SMS costs in Canada are already disproportionately high versus the unrealistically high costs for SMS across the entire wireless industry. This article suggests that SMS costs are, in the aggregate, 4x higher than getting data from the Hubble space telescope. Global SMS revenues are larger than the Hollywood movie, music and video game industries combined.

The quote from the Telus spokesperson is hilarious:

“The growth in text messages has been nothing short of phenomenal,” wrote Telus spokeswoman Anne-Julie Gratton in an e-mail to The Globe and Mail, “This volume places tremendous demands on our network and we can’t afford to provide this service for free any more.”

The same article refers to the latest statistics from the Canadian Wireless Telecommunications Association that pegs the number of text messages sent in Canada at more than 45.3 million per day. According to recent reports from IEMR the number of wireless subscribers in Canada was 20.4 million in 2007, and wireless subscribers in the UK (which has roughly double the population of Canada) for the same year numbered 71.7 million. Sweden, with a third of the population of Canada’s has better than half as many subscribers. Canada is trending remarkably behind nearly every comparable western nation.

These stats are great, in that they illustrate the problem with subscriber growth that shareholders and analysts are presently appreciating. There’s clearly something wrong with the wireless business in Canada, and it’s not something that the recent spectrum auctions are likely to quickly address.

Allow me to translate Ms. Gratton’s TelecomSpeak in a way that more accurately reflects what went down in the boardroom:

“The growth in text messages has been nothing short of phenomenal,” said Telus’ Business Development Manager, “This is an unprecedented opportunity to exact greater revenue from the customer base without spending a penny on service development!”

The Canadian wireless market has been infantilised by the greed and short-sightedness of our wireless carriers and the mismanagement of our asleep-at-the-wheel regulators. Whereas (according to Wikipedia) the average user in the Philippines sends 10-12 text messages a day, doing some quick math from the stats above reveals that the average Canadian use of text messaging is far lower at 2-3 messages per day.

Still, this 45.3 million SMS messages per month business must be creating a stress on the Telus service network, you’d think. Right?

Well, if you send 45.3 million SMS messages all at the maximum size of 140 characters, you’ll get almost 6 Gigabytes in total storage volume – or, roughly the size of the hard drive I had on my IBM Thinkpad in 1999. That’s a lot of data to store (in 1972, that is). At the end of the day, this means that the entire Canadian SMS relay network has to be able to sustain about 144Kb/s of data transfer (thanks to Gersham for helping me with the math). My Mac Mini has a 1GB/s ethernet interface and is ultimately connected to a (for Canada anyway) smokin’ 30MB/s internet pipe this means that I could personally store-and-forward all of Canada’s SMS traffic myself via my Novus broadband in Yaletown, and it would have limited impact on my BitTorrenting.

SMS uses the signaling overlay path of wireless carrier networks, and from the wireless perspective SMS messages ride in the carrier byte packet. As such it costs the network exactly nothing and uses no bandwidth that isn’t already in use — traffic load is the same on the network even if no SMS messages are being transferred. The networks themselves need to invest in this infrastructure anyway, so there is perhaps an added provisioning and data processing impact created by SMS for wireless carrier network planners, but it is not substantial.

For TELUS to suggest that this traffic is in any way meaningfully impactful to their operating costs suggests that either they’re lying, or perhaps they should go back to operating mechanical switches.

This is a cash grab. Pure and simple. But then, you knew that…

Permanet, Nearlynet, and Wireless Data First published March 28, 2003 on the “Networks, Economics, and Culture” mailing list. Subscribe to the mailing list.

“The future always comes too fast and in the wrong order.” — Alvin Toffler

For most of the past year, on many US airlines, those phones inserted into the middle seat have borne a label reading “Service Disconnected.” Those labels tell a simple story — people don’t like to make $40 phone calls. They tell a more complicated one as well, about the economics of connectivity and about two competing visions for access to our various networks. One of these visions is the one everyone wants — ubiquitous and convenient — and the other vision is the one we get — spotty and cobbled together.

Call the first network “perma-net,” a world where connectivity is like air, where anyone can send or receive data anytime anywhere. Call the second network “nearly-net”, an archipelago of connectivity in an ocean of disconnection. Everyone wants permanet — the providers want to provide it, the customers want to use it, and every few years, someone announces that they are going to build some version of it. The lesson of in-flight phones is that nearlynet is better aligned with the technological, economic, and social forces that help networks actually get built. The most illustrative failure of permanet is the airphone. The most spectacular was Iridium. The most expensive will be 3G.

“I’m (Not) Calling From 35,000 Feet”

The airphone business model was obvious — the business traveler needs to stay in contact with the home office, with the next meeting, with the potential customer. When 5 hours of the day disappears on a flight, value is lost, and business customers, the airlines reasoned, would pay a premium to recapture that value.

The airlines knew, of course, that the required investment would make in-flight calls expensive at first, but they had two forces on their side. The first was a captive audience — when a plane was in the air, they had a monopoly on communication with the outside world. The second was that, as use increased, they would pay off the initial investment, and could start lowering the cost of making a call, further increasing use.

What they hadn’t factored in was the zone of connectivity between the runway and the gate, where potential airphone users were physically captive, but where their cell phones still worked. The time spent between the gate and the runway can account for a fifth of even long domestic flights, and since that is when flight delays tend to appear, it is a disproportionately valuable time in which to make calls.

This was their first miscalculation. The other was that they didn’t know that competitive pressures in the cell phone market would drive the price of cellular service down so fast that the airphone would become more expensive, in relative terms, after it launched.

The negative feedback loop created by this pair of miscalculations marginalized the airphone business. Since price displaces usage, every increase in the availability on cell phones or reduction in the cost of a cellular call meant that some potential users of the airphone would opt out. As users opted out, the projected revenues shrank. This in turn postponed the date at which the original investment in the airphone system could be paid back. The delay in paying back the investment delayed the date at which the cost of a call could be reduced, making the airphone an even less attractive offer as the number of cell phones increased and prices shrank still further.

66 Tears

This is the general pattern of the defeat of permanet by nearlynet. In the context of any given system, permanet is the pattern that makes communication ubiquitous. For a plane ride, the airphone is permanet, always available but always expensive, while the cell phone is nearlynet, only intermittently connected but cheap and under the user’s control.

The characteristics of the permanet scenario — big upfront investment by few enough companies that they get something like monopoly pricing power — is usually justified by the assumption that users will accept nothing less than total connectivity, and will pay a significant premium to get it. This may be true in scenarios where there is no alternative, but in scenarios where users can displace even some use from high- to low-priced communications tools, they will.

This marginal displacement matters because a permanet network doesn’t have to be unused to fail. It simply has to be underused enough to be unprofitable. Builders of large networks typically overestimate the degree to which high cost deflects use, and underestimate the number of alternatives users have in the ways they communicate. And in the really long haul, the inability to pay off the initial investment in a timely fashion stifles later investment in upgrading the network.

This was the pattern of Iridium, Motorola’s famously disastrous network of 66 satellites that would allow the owner of an Iridium phone to make a phone call from literally anywhere in the world. This was permanet on a global scale. Building and launching the satellites cost billions of dollars, the handsets cost hundreds, the service cost dollars a minute, all so the busy executive could make a call from the veldt.

Unfortunately, busy executives don’t work in the veldt. They work in Pasedena, or Manchester, or Caracas. This is the SUV pattern — most SUV ads feature empty mountain roads but most actual SUVs are stuck in traffic. Iridium was a bet on a single phone that could be used anywhere, but its high cost eroded any reason use an Iridium phone in most of the perfectly prosaic places phone calls actually get made.

3G: Going, Going, Gone

The biggest and most expensive permanet effort right now is wireless data services, principally 3G, the so-called 3rd generation wireless service, and GPRS, the General Packet Radio Service (though the two services are frequently lumped together under the 3G label.) 3G data services provide always on connections and much higher data rates to mobile devices than the widely deployed GSM networks do, and the wireless carriers have spent tens of billions worldwide to own and operate such services. Because 3G requires licensed spectrum, the artificial scarcity created by treating the airwaves like physical property guarantees limited competition among 3G providers.

The idea here is that users want to be able to access data any time anywhere. This is of course true in the abstract, but there are two caveats: the first is that they do not want it at any cost, and the second and more worrying one is that if they won’t use 3G in environments where they have other ways of connecting more cheaply.

The nearlynet to 3G’s permanet is Wifi (and, to a lesser extent, flat-rate priced services like email on the Blackberry.) 3G partisans will tell you that there is no competition between 3G and Wifi, because the services do different things, but of course that is exactly the problem. If they did the same thing, the costs and use patterns would also be similar. It’s precisely the ways in which Wifi differs from 3G that makes it so damaging.

The 3G model is based on two permanetish assumptions — one, that users have an unlimited demand for data while traveling, and two, that once they get used to using data on their phone, they will use it everywhere. Both assumptions are wrong.

First, users don’t have an unlimited demand for data while traveling, just as they didn’t have an unlimited demand for talking on the phone while flying. While the mobile industry has been telling us for years that internet-accessible cellphones will soon outnumber PCs, they fail to note that for internet use, measured in either hours or megabytes, the PC dwarfs the phone as a tool. Furthermore, in the cases where users do demonstrate high demand for mobile data services by getting 3G cards for their laptops, the network operators have been forced to raise their prices, the opposite of the strategy that would drive use. Charging more for laptop use makes 3G worse relative to Wifi, whose prices are constantly falling (access points and Wifi cards are now both around $60.)

The second problem is that 3G services don’t just have the wrong prices, they have the wrong kind of prices — metered — while Wifi is flat-rate. Metered data gives the user an incentive to wait out the cab ride or commute and save their data intensive applications for home or office, where sending or receiving large files creates no additional cost. The more data intensive a users needs are, the greater the price advantage of Wifi, and the greater their incentive to buy Wifi equipment. At current prices, a user can buy a Wifi access point for the cost of receiving a few PDF files over a 3G network, and the access point, once paid for, will allow for unlimited use at much higher speeds.

The Vicious Circle

In airline terms, 3G is like the airphone, an expensive bet that users in transit, captive to their 3G provider, will be happy to pay a premium for data communications. Wifi is like the cell phone, only useful at either end of travel, but providing better connectivity at a fraction of the price. This matches the negative feedback loop of the airphone — the cheaper Wifi gets, both in real dollars and in comparison to 3G, the greater the displacement away from 3G, the longer it will take to pay back the hardware investment (and, in countries that auctioned 3G licenses, the stupefying purchase price), and the later the day the operators can lower their prices.

More worryingly for the operators, the hardware manufacturers are only now starting to toy with Wifi in mobile devices. While the picture phone is a huge success as a data capture device, the most common use is “Take picture. Show friends. Delete.” Only a fraction of the photos that are taken are sent over 3G now, and if the device manufacturers start making either digital cameras or picture phones with Wifi, the willingness to save a picture for free upload later will increase.

Not all permanets end in total failure, of course. Unlike Iridium, 3G is seeing some use, and that use will grow. The displacement of use to cheaper means of connecting, however, means that 3G will not grow as fast as predicted, raising the risk of being too little used to be profitable.

Partial Results from Partial Implementation

In any given situation, the builders of permanet and nearlynet both intend to give the customers what they want, but since what customers want is good cheap service, it is usually impossible to get there right away. Permanet and nearlynet are alternate strategies for evolving over time.

The permanet strategy is to start with a service that is good but expensive, and to make it cheaper. The nearlynet strategy is to start with a service that is lousy but cheap, and to make it better. The permanet strategy assumes that quality is the key driver of a new service, and permanet has the advantage of being good at every iteration. Nearlynet assumes that cheapness is the essential characteristic, and that users will forgo quality for a sufficient break in price.

What the permanet people have going for them is that good vs. lousy is not a hard choice to make, and if things stayed that way, permanet would win every time. What they have going against them, however, is incentive. The operator of a cheap but lousy service has more incentive to improve quality than the operator of a good but expensive service does to cut prices. And incremental improvements to quality can produce disproportionate returns on investment when a cheap but lousy service becomes cheap but adequate. The good enough is the enemy of the good, giving an edge over time to systems that produce partial results when partially implemented.

Permanet is as Permanet Does

The reason the nearlynet strategy is so effective is that coverage over cost is often an exponential curve — as the coverage you want rises, the cost rises far faster. It’s easier to connect homes and offices than roads and streets, easier to connect cities than suburbs, suburbs than rural areas, and so forth. Thus permanet as a technological condition is tough to get to, since it involves biting off a whole problem at once. Permanet as a personal condition, however, is a different story. From the user’s point of view, a kind of permanet exists when they can get to the internet whenever they like.

For many people in the laptop tribe, permanet is almost a reality now, with home and office wired, and any hotel or conference they attend Wifi- or ethernet-enabled, at speeds that far outstrip 3G. And since these are the people who reliably adopt new technology first, their ability to send a spreadsheet or receive a web page faster and at no incremental cost erodes the early use the 3G operators imagined building their data services on.

In fact, for many business people who are the logical customers for 3G data services, there is only one environment where there is significant long-term disconnection from the network: on an airplane. As with the airphone itself, the sky may be a connection-poor environment for some time to come, not because it isn’t possible to connect it, but because the environment on the plane isn’t nearly nearlynet enough, which is to say it is not amenable to inexpensive and partial solutions. The lesson of nearlynet is that connectivity is rarely an all or nothing proposition, much as would-be monopolists might like it to be. Instead, small improvements in connectivity can generally be accomplished at much less cost than large improvements, and so we continue growing towards permanet one nearlynet at a time. First published March 28, 2003 on the “Networks, Economics, and Culture” mailing list. Subscribe to the mailing list.

Customer-owned Networks: ZapMail and the Telecommunications Industry First published January 7, 2003 on the ‘Networks, Economics, and Culture’ mailing list. By Clay Shirky

To understand what’s going to happen to the telephone companies this year thanks to WiFi (otherwise known as 802.11b) and Voice over IP (VoIP) you only need to know one story: ZapMail.

The story goes like this. In 1984, flush from the success of their overnight delivery business, Federal Express announced a new service called ZapMail, which guaranteed document delivery in 2 hours. They built this service not by replacing their planes with rockets, but with fax machines.

This was CEO Fred Smith’s next big idea after the original delivery business. Putting a fax machine in every FedEx office would radically reconfigure the center of their network, thus slashing costs: toner would replace jet fuel, bike messenger’s hourly rates would replace pilot’s salaries, and so on. With a much less expensive network, FedEx could attract customers with a discount on regular delivery rates, but with the dramatically lower costs, profit margins would be huge compared to actually moving packages point to point. Lower prices, higher margins, and to top it all off, the customer would get their documents in 2 hours instead of 24. What’s not to love?

Abject failure was not to love, as it turned out. Two years and hundreds of millions of dollars later, FedEx pulled the plug on ZapMail, allowing it to vanish without a trace. And the story of ZapMail’s collapse holds a crucial lesson for the telephone companies today.

The Customer is the Competitor

ZapMail had three fatal weaknesses.

First of all, Federal Express didn’t get that faxing was a product, not a service. FedEx understood that faxing would be cheaper than physical delivery. What they missed, however, was that their customers understood this too. The important business decision wasn’t when to pay for individual faxes, as the ZapMail model assumed, but rather when to buy a fax machine. The service was enabled by the device, and the business opportunity was in selling the devices.

Second, because FedEx thought of faxing as a service, it failed to understand how the fax network would be built. FedEx was correct in assuming it would take hundreds of millions of dollars to create a useful network. (It has taken billions, in fact, over the last two decades.) However, instead of the single massive build out FedEx undertook, the network was constructed by individual customers buying one fax machine at a time. The capital expenditure was indeed huge, but it was paid for in tiny chunks, at the edges of the network.

Finally, because it misunderstood how the fax network would be built, FedEx misunderstood who its competition was. Seeing itself in the delivery business, it thought it had only UPS and DHL to worry about. What FedEx didn’t see was that its customers were its competition. ZapMail offered two hour delivery for slightly reduced prices, charged each time a message was sent. A business with a fax machine, on the other hand, could send and receive an unlimited number of messages almost instantaneously and at little cost, for a one-time hardware fee of a few hundred dollars.

There was simply no competition. ZapMail looked good next to FedEx’s physical delivery option, but compared to the advantages enjoyed by the owners of fax machines, it was laughable. If the phone network offered cheap service, it was better to buy a device to tap directly into that than to allow FedEx to overcharge for an interface to that network that created no additional value. The competitive force that killed ZapMail was the common sense of its putative users.

ZapPhone

The business Fred Smith imagined being in — build a network that’s cheap to run but charge customers as it if were expensive — is the business the telephone companies are in today. They are selling us a kind of ZapPhone service, where they’ve digitized their entire network up to the last mile, but are still charging the high and confusing rates established when the network was analog.

The original design of the circuit-switched telephone network required the customers to lease a real circuit of copper wire for the duration of their call. Those days are long over, as copper wires have been largely replaced by fiber optic cable. Every long distance phone call and virtually every local call is now digitized for at least some part of its journey.

As FedEx was about faxes, the telephone companies are in deep denial about the change from analog to digital. A particularly clueless report written for the telephone companies offers this choice bit of advice: Telcos gain billions in service fees from […] services like Call Forwarding and Call Waiting […]. Hence, capex programs that shift a telco, say, from TDM to IP, as in a softswitch approach that might have less capital intensity, must absolutely preserve the revenue stream. [ http://www.proberesearch.com/alerts/refocusing.htm] You don’t need to know telephone company jargon to see that this is the ZapMail strategy.

Step #1: Scrap the existing network, which relies on pricey hardware switches and voice-specific protocols like Time Division Multiplexing (TDM). Step #2: Replace it with a network that runs on inexpensive software switches and Internet Protocol (IP). This new network will cost less to build and be much cheaper to run. Step #3: “Preserve the revenue stream” by continuing to charge the prices from the old, expensive network.

This will not work, because the customers don’t need to wait for the telephone companies to offer services based on IP. The customers already have access to an IP network — it’s called the internet. And like the fax machine, they are going to buy devices that enable the services they want on top of this network, without additional involvement by the telephone companies.

Two cheap consumer devices loom large on this front, devices that create enormous value for the owners while generating little revenue for the phone companies. The first is WiFi access points, which allow the effortless sharing of broadband connections, and the second is VoIP converters, which provide the ability to route phone calls over the internet from a regular phone.

WiFi — Wireless local networks

In classic ZapMail fashion, the telephone companies misunderstand the WiFi business. WiFi is a product, not a service, and they assume their competition is limited to other service companies. There are now half a dozen companies selling wireless access points; at the low end, Linksys sells a hundred dollar device for the home that connects to DSL or cable modems, provides wireless access, and has a built-in ethernet hub to boot. The industry has visions of the “2nd phone line” effect coming to data networking, where multi-computer households will have multiple accounts, but if customers can share a high-speed connection among several devices with a single product, the service business will never materialize.

The wireless ISPs are likely to fare no better. Most people do their computing at home or at work, and deploying WiFi to those two areas will cost at worst a couple hundred dollars, assuming no one to split the cost with. There may be a small business in wiring “third places” — coffee shops, hotels, and meeting rooms — but that will be a marginal business at best. WiFi is the new fax machine, a huge value for consumers that generates little new revenue for the phone companies. And, like the fax network, the WiFi extension to the internet will cost hundreds of millions of dollars, but it will not be built by a few companies with deep pockets. It will be built by millions of individual customers, a hundred bucks at a time.

VoIP — Phone calls at internet prices

Voice over IP is another area where a service is becoming a product. Cisco now manufactures an analog telephone adapter (ATA) with a phone jack in the front and an ethernet jack in the back. The box couldn’t be simpler, and does exactly what you’d expect a box with a phone jack in the front and an ethernet jack in the back to do. The big advantage is that unlike the earlier generation of VoIP products — “Now you can use your computer as a phone!” — the ATA lets you use your phone as a phone, allowing new competitors to offer voice service over any high-speed internet connection.

Vonage.com, for example, is giving away ATAs and offering phone service for $40 a month. Unlike the complex billing structures of the existing telephone companies, Vonage prices the phone like an ISP subscription. A Vonage customer can make an unlimited number of unlimited-length domestic long distance calls for their forty bucks, with call waiting, call forwarding, call transfer, web-accessible voicemail and caller ID thrown in free. Vonage can do this because, like the telephone companies, they are offering voice as an application on a digital network, but unlike the phone companies, they are not committed to charging the old prices by pretending that they are running an analog network.

Voice quality is just one feature among many

True to form, the telephone companies also misunderstand the threat from VoIP (though here it is in part because people have been predicting VoIPs rise since 1996.) The core of the misunderstanding is the MP3 mistake: believing that users care about audio quality above all else. Audiophiles confidently predicted that MP3s would be no big deal, because the sound quality was less than perfect. Listeners, however, turned out to be interested in a mix of things, including accessibility, convenience, and price. The average music lover was willing, even eager, to give up driving to the mall to buy high quality but expensive CDs, once Napster made it possible to download lower quality but free music.

Phone calls are like that. Voice over IP doesn’t sound as good as a regular phone call, and everyone knows it. But like music, people don’t want the best voice quality they can get no matter what the cost, they want a minimum threshold of quality, after which they will choose phone service based on an overall mix of features. And now that VoIP has reached that minimum quality, VoIP offers one feature the phone companies can’t touch: price.

The service fees charged by the average telephone company (call waiting, caller ID, dial-tone and number portability fees, etc) add enough to the cost of a phone that a two-line household that moved only its second line to VoIP could save $40 a month before making their first actual phone call. By simply paying for the costs of the related services, a VoIP customer can get all their domestic phone calls thrown in as a freebie.

As with ZapMail, the principal threat to the telephone companies’ ability to shrink costs but not revenues is their customers’ common sense. Given the choice, an increasing number of customers will simply bypass the phone company and buy the hardware necessary to acquire the service on their own.

And hardware symbiosis will further magnify the threat of WiFi and VoIP. The hardest part of setting up VoIP is simply getting a network hub in place. Once a hub is installed, adding an analog telephone adapter is literally a three-plug set-up: power, network, phone. Meanwhile, one of the side-effects of installing WiFi is getting a hub with open ethernet ports. The synergy is obvious: Installing WiFi? You’ve done most of the work towards adding VoIP. Want VoIP? Since you need to add a hub, why not get a WiFi-enabled hub? (There are obvious opportunities here for bundling, and later for integration — a single box with WiFi, Ethernet ports, and phone jacks for VoIP.)

The economic logic of customer owned networks

According to Metcalfe’s Law, the value of an internet connection rises with the number of users on the network. However, the phone companies do not get to raise their prices in return for that increase in value. This is a matter of considerable frustration to them.

The economic logic of the market suggests that capital should be invested by whoever captures the value of the investment. The telephone companies are using that argument to suggest that they should either be given monopoly pricing power over the last mile, or that they should be allowed to vertically integrate content with conduit. Either strategy would allow them to raise prices by locking out the competition, thus restoring their coercive power over the customer and helping them extract new revenues from their internet subscribers.

However, a second possibility has appeared. If the economics of internet connectivity lets the user rather than the network operator capture the residual value of the network, the economics likewise suggest that the user should be the builder and owner of the network infrastructure.

The creation of the fax network was the first time this happened, but it won’t be the last. WiFi hubs and VoIP adapters allow the users to build out the edges of the network without needing to ask the phone companies for either help or permission. Thanks to the move from analog to digital networks, the telephone companies’ most significant competition is now their customers, because if the customer can buy a simple device that makes wireless connectivity or IP phone calls possible, then anything the phone companies offer by way of competition is nothing more than the latest version of ZapMail.

———–

The city is creating a broadband network using infrastructure built in the 1800s. By Robin Gareiss, InformationWeek Nov 4, 2002 (12:00 AM) URL: http://www.informationweek.com/story/IWK20021101S0032

Talk about a long-term investment In the late 1800s, Milwaukee city workers buried more than 500 miles of ductwork under the streets to carry telegraph wires. Those same ducts started carrying optical fiber in the late 1980s. And now, the city is adding optical Ethernet switches to create a privately run network that will be used for everything from E-government initiatives to transmitting mug shots and public-health information in an emergency.

The 96-square-mile network, being unveiled this week, is one of the few networks completely owned and operated by a municipality. What prompted the 19th-largest U.S. city to run its own OC-12 dense-wave-division multiplexing network? Savings, economic development, and public safety. So far, about half of the city’s public buildings are connected to the network, which uses Nortel Networks’ optical Ethernet switches. “The performance is excellent and reliable, and everyone notices that,” Milwaukee’s CIO Randy Gschwind says.

The city expects to save $15 million over a decade by eliminating costly carrier circuits. And, given that Milwaukee was literally sitting on ready-made ductwork, augmenting the existing network seemed prudent in uncertain times.

Milwaukee had used its own fiber where it was available, and OC-3 lines leased from the carriers where it wasn’t. Now, the fiber buildout is so vast that the city will dump the carrier circuits altogether and is getting 64 times the bandwidth that it had by adding optical switches to its own fiber. Fifty municipal facilities are connected to redundant optical rings; 50 more will be added by next year. The network is expected to spur economic development by linking all government functions. “We’re providing … a more advanced quality of life,” Gschwind says.

What really has people talking are the public-safety implications of all that bandwidth. “The whole homeland-security movement makes you think about how effectively you can use this network,” Gschwind says. “It’s become more important in the minds of all city leaders.”

———–

Can Ethernet solve the bottleneck problem? Keith Mitchell, CTO for XchangePoint, believes Ethernet can help solve current metro bandwidth issues.

Wireless World Ephraim Schwartz WLANs, the Army way

WE LIVE IN a democracy, a fact that is evident even in the corporate world which, during the past decade or so, has tried at least to build consensus. But sometimes it is hard not to admire swift, autocratic decisions made from the top.

In late 2001, researchers revealed how to break the backbone of IEEE 802.11 security based on a so-called static WEP (Wired Equivalent Privacy) key. Although corporate execs waffled on what to do while reassuring one another that the risk was small, the U.S. Army handled things its own way.

“The Army said anybody using WLANs [wireless LANs] had to shut them down. They issued a directive that you cannot run a wireless LAN … unless you were running the [NIST FIPS (National Institute Standards Technology Federal Information Processing)] standard on top of that,” said Pete Johnson, CIO of the Army’s Program Executive Office of Enterprise Information Systems in Virginia.

What that meant was anybody who had 802.11b hardware was out of luck. I relate this not just because it is a good story, but because after much searching, the Army found a level of security with which it could live. Now the Army is firing up its WLANs again, and next month it will launch project CAISI (Combat Service Support Automated Information System Interface), which will roll out 11,000 access points with 85,000 users for battlefield logistics support. The project had been postponed due to the potential for breach of 802.11 security.

Johnson says he saw a lot of “quick fixes” to the potential breach, such as rapid rekeying for WEP as ratified by the IEEE 802.11 committee, but he was not satisfied. “We don’t know what the performance hit is with rapid rekeying,” he said.

As a matter of fact, neither do its proponents. I spoke with Dennis Eaton, chairman of Wireless Ethernet Compatibility Alliance, and he said performance will depend on the processor in the access point. The Army turned to Fortress Technologies, in Tampa, Fla., for its solution: AirFortress, a stand-alone appliance and software that can process NIST FIPS high-level security.

According to Dick Hibbard, vice president of engineering at Fortress, another difference between Fortress and everybody else is that it encrypts the entire IP packet at Layer 2.

“All the other vendors encrypt at Layer 3. All of the IP header is exposed at Layer 3, source, and destination address,” Hibbard said.

But I did speak with John Pescatore, a security analyst at Gartner, in Stamford, Conn., and a former member of the National Security Agency and the FBI. Although Pescatore says Fortress offers more than most companies probably need, he also said this: “For classified information — and in the military where it can be a matter of life or death — a solution like the one Fortress offers is the way to go. It’s tamperproof.”

And that, folks, is the Army way.

🙂

-Ian.

——– http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2001/12/19/BU44717.DTL

COMMUNAL BROADBRAND Neighbors sharing high-speed Internet access via wireless networks is popular and controversial Matthew Yi, Chronicle Staff Writer Wednesday, December 19, 2001 ©2002 San Francisco Chronicle

Sean Berry shares his broadband Internet connection with three neighbors – – including one across the street — but doesn’t have any wires running out of his windows or doors.

And in return, his neighbors sometimes pitch in to help pay the monthly $80 DSL service fee.

“There’s no formal money that changes hands. I’m not looking to make any money on it, but they do chip in every once in a while,” said Berry, a 27-year- old Unix systems engineer who lives in a one-bedroom apartment in Menlo Park. “It’s about the same rate as people chipping in for pizza.”

With the cost of rigging local-area, high-speed wireless networks plunging during the past couple of years, some tech-savvy Bay Area neighbors are finding economies in sharing broadband Internet service.

The movement is rubbing at least one broadband service provider the wrong way.

“We view it the same way as cable theft . . . and that’s against a variety of state and federal laws,” said Andrew Johnson, spokesman for AT&T Broadband, which provides cable modem service to 1.4 million customers across the nation.

The cable company even conducts flyovers in selected areas twice a year looking for any unauthorized “leakages” of cable TV and broadband signals, he said. When found, AT&T said it simply disconnects the customer.

While there may be some who splice and split broadband connections illegally, there are plenty of ways to share bandwidth legally, users say.

And many are finding online groups such as the Bay Area Wireless User Group to swap ideas on how to do it.

The user group, which began a year ago, now has about 1,200 people in its digital ranks. The list of techies who publicize their own wireless networks on the group’s Web site for others to use for free has grown from just a few to more than 20 in a year.

“And that’s just the tip of the iceberg,” said Tim Pozar, co-founder of the user group. He shares his wireless network and DSL connection with his next- door neighbor and a friend two blocks away, using a directional antenna atop his three-story Sunset District home in San Francisco.

The technology that enables this sharing is 802.11, also known as Wi-Fi, which can be found in such consumer products as Apple’s AirPort, Lucent’s Orinoco and Intel’s AnyPoint II Wireless Home Networking Kit.

With a range of little more than 100 feet, the gear is designed to help users wirelessly connect their broadband-linked desktop computer to laptops, PDAs or other peripherals such as printers and scanners.

But if you attach an external antenna, the range can easily go beyond just a couple of hundred feet.

And more importantly, the cost of setting up such networks has dropped substantially, from more than $2,000 two years ago to about $300 to $400 or even lower, depending on the latest closeout sales.

The network typically has one access point device tethered to a desktop computer and uses radio signals to communicate with other computers or devices.

That’s what Berry has done. Using an external antenna to increase the range,

his next-door neighbors, friends who live a floor below and other friends across the street can all tap into his network and the Internet.

“It’s wonderful stuff,” Berry said. “I work in the tech industry, so it’s fun to play with this stuff at home.”

Others have taken ideas off the Internet, such as using a Pringles potato chip can to build a directional antenna with a range that extends for miles.

“Hey, it cost me $6 (for parts) and it works,” said Sameer Verma, assistant processor of information systems at San Francisco State University.

Raines Cohen and 19 other neighbors in their downtown Oakland condo building each pay $4 for their DSL connection by sharing a single $80 DSL line using a combination of traditional Ethernet connections — which the building developer installed before the residents moved in — plus a wireless network.

“It is a backdoor way of saving money,” said Cohen, a 35-year-old software consultant. “All our neighbors (which include nurses, teachers, retirees and architects) now have computers at home and several have laptops using the wireless connection.”

While cable modem carriers such as AT&T may have stringent rules about sharing bandwidth outside the customer’s home, some DSL providers are lax about the issue.

“We don’t think it’s good policy to open up your line to people you’re not responsible for, but it’s not an expressly forbidden policy,” said Hunter Middleton, Covad’s group manager of consumer product marketing.

He said customers need to know there are potential liabilities, such as unauthorized users downloading illegal material like child pornography, and that sharing bandwidth with others may slow the connection speed.

“It seems like a lot of effort for a service that’s fairly low priced,” Middleton said, noting that DSL services can be had for as little as $50 per month.

Pacific Bell also doesn’t specifically forbid the practice, but does discourage customers from doing it, said Shawn Dainas, spokesman for SBC Communications, the utility’s parent company.

“It’s not in the policy, but that’s not the intended use,” he said.

Dave Solomon, systems administrator at an East Bay Internet service provider, Idiom.com, said his company doesn’t mind customers sharing connections.

“The angle most smaller ISPs will take is that this will make our customers happier, and happy customers are what we’re looking for,” he said.

But security is something users need to be aware of because the current encryption standard on Wi-Fi networks — known as Wired Equivalent Privacy, or WEP — has been broken, said Tony Bautts, a security design consultant who currently works for Wells Fargo Bank.

The bottom line is that hacking into a wireless network is “really, really easy,” he said.

An 802.11 industry group plans to announce a fix to the WEP security problems in existing units next month, while continuing to work for a more complete solution in future products.

For now, though, not only can hackers tap into the wireless network bandwidth, they can also look through files in your hard drive — a dangerous proposition, especially if the user keeps such information as bank account and credit card numbers on the computer. There are ways to keep people out of the computer files — such as instructing your OS to not share files — but these are precautionary steps wireless network users must actively pursue, Bautts said.

Despite these possible pitfalls, the benefits do outweigh the downsides, especially if proper precautions are taken, users say.

“You don’t trip over Ethernet cords, I take my laptop to the kitchen to look up recipes, take it outside when the weather’s nice . . . and I have social contact with others using the network,” Berry said.

E-mail Matthew Yi at myi [at] sfchronicle [dot] com.

2:00 a.m. Jan. 16, 2002 PST

Despite analyst pessimism, the Home Radio Frequency Working Group continues to promote its technical standard to wirelessly connect cordless phones, PCs and other electronic home equipment.

Even though Cahners In-Stat Group recently released a study showing HomeRF products losing ground to competing Wi-Fi (802.11x wireless Ethernet) products, the HomeRF Working Group said it added AT&T to its roster of supporters.

But AT&T was quick to note that its membership with the HomeRF Working Group wasn’t exclusive. And the number of Wi-Fi backers -­ 144 companies are part of the Wireless Ethernet Compatibility Alliance (WECA) ­- greatly outnumber the 43 companies, including AT&T, that support HomeRF.

“AT&T is involved in a number of groups in 802.11 and a number of others,” AT&T spokeswoman Ellen Zundl said. “Joining this (HomeRF) organization is yet another way for us to keep open-minded about various technologies.”

There has been fierce competition in the home-networking arena between HomeRF and the backers of Wi-Fi, or 802.11b. But it appears that Wi-Fi has the advantage over HomeRF.

Cahners In-Stat Group recently released a report that said 4 million wireless local area network nodes were shipped in 2001, of which 30 percent were stamped with the HomeRF seal while the remainder of the products were produced by members of WECA.

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The first Kerbango Radio (Model RZ-100E) is broadband only. That means it uses an Ethernet connection as is typical with cable modems, DSL, ISDN or office LANs. The radio plays Real Audio and MP3 streams using the Kerbango Tuning Service to find channels from around the world. Sporting two full-range ducted stereo speakers with 2 watts per channel, the RZ-100E also includes a built-in antenna for receiving AM/FM broadcasts, a clock that’s updated automatically when connected to the Internet, and connectors for your home stereo or headphones.

The first release of the Kerbango RZ-100E Internet Radio is scheduled for January 2001, so we cannot offer Christmas availability. If units are available in December, however, they will be shipped at that time. More details are available at the link above or at our web site at www.kerbango.com.

-Ian.