless, multiply-controlled, user-to-user network, "The Stupid Network."
The public switched telephone network (PSTN) is the most common path into The Stupid Network. It is the locus of great change and great resistance to change. The biggest resistance to change isyou guessed itat the edge, in the local loop.
Domestic long distance, in contrast, is poised to enter the marketplace. Historically, there has been a big fat profit margin in long distance. Profit margins on anything are high for either of two reasons:
The stuff is scarce; or There is a very exclusive club selling it.
In U.S. long distance, scarcity is a memory, and the old club is in disarray. A single strand of glass carrying 100 wavelengths of OC-192 could haul every call in the U.S. busy hour (if you routed them all to the same fiber). Qwest, Level 3, Williams, IXC and a bunch of new regional and international transport companies are putting down fatter, faster long-haul backbones than the world has ever seen. Incumbent carriers, in competitive response, are re-lighting and expanding their own mainline capacity. All fervently expect margins will remain high and traffic growth will stay strong. Traffic growth is in triple digits, but installed bandwidth is growing faster still. What if bandwidth supply grows faster than traffic?
When the scarce becomes abundant and club rules give way to marketplace economics, profit margins decrease. This could take the form of a gradual shift and market reorganization, or it could look like a price waror even a market collapse. A sudden price discontinuity could be ugly for the new long-haulers.
On the other hand, the incumbent local exchange carriers (ILECs) would love it. They have kept the local loop slow, ignoring or impeding 20-some years of technological progress. They'd be delighted to use their monopoly muscle and momentum to starve a few upstart long-haulers out of business. They'd love to buy newly installed assets at fire sale prices.
When the future is uncertain, there are multiple plausible futuresscenarios. One scenario is about a few "worldwide supercarriers," about rebuilding the exclusive club. It is the only plausible scenario with high margins and recognizable industry structure.
The Merger Dance of the Mating Monsters that we see today could end in the Clubhouse or the Marketplace. I'll be watching from the edge.
David S. Isenberg founded isen.com after 12 years at AT&T. He is the author of "The Rise of the Stupid Network. Why the Intelligent Network was once a good idea, but isn't anymore. One telephone company nerd's odd perspective on the changing value proposition." Isenberg's Website is http://www.isen.com/. Readers may direct comments to firstname.lastname@example.org.
Copyright 1998 Advanstar Communications.