Information Velocity Partners, LLC
Michael Elling, @infostack
michael@ivpcapital.com
973-222-0759

AMERICA’S REAL DEFICIT
2
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
3
MODERN DIGITAL INFORMATION REVOLUTION
Rate
Of
Change
Hi
Low
Telco
Monopoly
Wireless Monopoly
And USF
Carterfone
Modems/Fax
Cable licenses
Private
Inventions Equal Access for
Voice, Data, Wireless
1996
Telecom
Act
Special
Access
Deregulation
Broadband
Equal Access
Revoked
WiFi Equal
Access By
Steve Jobs
70-100% competition
30-70% competition
0-30% competition

WE KILLED MOORE & METCALFE 10 YEARS AGO
4
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

HOW TO KILL COMPETITION
• 1996 telecom act: a well intentioned farce
• open access not applied universally
• average cost models (TELRIC) out of touch with technology reality
• baby bells have singular (political) mission
• 2002 deregulate special access
• highly concentrated market
• easy to implement anti-competitive pricing
• mid-mile impact on last-mile margins kills latter
• 2002-05 band-x
• universal death of equal access
• final consolidation of baby bells and IXCs (rebuilding Mama)
5
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

COMPETITORS & CAPITAL MARKETS NOT BLAMELESS
• vertical business models
• that’s the way it was done
• digital fundamentally different from analog (not understood in 80s-90s)
• easiest way to maintain monopoly
• antithesis of smart capital
• classic irrational exuberance
• opex/capex tradeoffs not well understood
• linkages between upper & lower layers & across networks not perceived
• antithesis of good analysis
• price cap and rate of return trained
• rapidly evolving landscape provided few historical markers
• inability to model supply and demand drivers
6
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

• wired vs wireless
• telco vs cable
• video vs voice
• broadcast vs 2-way
• pc vs smartphone
7
WHY? CONFLICTING & CONFUSING FORCES
• mobility/BYOD
• blogging/tweeting
• social networks
• app ecosystems
• 4 screens
• old business models & network/service definitions gone
• end-user wants choice, flexibility and control
• role of corporation, institution, individual all changing
divergence of demandconvergence of supply
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

•fcc: broadband summit: adoption &
usage february 7, 2013
•silicon flatirons: digital broadband
migration february 10-11, 2013
•isen.com: freedom2connect march 4-5,
2013
•fcc: 3.5Ghz workshop march 13, 2013
•fcc: technology transitions policy task
force workshop march 18, 2013
•free state foundation: completing the
transition to digital march 21, 2013
•fcc: gigabit communities workshop
march 27, 2013
•no focus on marginal cost or cost
savings
• it’s all high investment & high growth
• everything is new; revolution, not evolution
• big & confusing challenges ahead
•no focus on changed or changing
network theory
• “its just a technology transition”
• nothing learned from recent past
• perpetuating failures of the pre-1983 past
•no clear consistent path
• lack of good data
• muddle along strategy
• lots of illogical and inconsistent policy
• “less” regulation because of “bad” regulation
8
TODAY: WHAT STAKEHOLDERS AREN’T SAYING
key industry discussions net takeaways
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

HOW DO WE GET FROM A TO D?
9
i. it’s not about
• regulation vs deregulation
• competition vs monopoly
• liberal vs conservative
ii. it is about
• analog vs digital
• closed vs open
• vertical vs horizontal
• average cost vs marginal cost
• moore’s, metcalfe’s AND zipf’s* laws
*--3 major laws behind network theory, moore is processing,
metcalfe is network effect, zipf is congestion management
set priorities determine approach
i. learn from 3 prior digital shifts (WAN, data,
wireless) and role of equal access & pricing
ii. get on same page semantically; stop debating
meaning (like ‘net neutrality’)
iii. rigorous data collection and analysis
(quantitative and qualitative)
iv. develop ex ante marginal cost models clearing
expected supply and demand
v. develop a “communications graph” and
common reference framework
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

MOORE IS ALIVE AND WELL
10
Source: Matthew Komorowski.
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

DIGITAL PRICE REFLECTS MARGINAL COST
analog: 20 cents
digital**: 2 cents
coax: $450
fiber***: $45
11
1996: marginal cost
of wireless minute*
2013: marginal cost
of broadband gigabyte
*--1983: voice digitization, 1990: data digitization
**--imputed from MicroCell 400/$40 bucket
***--imputed from Google KC $70/gig price
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
12
Supply Demand
Cost User-Interface
Coverage Usability
Capacity Ubiquity
Clarity Universality
SUPPLY & DEMAND MODELED “EX ANTE”
DRIVES MARGINAL COST & PRICING

SUPPLY/DEMAND MODELED ACROSS THE STACK
• geographic boundaries
• location and density of demand
• network assets and boundary points
• fixed vs mobile
• traffic type
• service layers
• broadly defined by lower, middle and upper layers
• narrowly defined by: physical, transport, switch, control, session,
billing, application
• vertical completeness vs integration
• horizontal scale counters rapid obsolescence
• application/market clouds
• commercial, institutional, residential
• work, social, play
• text, data, voice, multimedia, video
• every individual uniquely situated
13
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

A 3-D COMMUNICATIONS GRAPH & REFERENCE MODEL
14
geography/density
servicelayers
• consistent
• objective
• comprehensive
• common language
• illustrative and graphic
• highlights relationships
• educational
• promotes data collection
• aids supply/demand modeling
• estimate marginal cost at every
layer and boundary point
the infostack™ why?
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

IS COMPLEXITY BEST UNDERSTOOD THIS WAY?
15
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

OR USING A CONSISTENT GRAPH TO MODEL PAST &
FUTURE?
16
Fiber/Wlx/HetNets
Ethernet/MPLS
IP/Opto-electric
Mediation/SDN/CDN
Session Control/Settlements
Application Billing/Support
Communication/Commerce/Content
Applications
“the past = vertically integrated biz models
bound by geographic & regulatory constraints” “the future = horizontally scaled intranets
serve infinite demand”
infinite market segments,
generative competition, and
virtual economies
silo-ed supply/demand,
non-generative markets
Upper
vs
boundaries vary
by application
& market
segment
across
layers
Middle
Lower
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

A GRAPH TO OBJECTIVELY UNDERSTAND
• the cloud, the smartphone, OTT
• hetnets, technology and business model transitions
• interoperability, device availability, roaming
• USF and rural broadband reform and development
• spectrum allocation, reuse, sharing
• backhaul and mid-mile costing; transport caching and CDNs
• development of balanced settlement solutions
• corporate VPNs and centralized procurement
• equal access, net neutrality and monopoly bottlenecks
• prices, terms and bundles
• marginal cost of operations and investment
• restructuring and repurposing of existing assets & companies
17
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

INTERCONNECTION AND OPEN ACCESS WORKS
• Dial 1 equal access
• Computer 2/3
• Wireless A/B/PCS interconnect/roaming
• Number portability
• Must carry
• WiFi/802.11
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
18

Applications
Networks
App/Net A
Settlement
Exchanges App/Net B
CLEARING TRAFFIC NORTH-SOUTH & EAST-WEST
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
19

LEADING TO FAST INTERNET FREE EVERYWHERE
• huh? but doesn’t someone always pay?
• yes, but remember that 3 digital waves in 80s-90s taught us much about equal
access and marginal cost…
• …& got us to where we are; but few have learned the lessons
• 17 years of competition in the WAN led to 90% of long-distance communication
thought of, perceived as, or actually was, “free”
• despite that industry revenues in 2000 > 1983
• same trends in internet, cloud and wireless (802.11 fully, 1G-4G partly)
• price reflecting marginal cost at every layer and boundary point is highly
generative and stimulative (look at google fiber kc)
• balanced settlements will lead to new services, infrastructure investment and
centralized procurement and subsidization
• competition leads to ubiquitous and universal (free) service: fife
20
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C

PAST FORMS OF FREE
• 800
• VPN
• Ad sponsored content
• WiFi
• Email
y
z
x
infostack™
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C
21

22
FIFE
Efife
Michael Elling
Information Velocity Partners (IVP)
michael@ivpcapital.com
973-222-0759
© I N F O R M A T I O N V E L O C I T Y P A R T N E R S , L L C