Stand by for huge growth of lightning-fast internet

By RICHARD BRADDELL*

If incumbent telecommunications companies seemed to have it all their own way in the past decade, that will not be so in the next. The old strategies of dragging their feet on interconnection and number portability may have a little life left in them, but market forces and new technologies are already shifting the balance dramatically.

In the view of Lucent Technologies, the world's largest telecommunications equipment maker, the move by Telecom to take over Australia's AAPT, and Australian incumbent Telstra's plans to forge an alliance through a $A5 billion ($6.49 billion) investment in Hong Kong's PCCW, are typical of efforts by incumbents to build positions in new markets as competitors ensure that their home market share declines.

That does not mean that all is over for incumbents in their home markets. If they play things right they will capture a share of a burgeoning market for high-speed internet and data services that will soon become more important than dial-up internet connections.

According to Lucent executive Bill Allard, the days when networks could charge consumers for time and distance and businesses for bandwidth are nearing an end as competitors sweep in offering services using new technologies that are much faster and cheaper than the incumbents' legacy networks.

To prosper, networks are going to have to offer value added services that potentially will incorporate the cost of delivery, rather than being an extra price on top. As that happens, Metcalf's Law, an old axiom of telecommunications that states that the value of a network rises according to the square of its customers, will be joined by "Lucent's Corollary" which says that the number of users increases according to the square of the number of services offered.

Just what those services are and what alliances will be forged to make them happen remains to be seen. But they will depend on new high-bandwidth telecommunications backbones that will use a variety of mobile and fixed wire technologies to deliver services yet to be dreamed of to the end user.

When talking about a new technology, telecommunications commentators typically compare the pace of development with those of the past. It took four years, for instance, for cellular subscribers to grow to one million and many more years for internet subscribers to reach that number.

But although still in its infancy, broadband uptake has eclipsed that of any other communications technology, reaching its first one million connections in little more than a year. The reason lies in the huge popularity of the internet, despite its sluggish ways and unreliability in its narrowband existence.

Broadband puts the internet on steroids, and with speeds usually beginning at 10 times the best dial-up modems, it is easy to see why people who have broadband connections say they will never go back to the old ways.

As in most places, broadband in New Zealand is still very much in its infancy. Telecom is just ramping up the marketing of its DSL based Jetstream service, while the same is true of Telstra Saturn, which is starting to push its cable modem services in Wellington.

Ihug and Walker Wireless are also pushing broadband, using satellite and wireless. But to deliver broadband requires huge investment in infrastructure. Speaking at an international media day in Hong Kong last week, Lucent's president of international operations, Michael Butcher, estimated that $US200 billion ($446 billion) was being spent this year in "next-generation" networks, much of that going into submarine cables such as the $US1 billion Southern Cross fibre optic one that will connect New Zealand with North America at the end of the year.

That is only the beginning, with Mr Butcher reckoning that more than $US1 trillion will be spent to create the telecommunications environment of the 21st century.

Already, demand for fibre optic cabling, the core of any broadband network, is double to treble present production and manufacturers are making huge investments in new capacity to keep up with demand.

And while there may be a measure of fuzziness about the services that might ultimately be provided, that is not for want of ideas. Mobile internet banking and shopping, if not quite here yet, is not far off. But the ideas are much bigger than that.

E-mail, static web pages and internet radio are old hat. But video streaming, virtual video games, video telephony, voice data and video telecommuting, tele-education, TV downloads, interactive shopping, broadcast TV and interactive TV will soon start demanding ever-increasing amounts of capacity.

While now there is broadcasting, soon there will be webcasting, or broadcasting over the internet, not necessarily to broad audiences, but to particular interest groups. They could be students catching a university lecture on their home PCs or televisions, or, in the ultimate Lucent dream, a father away on business viewing live video of his son's soccer match on his mobile phone.

But there can be no question that the demand is there. Already, there is a booming business for "cyber carriers" who have set up to service application service providers (ASPs) as well as their better known internet service provider cousins.

Application service providers simply provide software to rent. According to Mr Allard: "Even visionaries like Bill Gates have vastly underestimated the growth and rapid development of applications once you remove [bandwidth] bottlenecks."

Demand for application provider services will be driven by smaller businesses that cannot afford to develop software on their own. But the faster times to market, scalability and cost savings, not to mention the scarcity of IT staff, are not being lost on their bigger peers who are increasingly looking to application providers to meet their software needs.

Already, there are 500 "data centres" around the world offering facilities hosting for application service providers, as well as internet providers. Lucent predicts a further 1000 within two to three years.

But if the demands on networks seem huge, the ability of technology to deliver is growing exponentially as well. A critical factor in that is a shift in networks on electronics to optics, hence, as Lucent puts it, the economy of light.

Once confined to transmitting to the distance backbone via fibre optic cabling, optical technologies are moving ever closer to the consumer with lower maintenance fibre optic cables reaching their way deeper into local networks.

And when once, only one wavelength of light could be send down a fibre optic cable, now a thousand can, each colour offering many times the carrying capacity. But while converting messages into light and sending them shooting down fibre optic cables is relatively cheap, some operations must still be done electronically, requiring expensive conversions of light back into electricity.

That includes the switches in the exchanges that sit at the heart of any network. By the end of the year, that may well change with Lucent expecting to have its first optical exchange switch on the market and optical switches will be cheaper to use.

Whereas as the performance of electronics doubles every 18 to 24 months, the same doubling of performance in optics is happening every year.

*Richard Braddell went to Hong Kong as a guest of Lucent Technologies.