The New York Times has an article today discussing a new study by the Harvard School of Public Health on the benefits of the adoption of electronic medical records and networked information technologies in health care.   The article, entitled “Little Benefit Seen, So Far, in Electronic Patient Records” study is entitled contains the following key conclusions:

“The research also underlines the challenge facing the Obama administration as it seeks to accelerate the adoption of electronic health records through 2015, even though only about 20 percent of physicians now use them. And the research shows that installing the technology does not necessarily mean that the hoped-for gains in quality and cost containment will follow quickly.”

Given the fact that so few hospitals and medical centers have utilized these technologies widely until very recently – and many still do not as the article notes – it should not be surprising that the results so far are hard to measure.  What is not often appreciated about communications and information technologies is that the real benefits of the technologies come about as people learn to use them more effectively and adapt their own work habits – and even in many cases change their business or agency structures and operating procedures – to take maximum advantage of the capabilities of the technologies.

A famous case of this occurred in the early days of computer adoption. The Nobel Laureate, Robert Solow, took a look at the adoption and use of the then relatively new technology known as the personal computer.  His analysis suggested that there was relatively little impact of the technology in terms of the economy and productivity as was predicted.   He then went on to make this catchy comment:

“You can see the computer age everywhere but in the productivity statistics."

Just a few years after he made these comments, the productivity figures clearly began to turn and reflected the huge impacts of computers on productivity.  But it was not until computers were networked and people could use them expansively to connect with other people and data of all kinds that the effects were really powerfully seen.  Rob Atkinson of the Information Technology and Innovation Foundation has pointed out how important networking of computers has been to U. S. productivity and growth – but it took decades to expand networks and connect hundreds of millions of computers.  

The truth is that information and communications technologies are very powerful but the technologies don’t do the work themselves and they do not operate in a vacuum.   Human beings need to use them, adapt them and in some cases change how they work in order to get the maximum benefits from the technologies.   Recently, as I noted in a blog post, it became clear that for the first time paper use actually declined in offices, despite many years in which people talked about the “paperless” office.  Why?  It appears in part because more and more people are now comfortable reading emails, documents and reports online than in the past. Until very recently, it appears people were wont to print most things out before they read them rather than reading them online.   Clearly they’ve adapted to and become more comfortable with the technology. 

Over time, I am confident the same thing will happen with regard to health IT and electronic medical records.  But it clearly will take work and commitment to make it happen.  Now is not the time to slow down.

A question that keeps coming up in the net neutrality debate turns around business models.   Net neutrality advocates say that “openness” on the Internet is endangered and we need regulations to protect it.  We have argued that this is not true, that there has not been a threat to the openness of the Internet and hence no need for regulation.

But what I have also pointed out in a recent blog post is that getting beyond standard, robust Internet connections, there are a range business models today for accessing the wide range of data available whether it be voice, video or some other format.  Some models are managed or provide consumers with perhaps less flexibility but often more simplicity and more protection from malware and other dangers that can be a part of the open Internet. Some people prefer the ability to configure everything themselves, use software or create content that is unique to them, and access any and all information on the Internet.  There are business models that accommodate all of these consumers.

To me, the market is becoming ever more competitive, varied and rich for the consumer.  Verizon offers more and more options for the consumer and many are far different from the business models of even the recent past.   Take the Droid cell phone that came out today.   It is based on an open platform model that allows developers to come up with a range of new apps without having to work directly with the maker of the operating system for the phone or getting approval from the operating system or the handset manufacturer.   I am not an expert on the development of apps or programming but Paul Brigner on my staff helped to pull together the information below that I think demonstrates the difference in how the Droid phone model works versus the Apple iPhone model:

This is not meant to be a criticism of the iPhone model but it includes a controlled or closed operating system platform versus the open Android platform for the Droid phone.   Reviews of the Droid have been very positive and I think this open model is going to prove to be a hit too. 

What is very interesting to me in all of this is how much has changed in our industry over the last few years.  More and more choice, flexibility and options are a part of the services we offer consumers and we are looking for innovation wherever we can find it, whether or not it is in our company.   Just look at what Verizon is doing in its various product lines:

FiOS – First television provider to open our platform to third-party developers

We now offer our “Widget Bazaar,” including Facebook and Twitter widgets.  Widgets are little applications that are displayed on your TV screen and can be accessed via your FiOS television service.  Clicking on these widgets will take you to these services running on the Internet.   Other widgets include NFL stats and Kodak photo sharing.

We are currently developing new Widget apps with third-party preferred partners.  We’re inviting feedback and comment from developers.    In the next few months Verizon will publish a Software Development Kit (SDK) for Widgets with API’s (application programming interfaces) based on a widely used open programming language called Lua.   This enables third-party developers to write programs for the FiOS TV system.   There will be a simple, streamlined authorization process and the new apps will be available to customers via Widget Bazaar.  This allows innovators to create interactive applications for the biggest, best and most underutilized screen in the house – the high-definition wide-screen television.

Wireless broadband – Leading the way to an open ecosystem for new wireless devices, applications and software

We are moving to a new era of innovation with 4G LTE deployment and the potential to embed wireless connectivity in everything – cars, appliances, buildings, roads, sensors, medical monitors and more.   To jump-start innovation, Verizon Wireless is the first in industry to open its wireless broadband platform to third-party development.  In 2007, we announced the Open Development Initiative (ODI) allowing third-party devices to connect to our current 3G network and soon-to-be-deployed 4G / LTE broadband network.    We have already certified more than 55 devices on the ODI system including an inventory management device that lets suppliers know when materials get low; smart grid technology for utilities to read meters and manage energy usage; and wireless medical chart for health care professionals to access patient records

In 2008, we held an open development conference, developed an efficient review process and released specifications for mobile device manufacturers.  We also certified two independent labs for testing 4G devices. 

In 2009, we held the Verizon Developer Community Conference in Silicon Valley for developers of mobile applications.   Our new developers program is simple and will allow for rapid approval and upload of apps. Our V CAST Apps Store will open by the end of this year.  Under the new program, we will operate under a 70/30 revenue split with developers.  They will access to our VZW billing and distribution systems as well as our network platform. 

We are also collaborating with third parties to stimulate innovation.  We formed a Joint Innovation Lab with Vodafone, SoftBank Mobile and China Mobil to accelerate the uptaeke of mobile technologies on a mass-market scale.  The first JIL initiative is to create a widget platform capable of deploying applications in more than 70 countries across North America, Asia, Europe and Africa.  We also formed the LTE Innovation Center based in Boston to research news products for LTE based 4G mobile devices.  We will open a Silicon Valley-based Innovation Center in 2010 to support developers.

Just a few years ago, none of these models or initiatives were under way.  In fact, most would have been unthinkable.    Much has changed in how we do business and how we offer value to customers.   The markets are evolving and the notion that openness is not here to stay or is somehow endangered is simply wrong.  The many models available and evolving prove it.

Developers can visit http://code.verizon.com to get more details on developing solutions across all of our platforms.

While the fabled Dr Dave Farber was in Washington, DC,  Link and I we able to get some time with him and capture video of our conversation.  It was a beautiful Fall afternoon in our Nation‘s capital so we had the conversation in Lafayette Park, across the street from the White House.

Dr. Farber is very clear about his views on net neutrality regulations, calling instead for “principles” and monitoring because of the complexity of the global network.  He also says that attempts to rope wireless and wireline together in this effort is an “error.”

I’ll be pulling clips out of this 15 minute chat but I wanted to get the entire conversation up first so anyone in the future can see its full context.

Please excuse the traffic noise.  The interview is posted in two parts: Part I is embedded below, Part II can be found here, and both can also be found on PolicyBlogTV’s YouTube channel.

I read through Harvard’s Berkman Center report which was led by Yochai Benkler.  Okay, it was 232 pages so I “mostly read through it” to paraphrase a famous movie “The Princess Bride” (see it – there is a great scene where the hero is “only mostly dead”.)   I did read the substantive analysis at the beginning (over 100 pages) and skipped only some of the country reports.

Benkler and his team of investigators can be commended for the effort that went into what was no doubt a substantial undertaking. The report, however, seems to be very limited in its analysis despite the FCC’s original charge to “conduct an expert review of existing literature and studies about broadband deployment and usage throughout the world to inform the Commission’s development of a National Broadband Plan.” While the report does look at a range of metrics related to broadband – especially price, adoption and speeds – it really does seem most focused on policy issues related to broadband. To get right to the heart of what it says in summary, it suggests that foreign unbundling and separation regulatory policies are good and the American platform competition model is not.  That is a curious tack to take for a number of reasons.

First, I can find little in the way of substantial analysis regarding economic or financial issues relating to deployment and investment.  The report focuses on price, adoption levels and speeds and totally ignores in most ways the dynamics regarding the markets in the countries it reviews.  So, for example, while it extols France for encouraging competition through unbundling and having some of the fastest speeds available in Europe, France is behind other countries in Europe with regard to fiber deployment, and many of these countries have platform competition   Europe as a whole is in fact behind the U. S. in local fiber network deployment. 

Further, in criticizing the position of the incumbents against the FCC’s unbundling rules, it totally ignores the TELRIC pricing model (which resulted in prices that were so low they did not allow for a fair return on investment), the fact that unbundling was extreme in terms of how much of the network had to be unbundled (which is far different from the unbundling policies in most countries that do not require unbundling of every facet of the network), and did not even discuss the fact that unbundling policy was open ended (i.e., there was no “end game” to the policy and it very likely could have resulted in an ongoing subsidy to new entrants for years to come).  In other words, the study simply assumes unbundling is a good policy, is the right policy to encourage competition and it did not look at the impacts of the policy in terms of investment nor at how the policy was structured - for example, to encourage or discourage network investment.   As far as I know, no other country has gone anywhere near as far as the FCC did in requiring unbundling of numerous aspects of the network – from the switch to collocation to the lines.  This is a big difference and it is totally ignored from what I can see.

In fact, investment and build out are almost totally ignored in terms of any in depth assessment of these issues.  The report does extol the Korean and Japanese models in terms of promoting fiber deployment but does not focus attention, for example, on the fact that the U. S. is ahead of Europe in fiber deployment.   It criticizes the use of PON fiber technologies not because they are not good for consumers or don’t produce high capacity networks that benefit consumers but rather because they can’t be physically unbundled.   The report ignores whether PON technologies are a good approach from a financial and build out perspective and whether they make economic sense.

The report also provides almost no in depth analysis of the U. S. moves away from the extreme unbundling policies of the late 1990’s and suggests that the changes in unbundling began with the new Administration in 2001-2002.  It completely ignores the decision by the Kennard FCC not to impose common carrier regulation on cable broadband networks.  This was in fact one of the earliest of the regulatory policy changes that helped promote the investment and competition we have today.  It did not start in 2001.

To me, the bottom line with unbundling policy is that price, what is to be unbundled, and how to transition to network based competition are all very difficult problems.  Here I can find little analysis in the Harvard report.   The reason markets are so important in growth economies is that setting prices is far from an easy task.  Competitive markets do it well and in such a way that the prices send the right signals to companies spurring investment and innovation.  Regulators simply can’t replicate this process because it is a result of a complex feedback loop among companies, competitors, and consumers.   My daughters once asked me when I was selling my house a few years ago “Why can’t you set a higher price or any price you want?  Who controls prices?”  I said all of us do in a market and it works because I know the prices that prevail in a market and I can take my buying and investment decisions from the pricing signals.  But if I want, I can try to set a different price and if I am successful, that may set of some adjustments in the market.

Regulators really can only focus on a few issues in setting prices and the biggest one is cost.  But cost alone does not drive prices. 

Beyond these concerns, international comparisons do not address demand side problems. The whole section on International Comparisons is interesting, but not particularly helpful in creating a broader understanding. Since it is examining penetration (actual take up), it tends to mix the supply side and demand side arguments. Actually, the study ignores demand side issues pretty much entirely, creating the misimpression that this is all about supply. So for example, it notes the importance of price/income to adoption, and the fact that the U.S. has low rates for lower tier services, but then never explains why the U.S. is in the “middle of the pack.” If we have such low rates, we should have higher penetration. This would lead one to conclude that some other factors (Pew’s emphasis on relevancy, for example) are responsible for the relatively poor uptake numbers in the US.

The paper seems to assume throughout that we should apply the lessons of the past to the future, that we should recreate the copper policies in the fiber world. I think this suffers from two problems.  First, the report oversells the lessons of the past - for example, how much of Japan and South Korea’s success can be attributed to direct government financial support through subsidies or loans.  It appears quite a bit.  Second, the paper seems to admit it’s a lot, but the larger point gets glossed over in favor of “open access works.”

The premise of open access policies was largely based on monopoly providers or providers with market power stifling competition, driving up prices, and so on. We’ve managed to adopt policies and our markets have evolved so that we now have many competitors and new networks. It seems you that the problem has been solved - the premise of the original argument (monopoly provider/network) is gone.  But that is not the overall conclusion of the report.

It is also true that while there are general themes worth looking at globally, the reality is that the historical, legal conditions in the US are just different than in other countries. Even if AT&T was a monopoly for years, it’s long gone. Nor do we have the coupling between the government and companies that others had, when the government was the regulator and the monopoly provider.

I will review the comments submitted on the Benkler report with interest but that is my initial take of an extensive report.

Below is the statement we released today:

Verizon Statement on Federal Communications Commission’s Proposed Network Neutrality Rulemaking  

WASHINGTON – The Federal Communications Commission today approved a Notice of Proposed Rulemaking on network neutrality.  The following is a statement by Tom Tauke, Verizon executive vice president of public affairs, policy and communications:

“The Notice of Proposed Rulemaking announced today appears to be a substantial improvement from what we understand was in earlier drafts.  This is a better starting point for the discussion of the policies that will govern the Internet. 

“We are nevertheless concerned that the NPRM implies there is a need for further regulation of the Internet.  After listening carefully to comments from all of the advocates of regulation, one thing remains clear:  The Internet ecosystem is serving consumers very well, and there is no problem that requires new government regulation. 

“As we engage in this process, we remain concerned that the unintended consequences of regulation could bring substantial harm to consumers and the ability of the Internet sector to innovate, contribute to economic growth and productivity, create new jobs, and deliver social benefits to our nation. 

“With that said, we appreciate the open process established by the FCC and are confident that a full airing of the issues will result in better policies.  We are working hard to find common ground with other players in the Internet industry on common policies that would apply to all concerned, and we look forward to playing a constructive role in this process.”  

####

The following is a joint statement from Lowell McAdam, CEO Verizon Wireless and Eric Schmidt, CEO Google:

Verizon and Google might seem unlikely bedfellows in the current debate
around network neutrality, or an open Internet. And while it's true we
do disagree quite strongly about certain aspects of government policy in
this area--such as whether mobile networks should even be part of the
discussion--there are many issues on which we agree. For starters we
both think it's essential that the Internet remains an unrestricted and
open platform--where people can access any content (so long as it's
legal), as well as the services and applications of their choice.



There are two key factors driving innovation on the web today. First is
the programming language of the Internet, which was designed over forty
years ago by engineers who wanted the freedom to communicate from any
computer, anywhere in the world. It enables Macs to talk to PCs,
Blackberry Storms to iPhones, the newest computers to the oldest
hardware on the planet across any kind of network--cable, DSL, fiber,
mobile, WiFi or even dial up.



Second, private investment is dramatically increasing broadband capacity
and the intelligence of networks, creating the infrastructure to support
ever more sophisticated applications.



As a result, however or wherever you access the Internet the people you
want to connect with can receive your message. There is no central
authority that can step in and prevent you from talking to someone else,
or that imposes rules prescribing what services should be available.



Transformative is an over-used word, especially in the tech sector. But
the Internet has genuinely changed the world. Consumers of all stripes
can decide which services they want to use and the companies they trust
to provide them. In addition, if you're an entrepreneur with a big idea,
you can launch your service online and instantly connect to an audience
of billions. You don't need advance permission to use the network.  At
the same time, network providers are free to develop new applications,
either on their own or in collaboration with others.



This kind of "innovation without permission" has changed the way we do
business forever, fueling unprecedented collaboration, creativity and
opportunity. And because America has been at the forefront of most of
these changes, we have disproportionately benefited in terms of economic
growth and job creation.



So, in conjunction with the Federal Communications Commission's national
plan to bring broadband to all Americans, we understand its decision to
start a debate about how best to protect and promote the openness of the
Internet. FCC Chairman Julius Genachowski has promised a thoughtful,
transparent decision-making process, and we look forward to taking part
in the analysis and discussion that is to follow. We believe this kind
of process can work, because as the two of us have debated these issues
we have found a number of basic concepts to agree on.



First, it's obvious that users should continue to have the final say
about their web experience, from the networks and software they use, to
the hardware they plug in to the Internet and the services they access
online. The Internet revolution has been people powered from the very
beginning, and should remain so. The minute that anyone, whether from
government or the private sector, starts to control how people use the
Internet, it is the beginning of the end of the Net as we know it.



Second, advanced and open networks are essential to the future
development of the Web. Policies that continue to provide incentives for
investment and innovation are a vital part of the debate we are now
beginning.



Third, the FCC's existing wireline broadband principles make clear that
users are in charge of all aspects of their Internet experience--from
access to apps and content. So we think it makes sense for the
Commission to establish that these existing principles are enforceable,
and implement them on a case-by-case basis.



Fourth, we're in wild agreement that in this rapidly changing Internet
ecosystem, flexibility in government policy is key. Policymakers
sometimes fall prey to the temptation to write overly detailed rules,
attempting to predict every possible scenario and address every possible
concern. This can have unintended consequences.



Fifth, broadband network providers should have the flexibility to manage
their networks to deal with issues like traffic congestion, spam,
"malware" and denial of service attacks, as well as other threats that
may emerge in the future--so long as they do it reasonably, consistent
with their customers' preferences, and don't unreasonably discriminate
in ways that either harm users or are anti-competitive. They should also
be free to offer managed network services, such as IP television.



Finally, transparency is a must. Chairman Genachowski has proposed
adding this principle to the FCC's guidelines, and we both support this
step.  All providers of broadband access, services and applications
should provide their customers with clear information about their
offerings.



Doubtless, there will be disagreements along the way. While Verizon
supports openness across its networks, it believes that there is no
evidence of a problem today -- especially for wireless -- and no basis
for new rules and that regulation in the US could have a detrimental
effect globally. While Google supports light touch regulation, it
believes that safeguards are needed to combat the incentives for
carriers to pick winners and losers online.



Both of our businesses rely on each other. So we believe it's
appropriate to discuss how we ensure that consumers can get the
information, products, and services they want online, encourage
investment in advanced networks and ensure the openness of the web
around the world. We're ready to engage in this important policy
discussion.

Our CEO, Ivan Seidenberg, gave a keynote speech today at the Supercomm conference.   Ivan gave an overview of the industry’s performance and our investment and product strategy at a high level and I thought he raised some interesting facts both as to where we are in the industry and the potential for the future. Some of his key points:

“Four years ago, I stood on this stage and talked about how fiber and 3G mobile were transforming broadband and wireless.  Three years ago, we talked about how IP technologies were creating a flatter, more networked global economy.  Two years ago, we signaled the melding of TV and Internet by introducing you to our 1 millionth FiOS TV customer.  Last year, we previewed the “everything connected” world being ushered in by 4G mobile technologies.  And this year, we’re seeing an explosion of new devices, applications and tools to deliver all this power to customers over the high-I.Q. networks our industry has built.

In these five years we’ve seen the economy boom and we’ve seen it bust.  It doesn’t matter.  Communications companies are doing what we’ve always done:  Invest, innovate and deliver service and value to customers.”

Ivan then went on to note the key metrics for our industry in terms of investment, competition, and innovation:

“Our industry is building the smart networks that will be a platform for growth, not just for us but for America and the world.  And Verizon is in the very center of this transformation, as we reinvent our networks around mobility, broadband and global connectivity. . . All told, we’ve invested more than $80 B over the last five years to build these platforms for growth.  And that’s just Verizon.  On the larger scale, America’s telecom companies invest more in networks every year than the Federal government invests in transportation.  In fact, if you exclude real estate, investment in information, communications and technology accounted for an astonishing 43 percent of all capital investment in the U.S. last year.  Since the start of the recession, these investment levels have held up better than almost any other sector of the economy – down just 2.5 percent through the second quarter of ’09, as compared with a drop of more than 20 percent in private investment as a whole. 

With net private investment at its lowest level in more than 60 years, the value of this infusion of capital into the world’s economy is simply astounding. 

Why is investment in networks so important?

For starters, because it creates growth through competition.  The price of a broadband connection has fallen by half since 2001.  Wireless prices are down even more.  Broadband and wireless penetration levels have doubled in the last five years.  Most markets have at least eight facilities-based providers, with new entrants challenging market leaders everywhere you look.  And when you add it all up, real bandwidth power in the U.S. averaged 2.4 megabits per capita in 2008 -- about 100 times what it was in 2000. 

Broadband investment also creates jobs – 500,000 new jobs for every $10 B increase in digital investment.  Or to put it another way, for every one percent increase in broadband penetration in a state, employment goes up 2 to 3 percent a year. 

The reason we have such a big impact is that our technology is inherently productive, which has a multiplier effect throughout the economy.  The economist Robert Atkinson says that all of the acceleration in productivity growth since 1995 has been due to the IT revolution.  And a new study by Frost and Sullivan confirms the fact:  in a survey of 3,600 enterprises across ten countries, they found that every dollar invested in IP technologies and collaboration tools generated four dollars in return.   

But the most important thing communications investment does for the economy is expand the capacity for innovation by building intelligence into the core of the network like never before.  This stimulates demand for richer content, more advanced software and more sophisticated electronics.  And it puts a whole new set of tools in the hands of customers, which enhances the quality of life today and promises new solutions to the biggest issues we face as a society going forward.”

He went on to explain how our business models have changed, moving more towards models that are focused on innovation, partnership and openness:

·         “Through our Open Development Initiative, we’ve certified more than 60 devices to run on our 3G network, ranging from inventory-management to smart energy meters to wireless medical charts. 

·         We created an LTE Innovation Center in Waltham, Massachusetts to develop products for 4G wireless networks.

·         We published specifications for applications and software developers who want to market their innovations to our wireless customers and plan to launch our 4G apps “storefront” by the end of the year.

·         We formed a joint venture with Qualcomm to develop machine-to-machine devices and services.

·         And we just announced that we’re partnering with Google to develop smart devices based on the open Android operating standard.”

By working with inventors and entrepreneurs and investing in new spectrum and new technology, we grow … and so does everybody else. “

I don’t think people realize how much has changed in our industry – not only in terms of technology but also in terms of how innovation has evolved and how widely our technologies have penetrated society and economies globally, including in developing countries.  As Ivan noted:

“If, like me, you’ve been coming to Supercomm for many years, you know that our industry has building toward this new broadband future for a long time.  What’s different now is the ability to deploy on a large scale.  According to the International Telecommunication Union, everyone in the world who wants a mobile phone will have access to one within the next five to ten years.  Some form of broadband will be widespread, even in developing countries.  The magazine The Economist wrote, ‘It is now clear that the long process of connecting everyone on Earth to a global telecommunications network, which began with the invention of the telegraph in 1791, is on the verge of being completed.”  And with this monumental technical progress, we have the opportunity to create massive change on a scale the world has never seen before.’”

I think Ivan’s speech lays out some facts about the progress in our industry that few recognize.  It just seems to be there.  It just seems to happen.  But the point is it doesn’t just happen.  And looking at the progress in perspective as Ivan does, the results and impacts on society are astounding.   Ivan is upbeat in his assessment but he does end with an appropriate caution:

“But while this hopeful future is imminent, it is not inevitable, and the decisions we make today -- as an industry and as a country – will determine whether the benefits of these transformational networks will be felt sooner … or much, much later.

Tomorrow the FCC will release its order on net neutrality.  We have not seen the final language of the order yet, but certainly the terms of the debate on this issue have been troubling, to say the least.” 

Despite these cautions, Ivan ends on an upbeat assessment of the role of government and how it can work with industry to ensure the continued growth of this amazing sector of our economy:

“Rather than impose rigid structural rules on a rapidly changing industry, the FCC should focus on creating the conditions for growth.  We need to increase the availability of spectrum.  We need to streamline the process for the siting of cell towers.  We need to overhaul the outdated subsidy system supporting universal service and the outmoded payment system for the exchange of traffic.  And we need to protect consumers by insisting on transparency in the provision of products and services by all Internet providers, including applications developers. 

I do believe the government can play a constructive role in promoting a healthy, competitive communications industry.  But public policy should be about ends, not means.  Our industry has shown that we can work with the government as well as our partners and competitors to achieve our mutually desirable goals of more competition, consumer choice and broadband expansion.”

One of the issues mentioned by Chairman Genachowski during this speech at Brookings a few weeks ago was network management.   Here is what the Chairman said:

The fifth principle is one of non-discrimination -- stating that broadband providers cannot discriminate against particular Internet content or applications. . . This principle will not prevent broadband providers from reasonably managing their networks. During periods of network congestion, for example, it may be appropriate for providers to ensure that very heavy users do not crowd out everyone else. And this principle will not constrain efforts to ensure a safe, secure, and spam-free Internet experience, or to enforce the law. It is vital that illegal conduct be curtailed on the Internet.

The issue of network management in an era of growing traffic complexity, increased congestion and heightened security problems facing the Internet is very important.  I have mentioned this before in one of my blog posts.  But the Chairman went on to offer an additional principle that he said the Commission would adopt:

The sixth principle is a transparency principle -- stating that providers of broadband Internet access must be transparent about their network management practices. Why does the FCC need to adopt this principle? The Internet evolved through open standards. It was conceived as a tool whose user manual would be free and available to all. But new network management practices and technologies challenge this original understanding.

I’ve posted on this issue too and our industry has spent time trying to develop industry principles around transparency.  I agree that improved transparency can help improve the way broadband connections work and give consumers more tools they can use to judge how well their provider is provisioning their service.

But while I agree with the need for enhanced transparency, I do believe that regulating around network management is not only not required it is fraught with dangers.   Just a few weeks ago, the Information Technology and Innovation Foundation had a seminar focused on network management that included the views of John Day and Bill Lehr of MIT and David Farber of Carnegie Mellon, an esteemed professor emeritus long involved with the Internet.  One of the headlines that came out of the session was in the Washington Post : “Computer Science Professor, Former FCC Official Warns Against Net Neutrality” quoting Professor Farber.

Network management is one of my key concerns as well. I’ve written numerous posts on the issue but in recent years (and increasingly in the last few months), a number of experts have come out with papers and analyses that suggest the importance of network management.  Many of them make the same point: there is a need for significant change and revision in the way the Internet handles congestion, deals with security problems, and ensures good quality for latency sensitive applications.  Most of the engineers and experts making these points note that we face changes regarding the complexity, intensity and capacity demands of today’s Internet traffic that were simply not anticipated in years gone by.  Many of them go on to note that experts at all levels – including ISPs and broadband providers – need to have the flexibility to be able to work things through without presumptive government rules that could significantly interfere with the work that needs to be done.  A sample of the comments of these experts is enlightening:

Dave Farber, Professor Emeritus at Carnegie Mellon University with long involvement in the Internet’s design and development: “My general concern has to do with hazy definitions that people are using. Net neutrality is everything from sliced bread to pickles. And like ‘appropriate network management,’ that's a very hazy term and it's hard to define it more tightly. So you either end up in court cases or endless hearings at the FCC arguing over these definitions. . . But it's very hard to define these things. The problem here is everyone talks about reasonable network management, but if you look at it from a technical perspective, someone trying to build new ways of operating networks is going to sit there saying, "I wonder if this new brilliant idea is reasonable or not. And if I go through all the energy of implementing it and testing it, will someone in Washington say that that violates some reasonable network management criteria?"

Bill Lehr, research associate in the Computer Science and Artificial Intelligence Laboratory (CSAIL) at the Massachusetts Institute of Technology and David Clark,  Senior Research Scientist at the MIT Computer Science and Artificial Intelligence Laboratory in a paper entitled “The Evolution of Internet Congestion”:  “In this paper we do not offer a position on the merits of alternative traffic management practices. Our goal is instead to educate the wider community regarding some of the history of these issues within the technical community. Our assessment of this legacy and of more recent research efforts to characterize Internet traffic more carefully lead us to conclude that there is ample scope for useful innovation in ISP traffic management practices beyond TCP fairness. Consequently, we would caution against any regulatory policies that had the likely effect of enshrining TCP fairness and thereby limiting the scope of the Internet technical community's on-going experiments with how to best

manage best-effort traffic over medium (month or less) to short time-scale (seconds to minutes).”

Marjorie Blumenthal, Provost, Georgetown University, and David Clark,  Senior Research Scientist at the MIT Computer Science and Artificial Intelligence Laboratory in a paper entitled “Rethinking the Design of the Internet: The End-to-End Arguments vs. the Brave New World”: “There is a tussle between spammers and those who would control them, between merchants who need to know who buyers are and buyers who use untraceable e-mail addresses, and between those who want to limit access to certain content and those who try to reach it. This pattern suggests that the balance of power among the players is not a winner-take-all outcome, but an evolving balance. It suggests that the outcome is not fixed by specific technical alternatives, but by the interplay of the many features and attributes of this very complex system. And it suggests that it is premature to predict the final form. What we can do now is push in ways that tend toward certain outcomes. We argue that the open, general nature of the Net, which derived from the end-to-end arguments, is a valuable characteristic that encourages innovation, and that this flexibility should be preserved.”

Farber, and Jerry Faulhaber, former FCC Chief Economist and Professor, the Wharton School in a paper entitled “INNOVATION IN THE WIRELESS ECOSYSTEM: A CUSTOMER-CENTRIC FRAMEWORK “: “Even worse, adopting “reasonable” network management as a rule introduces great uncertainly into the market; exactly what behaviors will incur the wrath of the regulator? Don’t know; we’ll punish you when we see it. If ever a policy was designed to increase cost, reduce customer choice, reduce incentives to innovate and reduce incentives for carriers to invest, this would be it.”

Michael Hanley, Professor, University College of London in a paper entitled “Why the Internet Only Just Works”: “To conclude, in many ways the Internet only just works. The number of ways in which it only just works seems to be increasing with time, as non-critical

problems build. The main question is whether it will take failures to cause these problems to be addressed, or whether they can start to be addressed before they need to be fixed in an ill co-ordinated last-minute rush.”

Christopher Yoo, Professor at the University of Pennsylvania in a slide presentation entitled “Integrating Network Engineering into the Policy Debate”:  This paper shows the flaws with simplistic visions of end-to-end and the importance of preserving room for experimentation . . .  it underscores the importance of providing a structure that permits experimentation rather than finding the “right” answer.

Last week, the Chairman of the FCC, Julius Genachowski, discussed some proposals regarding net neutrality and some policies he believes need to be adopted to protect consumers and competition.   We expected the Chairman would initiate this discussion at some point and look forward to providing the facts the Chairman asked for during his speech.

A wide number of blog posts were filed in response to the speech of the Chairman and the Washington Post published an editorial that strongly questions the idea that the FCC needs to intervene. 

But I wanted to respond to the post by Vint Cerf.  His comments reflect those of many of the advocates who support net neutrality rules.  They focus on concerns about an alleged lack of competition in the broadband market, the potential that broadband providers might act anti-competitively and speed connections for services they favor, and fears that somehow broadband providers might interfere with speech. 

To me, it seems to be a very heavy set of “gloom and doom” concerns about the broadband market and the Internet ecosystem it is a part of.  I find it very hard to square these concerns either with what has been accomplished so far in the evolution of the high speed Internet ecosystem or with regard to its future.  In a sense, many of the advocates have been yelling “fire” in the movie theater ever since 1999, when cable modem service was deemed to be an information service in the early days of broadband deployment.   At that time, a number of consumer groups in effect said that the Internet as we know it would be lost. 

Instead, the Internet has been transformed into a medium that is even better than the one we knew back then in terms of choice, innovation, competition, and openness.  Yes, we’ve had a couple of fires - but as the Washington Post editorial noted they have been put out quickly.  I think the existing set of principles and oversight that is in place will continue to work well.

So why I am I so positive about the future?  Why do I believe we will continue to see more competition, more consumer choice, more openness and more innovation?

Because the facts show that the U.S. broadband marketplace is, indeed, delivering the results one expects from competition and has been for more than a decade.

Prices have declined.  The average price of entry-level broadband for 5 major providers moved from $50 a month in 2001, to $33 in 2004, to $25 in 2007.  Verizon’s own entry-level price in 2009 is $17.99 a month, with a 12 month contract.

Output has increased:  According to Pew, seven out of 10 households still used dial-up modems in 2004.  Today only 1 in 10 households use dial-up, while the U.S. broadband marketplace is perhaps the largest in the world, with nearly 70 million households connected, up from just 3.2 million in 2000.  Furthermore, typical broadband speeds have more than doubled since 2004: DSL has moved from 1.5 mbps to 7; cable has moved from an average of 1.5 to 3 mbps to 8-16 mbps.  Fiber didn’t exist in 2004.  Today it’s available to more than 15 million households and delivers speeds of up to 50 mbps up and 20 mbps down.

Furthermore, Internet use is increasingly un-tethered, with portable connections evolving into mobile.  In any given month more than 1 in 3 users now report they’ve used wireless to reach the Internet, up from almost no one in 2004.  The U.S. now has 4 nationwide 3G wireless providers, some with plans for 4G wireless that will offer 5 to 12 mbps speeds.  A 5^th company, Clearwire, is gearing for a nationwide launch of a 4G service using WiMax technology.  The U.S. has 70,000 WiFi hotspots, the most in the world.  According to Nielsen, more than 40 million Americans use mobile devices to access the Internet, more than in any other country in the world.

This paper by Ev Ehrlich, former Undersecretary of Commerce for Economic Policy in the Clinton Administration, provides more background and facts regarding competition in the broadband market. 

The dramatic innovation and investment in broadband, coupled with innovation in devices and applications, also means more choice than ever for consumers – not just in terms of networks but in all realms of the Internet ecosystem.

Cable, wireless, satellite, traditional wireline companies, and others compete against each other for consumers’ voice, data and video communication dollars.   In addition to facilities-based providers of connections, device makers and application developers also compete for customer relationships.   The advent of multiple broadband networks means network operators are no longer in the preeminent position with customers that they once were when they operated single-purpose networks for things like telephone and cable TV. So the field gets complex pretty quickly.  Now consumers not only look for mobile service, they also think about what device they want, what applications they want to get access to, and what features (i.e., Bluetooth, SD memory chips and so on) they want in their mobile devices.

With regard to mobile markets, the trends towards more options and more features of all kinds is especially prominent.   It used to be that many if not most of the applications and features on cell phones cost extra.  Pricing was on a per minute basis in the early days for voice calls and you had to pay for incoming calls.   In short, very little was bundled in with the phone for free and there were per minute charges or extra charges for many services or features available on phones.

Things have really changed in the market today.  A partial list of services that are available on mobile phones free includes Basic Voice, Call Waiting, Call Forwarding, Caller ID, Caller ID Blocking, No Answer/Busy Transfer, 3-Way Calling, Content Filters, Talk hands-free, Voice Dialing, Speed and Spam Controls.  A more extensive list is included in this press release from Verizon Wireless.

And this is just a partial list.  For example, it used to be that in most cases you had to pay to upload all photos from your phone to “Pics Place” on Verizon’s servers before you could share them. Now, not only do some phones have Bluetooth, which allows them to connect directly to a PC to download photos, many have an SD memory chip that can be removed and can be inserted in a reader on a PC or a USB connected device and loaded right on to the PC.   All of this is “free” too and that was not the case just a few years ago.

Or look at the various more “open” models that exist today in the mobile and video markets for Verizon products and services.   On our FiOS TV platform, we offer a “Widget Bazaar,” including Facebook and Twitter widgets (soon to come:  NFL stats, Kodak photo sharing, Home Shopping Network).  We are currently developing new Widget apps with third-party preferred partners; inviting feedback and comment from developers.  In the next few months Verizon will publish a  Software Development Kit with API’s (application programming interfaces) based on a widely used open programming language called Lua.  This will enable third-party developers to write programs for the FiOS TV system.   

Or take our wireless network.  Verizon Wireless is the first in the industry to open our wireless broadband platform to third-party development.  In 2007, we announced the Open Development Program allowing third-party devices to connect to the current 3G network and the soon-to-be-deployed 4G / LTE broadband network.  In 2008, we held an open development conference, developed an efficient review process and released specifications for mobile device manufacturers and certified two independent labs for testing 4G devices.  This year, we held a Verizon Developer Community Conference in Silicon Valley for developers of mobile applications and announced a very efficient (14 day) review program for the approval of new applications.  So far, nearly 50 devices have been certified for our 3G network including an inventory management device that lets suppliers know when materials get low, smart grid technology for utilities to read meters and manage energy usage and a wireless medical chart for health care professionals to access patient records.

The Chairman said in his speech that he has not prejudged this issue.  I also have heard him say more than once that he is very committed to fact-based approaches.   While I have a lot of respect for the accomplishments of Mr. Cerf in the Internet’s development, I do not believe his concerns are backed by strong evidence.  I believe the proceeding the Chairman has initiated will provide the means of finally helping to bring clarity, understanding and a solid factual base to a debate that has too often lacked these characteristics.

Two events happened on Friday, September 25^th, in Washington, D. C. that included lots of interesting discussion around the issues of network management and the evolution of the Internet, and broadband competition.  I want to cover both but let me start with the event where the “end-to-end” principle was discussed.  I’ll do a second post later this week that summarizes the second event.

The  Information Technology and Innovation Foundation held a session to release a new paper by Richard Bennett, a long time engineer involved with the development of network protocols for the Internet, entitled “Designed for Change: “End-to-End Arguments, Internet Innovation, and the Net Neutrality Debate.”  Appearing along with Richard was John Day, a professor of computer science at Boston University Metropolitan College and a long-time participant in Internet engineering activities, Christopher Yoo, a professor at the University of Pennsylvania, Dave Farber, a professor of computer science at Carnegie Mellon University often called the “Grandfather of the Internet,” and Bill Lehr, a research associate in the Computer Science and Artificial Intelligence Laboratory at MIT.

Overall, the commenters at the ITIF forum offered two basic points in my view: the Internet is facing many challenges, needs to evolve, and network management is an important part of the process of change; and government rules or constraints could well interfere with important changes and technology approaches that will need to be adopted to ensure the Internet can evolve as needed to meet the challenges.   Assuming the “ends” of the Internet are where all changes or improvements are best implemented is not the right way to look at its future.

Here are some of the key points made by the presenters.  I also include a link to the recorded web cast that you can watch.   

Richard Bennett said that some of the claims made in the net neutrality debate are not consistent with how the networks actually work.   He noted that advocates have used the “end-to-end” principle that was first articulated in the early 1980’s by David Clark and David Reed among others and have taken a principle based on change and unintentionally turned it into a principle hostile to change.   He said end-to-end is a good principle, but it does not actually imply that there is no intelligence within the network.   Instead, it was originally based on the notion that the Internet was an “experimental” technology and would have to continually change.  Connecting networks involved lots of routers and servers and many network links and experimenting with changes or ideas in the “core” would be hard and problematic.  Instead, experimenting on the “edges” was easier but it was also felt that if it made more sense to implement changes in the networks or the core, that was not forbidden.  More “smarts” in the core, in other words, was not considered to be a bad thing.  

Richard went on to say that there are design problems in the internet that have been deferred because Moore’s Law allowed us to neglect them.  We’ve been able to avoid some problems because processing speeds have continued to go up.  With today’s challenges of ever more complex content and security issues among other things, that is no longer going to be possible. 

Following Richard’s comments, the other experts took part in a panel to discuss his paper.  Here are some highlights from their comments. 

John Day said that Richard Bennett was right about the internet being designed ad hoc.  He said it has worked, but it has allowed flaws to persist and those will need to be addressed.   Dr. Day said that it’s not that end-to-end is wrong but that it misses the point. There is no “end”.  There’s no such thing as a “dumb network”.  The “dumb network” is a myth.  End-to-end allows only a flat network, raising barriers to solutions that scale.

Christopher Yoo said that network design questions are fundamentally about engineering.  He said that Richard Bennett’s paper shows the flaws with simplistic visions of end-to-end and the importance of preserving room for innovation.   According to Yoo, engineers who developed the internet believed end-to-end was not sufficient and we would need intelligence in the network.   Christopher also had some slides that he released at the ITIF event.

Bill Lehr said Richard Bennett was a bit unfair to the 1981 paper on the end-to-end concept.  He said these network issues are multi-disciplinary, and require input from a lot of fields that don’t often know how to talk to each other.  Lehr said there is a great deal of debate about where intelligence should primarily reside – at the edges or in the network – but it’s a false choice.  It’s contextual.  The debate over who has the right to change or control functionality is important.  It is not a dogmatic decision or issue.

Dave Farber spoke via video webcam. Dave said that the development of the Internet was more about trying to make it work, not trying to make it secure or ideal. The internet was built with the assumption of a “nice community” in the early days.  As it has grown, it has encountered more malicious participants.   There are serious challenges we are facing today that need to be addressed and we don’t have all the answers.   We need to deal with security and how to make video work.  David said those listening should see his 2007 op-ed in the Washington Post about net neutrality.   He said we have to create an environment where innovation is possible.  He went on that the marketplace determines what is acceptable or not, and so far that has gotten us a long way.  Dave concluded that he is not a believer that the market is always right, but after being around Washington, DC for many years, I’m semi-convinced that I’d rather try the marketplace than the regulatory environment.

Interestingly, today the Washington Post has an editorial entitled “The FCC's Heavy Hand; Federal Regulators Should Not Be Telling Internet Service Providers How To Run Their Businesses”.   It makes some of the points the commenters’ made but adds an additional thought – that transparency regarding network management practices is a useful idea.  The FCC Chairman referenced such a proposal in his speech of last week and I have commented on this previously in a post.  I do think it is a worthwhile idea, although it can and should be worked out by the industry in my view.

PolicyBlog’s own David Young appeared on a Brookings Instition panel immediately following FCC Chairman Genachowski’s remarks on “net neutrality.”

These were among the comments David offered on behalf of Verizon immediately after the speech:

“We share the chairman’s goal of preserving an open and robust Internet.  Our concern is will it stifle innovation and growth.”

“The Internet is a work in progress, and we really don't know what it's going to look like five years from now.  We believe that new capabilities will be created by innovation in the Network, and those new capabilities and innovation should not be precluded by regulation."

“We need to look at the facts; I’m pleased to hear that the chairman only intends to do only what is needed but no more.  … We need to see what are the problems that need to be fixed and what are the examples that require a dramatic change.”

Watch the whole event (via Brookings).

Guest blogging today is Verizon's Chief Privacy Officer, Kathy Zanowick. She's held that position for us since April of 2006. See our related PolicyBlogTV discussion here.  -- CZ

Somewhere along the way we’ve all heard the saying: Trust is the cornerstone of any good relationship.

So it is with the relationships we enjoy with our customers and with the millions of people around the globe who entrust their communications to us. We know consumers will only use the full capabilities of Verizon’s advanced networks if they trust that their information will remain private, so privacy guides all of our business operations.  

It was, therefore very gratifying to have independent privacy experts rank Verizon the most trusted communications company for privacy.  Verizon was the only telecommunications company or cable provider to make the list of 2009 Most Trusted Companies for Privacy Award winners. Verizon ranked No. 2 nationally. The Most Trusted Companies for Privacy Award is commissioned by Ponemon Institute, an information security research company, and TRUSTe, the most widely recognized privacy trustmark company on the Web.

The award is designed to celebrate the companies who take active measures to protect and inform their consumers and to encourage a safer online ecosystem. eBay ranked No. 1 and the United States Postal Service ranked third. Congratulations to them both.

And congratulations to our employees! They are on the frontlines. It is our employees' commitment to observing our policies and executing our procedures that help safeguard our customers’ communications and information every day. Their commitment was put to the test by experts at the Ponemon Institute whose review included an evaluation of policies and practices as well as interaction with support staff.

The two-stage survey gauges the privacy policies and practices of leading consumer brands. First, the companies across the U.S. were rated as “most trusted” in an unaided survey of 6,486 adult-aged U.S. consumers. Second, the top 20 ranked companies from the consumer survey were judged by an expert review panel at the Ponemon Institute based on rigorous criteria, including the clarity and readability of privacy statements, notice, access to account information, cookie management, in- and out-of-network data sharing practices and more.

This year, Verizon became the first telecommunications company to ever make it to the list’s top three. That’s something that every Verizon employee can take pride in. And perhaps more importantly, I believe it will reinforce our longstanding commitment to keeping our customers’ information secure.

Stacey Higginbotham in a GigaOM piece yesterday makes a great point: In response to growing Internet use globally, as the world becomes flat, communication pipes get fat.  No question capacity and speed has greatly increased on today’s global backbone (and access – first or last mile depending on our point of view) networks.

Call global backbone networks “fat” if you want, happy if you'd like.  But one thing is for sure, they can certainly never be called dumb.  For example, during the recent damage to 10 undersea cable systems off Taiwan, the Verizon global network instantaneously rerouted restorable data traffic using sophisticated gear and architecture known as “meshing.” 

In the event of breaks, the Verizon global mesh network has the ability to automatically reroute restorable traffic in milliseconds using numerous diverse paths. Five of nine Verizon mesh routes serving Hong Kong were impacted during the submarine cable damage, so the four remaining mesh routes carried all the Verizon traffic to and from Hong Kong. With so many businesses dependent on the public Internet and Private IP networks, designing these network platforms for expanded growth is critical, but so is the intelligence built into the networks for enhanced survivability. The IP/global networks today are smart and hungry for more and more traffic, so keep feeding them. They can handle it.

There has been lots of focus recently on the issue of innovation in the tech world.   In fact, the Federal Communications Commission just issued a Notice of Inquiry to probe innovation in the wireless market.

So what is innovation in the tech space?  Experts like Clayton Christensen and Pip Coburn have done lots of research on how innovation evolves and how consumers adapt to new and innovative technology.   To me, innovation is any advances or improvements in technology products or services that provides a significant benefit to society or consumers - or performs better than previous alternatives.  As Christensen would say it is something that does the job better than what was there before.  And significantly, from my standpoint, it does not have to mean an improvement in the technology itself.  It can mean a change in the pricing or marketing of the product that is innovative and provides a significant and different improvement that was not available previously.

One of the issues surrounding the innovation discussion is the question of what promotes innovation, particularly what types of business models or approaches do so.  A lot of the discussion has gotten caught up in buzzwords like “open” versus “closed” models.  Unfortunately, these words are not neutral but have emotional connections with one often considered to be “good” and the other “bad”.  There are even those who would argue “open” means innovative and “closed” does not.   That is simply wrong as I have argued in previous posts.

To me, these models are more about “customized” or “bundled” approaches versus “non-differentiated” offerings.   A “customized” offering would include the manner in which mobile phones have traditionally be marketed in the retail world where a device (mobile phone, PDA), with specific features, often including various services and priced at a special rate is bundled into a package. Sometimes a service may include a device that while bundled with the service still allows for largely unrestricted access to and use of the Internet.   So a “customized” service package also includes elements of an “open” service as well.

One of the reasons I believe that the focus on “customized” versus “non-differentiated” models in terms of innovation is wrong is that it misreads how markets evolve.

Historically, if you look at competitive markets, they do not sit still, especially in the technology world. They always evolve and change and the business models associated with them do as well.  As competitive markets evolve, several things tend to happen. 

For one thing, prices usually moderate and differentiate over time so people have many more choices in how to pay for new services.  This can mean various players in the market offer more value in terms of what is bundled in with a product or “free” add-ons.  As markets evolve and competition grows, companies tend to have to try to find new and better ways to differentiate their offerings.  And in this sense, they become more “open” with a wider range of offerings, some highly customized and some not.

Markets also expand in terms of who is involved, what services are available and how new offerings come to be.   They become less rigid over time as companies strive to keep up with an ever evolving market and ever changing and more sophisticated consumers.   It is also true that in the early phases of tech markets, companies try to more carefully define the way their products work and the revenue streams they can generate, in part because they want to maximize the return on heavy new investments but also because it is far from clear in the early stages of markets what appeals to consumers.

A few examples of how tech markets evolve over time towards more variety and more "consumer choice" focused models and offerings are worth considering.  The video player market is one such case.   In the early days of video player machines, the earliest entries – MCA offered a player that was disc based (Laserdisc) and the early VCRs - only allowed consumers to play the video through to the end.  The videos could not be replayed or rewound or even stopped in early models.  Not only that, early versions of the Beta VCR and Laserdisc players could only play one hour of material on each tape or disc.   If you wanted to watch a two-hour movie, you had to play two tapes or discs. 

Obviously a lot changed in those markets.  Why?  Largely due to technology advances and consumer demand.  Beta machines were arguably better technologically but VHS technologies allowed for two-hour tapes to be played.  As a result, this factor drove a lot of early consumer demand away from Beta machines.   The fact that early video machines did not allow for rewinding, stopping or recording of tapes or discs met with lots of consumer resistance and frustration.  In most technology markets, it is critical to get the early adopters and tech lovers (around two percent of the market) before a technology can take off and this never happened with the Laserdisc in particular.  Companies found consumers wanted more choice and control and wanted the devices to fit the needs of their viewing habits (i.e., movie watching, being able to stop a movie for a snack break and so on).   They also wanted to record material on their own and time shift.  Over time, the technology improved and the shift towards more consumer controlled occurred.

Markets allow for testing and creativity to occur in how products are offered and they encourage evolution and adaption to consumer tastes.  Different business models allow for this to occur.  In the technology world, a key part of this process is often movement with a technology over time towards more consumer control, more choice and more options. In a word, towards a variety of models but with a an expanded emphasis on more “open”, less “customized” models.

Or consider the mobile market.  It used to be that many if not most of the applications and features on cell phones cost extra.  Pricing was on a per minute basis in the early days for voice calls and you had to pay for incoming calls.   In short, very little was bundled in with the phone for free and there were per minute charges or extra charges for many services or features available on phones.

Things have really changed in the market today.  A partial list of services that are available on mobile phones free includes Basic Voice, Call Waiting, Call Forwarding, Caller ID, Caller ID Blocking, No Answer/Busy Transfer, 3-Way Calling, Content Filters, Talk hands-free, Voice Dialing, Speed and Spam Controls.  A more extensive list is included in this press release from Verizon Wireless.

And this is just a partial list.  For example, it used to be that in most cases you had to pay to upload all photos from your phone to “Pics Place” on Verizon’s servers before you could share them. Now, not only do some phones have Bluetooth, which allows them to connect directly to a PC to download photos, many have an SD memory chip that can be removed and can be inserted in a reader on a PC or a USB connected device and loaded right on to the PC.   All of this is “free” too and that was not the case just a few years ago.

Or look at the various more “open” models that exist today in the mobile and video markets for Verizon products and services.   On our FiOS TV platform, we offer a “Widget Bazaar,” including Facebook and Twitter widgets (soon to come:  NFL stats, Kodak photo sharing, Home Shopping Network).  We are currently developing new Widget apps with third-party preferred partners; inviting feedback and comment from developers.  In the next few months Verizon will publish a  Software Development Kit with API’s (application programming interfaces) based on a widely used open programming language called Lua.  This will enable third-party developers to write programs for the FiOS TV system.   

Or take our wireless network.  Verizon Wireless is the first in the industry to open our wireless broadband platform to third-party development.  In 2007, we announced the Open Development Program allowing third-party devices to connect to the current 3G network and the soon-to-be-deployed 4G / LTE broadband network.  In 2008, we held an open development conference, developed an efficient review process and released specifications for mobile device manufacturers and certified two independent labs for testing 4G devices.  This year, we held a Verizon Developer Community Conference in Silicon Valley for developers of mobile applications and announced a very efficient (14 day) review program for the approval of new applications.  So far, nearly 50 devices have been certified for our 3G network including an inventory management device that lets suppliers know when materials get low, smart grid technology for utilities to read meters and manage energy usage and a wireless medical chart for health care professionals to access patient records.

I think it is important to understand how technology evolves and what the market really looks like today, in all its forms.   As the technology improves, it is generally true over time in competitive markets that business models and offerings become less rigid.  Consumers get more value and there are more choices and options for consumers that are either added in “free” or are offered in a more open manner.  

Having a range of business models and offerings gives consumers more options.  Some consumers want the ability and flexibility to actively create content or use a wide array of applications on the Internet.   They may face the dangers of attacks and malware, and the difficulties that sometimes come with using new applications on the Web.  But it is a tradeoff they are willing to make.  Others may want more simplicity and may feel more secure with services that are built into their devices or provide controls to restrict access by teens, for example, to the Internet.   To me, this is all good and helpful to the consumer.   No one way always works best for everyone.  And it is the way competitive, high tech markets evolve.  It has been true in markets like video players, as noted above, but it is even more true of the mobile market today.

One of the most astute observers in the technology space, Om Malik, assisted by his very able GigaOm team, is hosting their annual conference on the state of the mobile internet, Mobilize.

They are planning to publish an annual list of the 15 most influential people in the mobile internet each year, in conjunction with this conference.

This year’s list, out today, is heavy with big names, not only in the mobile space but in defining the future of technology as well.  It’s replete with well-known names like Steve Jobs of Apple and Julius Genachowski, Chairman of the FCC, as well as with key players at leading companies like Motorola, Google, Facebook, and Amazon. It’s a quite a group.

I was pleased, but not terribly surprised, that our own Chief Technology Officer Dick Lynch made the list.

Here's part of what GigaOm said about the effort Lynch leads at Verizon:

(Verizon has) the guts to invest in a rapid rollout of 4G technology and lay fiber to the necessary base stations in support — and anticipation — of the growing demand for mobile broadband

Congrats Mr. Lynch! As the only network guy on there, it speaks volumes about you and the Verizon network you help run.

I appeared as panelist at the FCC’s Adoption and Use Staff Seminar on August 19^th.  The panel was convened to look at patterns of broadband adoption, factors influencing adoption and ideas for increasing adoption.  My comments are outlined below.   I thought they might encourage further dialog and more ideas.

LINK

Adoption and Use Panel – Discussion Points

Broadband Adoption and Use

• Broadband is not just faster connections than dial-up.  It is also about “always on” connectivity as well. 
• Today, broadband allows people to stay connected – unlike the dial up era - and this has meant people are truly a “node” on the Internet and has allowed for a host of new applications to blossom.   Many do not take a lot of bandwidth but they have been transformative, like Instant Messaging for the hearing impaired.
• Both wired and wireless broadband connections are helping people access services they need.

Current State of Broadband Adoption and Use

• My assessment is that about 80% or almost 90 million households now have an Internet connection.  Some 70 million of those households have a broadband connection.  The rest have dial-up.  The remaining 20 million or so households have no connection to the Internet.
• Of these households, most could get dial-up access.  About half of them could get broadband connections.

Pertinent Trends in Broadband Adoption and Use

• Experts in technology adoption – like Pip Coburn – point out that adoption is not a simple case of price, choice and better technology.  As Coburn says “Change occurs when a user’s crisis is greater than their total perceived pain of adopting a possible solution.”
• What he means is that many technologies require us to learn how to adapt to and use them most effectively.  New technology, we all know from adopting new software, can sometimes feel threatening or even hopeless to use initially.
• (Slide One) – That said, broadband adoption has been one of the fastest technology adoption stories in our history and use of the technology has been growing very rapidly.   The latest Pew survey verifies that even in the last year, broadband adoption has jumped significantly on an overall basis in the U. S.
• (Slide Two) – Speeds have continued to increase over the last decade as well so that consumers have an ever more capable means of connecting to content and now creating it.   As a result of these trends, we now see consumers spending far more time online than ever as this chart demonstrates.

Drilling Down for Deeper Understanding

•  (Slide Three) - Looking at the data from Pew, Forrester and LRG, it appears that the following points about adoption are valuable insights:
• Seniors (those 64 and over which is 39 million people in 23 million households) have lower adoption rates (50 percent have Internet connections) and lower broadband connectivity (33 percent have broadband) than other age cohorts.  They spend the least time online than other cohorts.
• Gen Y (18-28 year olds) and Gen X (29-42 year olds) cohorts in general do virtually everything online.  They are connected by and large and will grow up that way.  That is 110 million adults and 44 million households.
• Income and education are factors that contribute to lower adoption.  Most homes with incomes above $75,000 are connected, but only half the homes with less than $30,000 in income are and only 37% of these homes are connected via broadband.
• Rural consumers have less broadband connectivity than consumers in suburban areas or urban areas.  This is partly because broadband is not as available and may be due to in part to lifestyles (i.e., more blue collar workers in rural areas who are not as exposed to online technologies at work).  It is also likely due to the fact that more seniors proportionately live in rural areas and often have lower, fixed incomes.
• While some ethnic groups (i.e., African Americans) are less connected at home proportionate to their population than other groups, many of these consumers at middle and upper income levels are connected at virtually the same levels as whites.   Some ethnic groups tend to be disproportionately represented in the low income population. 
• But here an interesting factor is that African Americans, for example, tend to use mobile broadband and data connections more than whites.  This is why I believe that it is not just about the home nor just about speed.  People are getting connected in varying ways and we don’t always appreciate that.

How Do We Help With These Challenges

• (Slide Four) – We are past the early adopters and the mass market adoption phases. We are now at the top of the adoption curve (see slide five) which is the most challenging part of any technology adoption process. So, we have some challenges remaining – primarily seniors, some rural consumers, and very low income consumers.
• As Coburn suggests, a piece of this is making the technology more adoptable and easier to transition to.  So, services online in general need to be improved.  Online Medicare applications take too much time and are not always intuitive. Studies from the University of Miami indicate that the web site for Medicare is difficult for many seniors to use, yet they are one of our most challenging cohorts.  We’ve got a long way to go in creating intuitive web sites.
• Second, around 9 million Americans are functionally deaf or hard of hearing.  Another 22 million Americans report vision loss which means individuals who have trouble seeing, even when wearing glasses or contact lenses, as well as individuals who are blind or unable to see at all.   Many of these people are in the “Seniors” cohort and these people can’t use typical technology to access the web.  We need to work harder to make it possible for them to do so.  Verizon now offers the “Talk” Blackberry which is a text to audio talking phone for the blind and sight impaired and we offer unlimited text messaging and web access plans for the hearing impaired and deaf that do not require or include voice service.   Why shouldn’t government think about text messaging access to its services and also other “mobile friendly” web services which often need to be reconfigured for mobile devices.  
• Finally, many of those not online – low income consumers, consumers whose jobs are in lines of work that do not require regular access to online services, and seniors – are simply not used to broadband technologies so focusing on both promoting computer ownership and training (possibly in public libraries for example) is a good strategy.

I attended this morning's kick-off event where FiOS was lit for the first time in the District of Columbia.  As a DC resident, a Verizon employee and a general techie it was a little like a party and I was able to grab various attendees for interviews.

Don't miss my chat with mayor Adrian Fenty while he wears a Verizon hard-hat and the video of the fiber splice that actually connected the first FiOS Hub in this Southeast neighborhood to our Central Office over fiber.

As I mention in the video - with FiOS - DC is slated to become one of the best wired cities in the world, joining New York (another FiOS city) Seoul, Hong Kong, and Tokyo.

See the Verizon news release here.

And check out Eric Rabe's post on the Verizon At Home blog.

It’s clear that the support for a national broadband plan is growing everyday.  The FCC’s efforts to this end, supported by their new blog, Blogband, are underway and are only aided by reports like the one by CWA.

Their data show, among other things, that US broadband is strongest in the more densely populated states (their top four, DE, RI, NJ, and MA, are all served by Verizon). It’s also important to remember that U.S. deployments are very different than the countries we are often compared with.

Our own Link Hoewing has written in detail about this comparison but GigaOm’s Jordan Golson pointed out the population density of nations like South Korea and Japan (with 1,290 and 870 residents per square mile, respectively) make the comparisons to the U.S. (with a population density of 80 residents per square mile), in my view,  like apples to watermelons.

Golson, makes the same point and says it’s “a lot easier (technically and fiscally) to get high-speed data when you don’t have residents flung across millions of square miles, like we do.”

Check out the report and GigaOm’s post – both deserve a good read as our national broadband plan is built and we seek ways to serve the underserved in our mostly rural nation.

Sometimes the most obvious truths are hidden in plain site sight.  Take for example broadband networks.  A modern technological miracle that has quite literally transformed the way we live, work, and socialize, there are some who wish this evolving river of data most of us we use everyday were something it’s not. For a multitude of self-interested reasons.

Perhaps it is terms like “pipe,” ‘flow,” and “tubes” - among others - that allow some to easily liken this life-blood of modern day to a 19 century utility.

Scott Cleland, however, exposes the fallacy of this slimile with a well reasoned explanation in his post, Why Broadband is not a Public Utlity. In it he walks through why broadband is so very different than traditional utilities such as water, gas, and electricity. 

Here’s one of the dozens of points he makes exposing the broadband-should be-just-a-dumb-pipe argument as invalid:

Whereas electricity, water, and gas are all uniform transmissions, broadband bandwidth is inherently variable requiring network management.

Read the whole thing and tell me what you think.

The Internet’s success is in part based on the widespread adoption of protocols or sets of rules used to transmit data, whether it be over networks or between an operating system and an application.    Some of the key protocols deal with transmissions over networks, the most famous of all being the TCP/IP protocol suites which govern the transmission of data between physical networks. 

These protocols are used by network technologies – like routers – to manage the flow of traffic and ensure the delivery of traffic.   When you consider the fact that there are literally hundreds of millions of computers, 1.5 billion users, and tens of thousands of networks connected together using Internet protocols, the efficient delivery of everything from video downloads to email each day is an amazing feat.

As amazing as it is, many Internet engineers and experts are concerned that the Internet needs to evolve to meet new traffic demands and more complicated and intensive data flows.   Some of these experts point to the fact that networks are a key part of the Internet and contrary to the distorted interpretation some apply to the “end to end” concept, network management and the evolution of network functionalities and protocols is a significant and important aspect of adapting to the ever changing demands of the global Internet.

One such expert is Mark Handley, a Professor of Networked Systems at the University College of London, the first university outside the U. S. hooked up to the then fledgling ARPANET network in the 1970’s.  Professor Handley wrote an interesting paper about the evolution of the Internet entitled “Why The Internet Only Just Works” in 2006.   In that paper, he offered the following observation:

“The Internet was never designed to be optimal for any particular problem — its great strength is that it is a general-purpose network that can support a wide range

of applications and a wide range of link technologies. The Internet is also a cost-effective network — it does not make great promises about the quality of service

that it provides. It is good enough for a wide range of applications, but anyone considering telesurgery or remote-control of a nuclear power station might well be advised to look somewhere else. It basically provides 80% of the capability for 20% of the cost.  If we wanted 100% of the functionality, so that telesurgery routinely could be performed over the Internet with very low risk, then it is highly likely that the network would be too expensive for the vast majority of users who wish to exchange e-mail, chat, or surf the Web.”

The professor notes in making this observation that he is in no way predicting the failure of the Internet or adopting a gloom and doom attitude.  Rather, he is pointing to the fact that historically it has been difficult to implement changes to the Internet to deal with emerging problems like increased congestion.   He also notes that increasingly we face challenges that are much larger than they ever have been before, particularly with regard to security.  As he points out:

“Security is probably the biggest imminent problem facing the Internet. At best, viruses, worms, phishing, and spyware between them risk reducing people’s confidence in the network and therefore its usefulness.  At worst, crime runs rampant, companies are bankrupted, and security lapses in critical systems cause widespread disruption, civil unrest, and perhaps deaths. Security is again a problem for which there is no magic bullet. There is an arms race under way, as techniques used by attackers and defenders co-evolve.”

In Stockholm just a few weeks back, Professor Handley spoke again about the challenges facing the Internet and the protocols that it runs on during a meeting of the Internet Engineering Task Force, a voluntary group of Internet experts, academics and engineers who help develop the protocols and architectures that are adopted for the Internet.  Professor added some additional points to his paper of 2006 and his slides suggest that the hard work of coming up with new protocols or improvements is making it harder for ISPs to manage networks, particularly with regard to security and congestion.

Listening to his talk and reviewing his slides, it appears he is concerned that if more work is not done to provide better network management tools “Either we end up with a network where innovation can only be within narrow bounds, constrained by yesterday’s common applications, or the regulators eventually step in and prohibit broad classes of traffic prioritization.”

In the end, what I believe Professor Handley is saying is that the hard work of coming up with new tools to make the Internet work better involves players at all levels of the Internet – content providers, applications developers, software designers, network equipment designers and manufacturers, and network providers – working together to adopt innovations wherever needed.  He clearly is worried about regulation or bad policy leading to stagnation and inappropriate use of technologies, thus undermining the continued innovation needed in the way the Internet is operated.   This has been my worry too as new policy ideas are floated that include extremely constraining provisions on network management.  Given the many challenges facing the Internet’s evolution – particular in the realm of security – we can’t afford to adopt policies that hinder innovation and needed evolution in how we approach the delivery of traffic to consumers.

I read and concur with my PolicyBlog colleague David Fish. Here are some additional thoughts:

The FCC has embarked on a fact finding mission as part of its effort to develop a National Broadband Plan as required by the stimulus legislation.   Blair Levin, who is heading the effort to develop the plan under Chairman Genachowski, has laid out a process to gather as many useful and implementable ideas as possible and as much fact based support for ideas as can be developed.

This is good and the program Blair has established to get input for the FCC’s work in drafting a plan to submit to Congress by next year is comprehensive.

But in the broadband space, developing facts and supporting data is not always easy or straightforward.   The Pew Trust, with its much lauded Internet and American Life program, has been doing research for example on broadband adoption and use for years.  It has found that there are many factors contributing to the hesitancy of many citizens to adopt broadband. It is not a simple story and the facts are often misstated.  And it is hard to establish baselines and look objectively at the data when exaggerated stories get circulated.

An example is a headlined story in the New York Times “Europe is Beating U. S. in Broadband”.  It is not what it appears to be.  The facts don’t support the conclusion or many of the quotes in the article.  But the headline was duly copied and reported in many other stories.

In the article Martin Selmayr, spokesman for European Union Commissioner for Information Society and Media Viviane Reding, said that there are “23 percent of European homes and businesses using fixed-line broadband, compared with 20 percent in the United States.”  This is inaccurate on a number of levels.   The 23% figures Selmayr cites for Europe is a penetration figure based on “number of access lines per 100 persons”, not a “homes and businesses connected to broadband” number.   We know this because the other numbers cited in the story by Mr. Selmayr for other European countries match those in an OECD report that uses “number of access lines per 100 persons” as a key metric.  So, just on this level, Selmayr is creating a false impression by mixing apples and oranges.

But he then goes on to say that Europe beats the U. S. because our country has only 20% of its homes and businesses connected to broadband.  While it is not entirely clear where he gets this figure, it is flat wrong.  While gauging broadband penetration based on per capita access lines has its own set of problems – such as penalizing those countries like the U.S. with larger households – this number attributed to the U.S. is simply wrong.  Even using the “number of access lines per 100 persons” metric reported by the OECD, the U. S. actually stands at 26.7 access lines per 100 persons, not 20. 

What concerns me about headlines like this is that they are touted as important indicators in the discussion around broadband. People remember “head turning” facts more than they do other information.  In point of fact, the U. S. is making tremendous progress in getting homes connected to broadband, moving from 55 percent of homes last year in the Pew survey to 63% this year.  Nearly two-thirds of those surveyed by Pew said they had more than three choices in broadband providers.  In addition to having an unparalleled level of facilities-based competition among different broadband platforms, the U.S. is also making great strides in deployment of next-generation fiber networks and 4G wireless networks.   So, the many articles and blogs that quoted Mr. Sylmayr or the NY Times article spread more misinformation at a time when the FCC is trying to get a real focus on the state of broadband in America.

The underlying report by the European Commission that Mr. Selmayr was supposedly referencing in his comments is accurate in its portrayal of the data it was reporting on.  My review of the report suggests that it does not claim that Europe is ahead of the U. S. in any particular metric regarding broadband.   It seems that this may have been a rushed statement trying to make a point.  That is silly when we are engaged now in a serious effort to gather the facts about broadband in the U. S.   It makes no sense and moves no balls forward to make these kinds of statements in an effort to create more debates about global ‘winners and losers.’

Broadband take-up by U.S. households and businesses is among the strongest in the world, at least three times larger than the 20-percent level claimed by a European Commission spokesman quoted by the NYT. The number cited in the article is simply wrong.

The Pew Research and Internet Life Project reported in June that 63 percent of U.S. households have broadband access. Leichtman Research Group research points to a level greater than two-thirds.  Among those who don’t subscribe to broadband, only 17-percent cite “lack of availability” as the reason for not connecting. Most often, non-subscribers are “late adopters” who say broadband is not relevant to their lives or who do not own computers.

The NYT reliance on the mistaken number creates a false impression.  It also ignores U.S. fiber deployment, mobile broadband adoption and next generation wireless services rolling out already on this side of the pond.

I am in my mid-fifties and can well recall how important Walter Cronkite was in our house growing up.   His passing brought back vivid memories, particularly of the time when he covered John F. Kennedy’s assassination.  My mom, a die hard Republican, was crying when I got home from school and there was Cronkite on the TV reporting on what had happened. 

That is why I was fascinated to read a recent American Enterprise Institute article by Karlyn Bowman on the changes in our news media that offered this fact: the total number of households who watched Kronkite in his heyday was 27 million.  That is the same number of households who today watch the news on ALL three broadcast networks.  That’s right, Katie Couric and the CBS Evening News only has an audience of about 8 percent of the country’s households.

I spend my time studying and working on Internet policy issues.  I read everything I can get my hands on when it comes to the Internet and how it is used today.   While not all of the drop in TV news watching is due to the emergence of the Internet (some of the drop is apparently a growing distrust of leading newscasters, unlike Cronkite who was one of the most trusted men in America), the Pew Trust has found an unmistakable trend towards more reliance on online and on demand news sources than on other media:

“The data also suggest a clear trend in the changing nature of how Americans now learn about the world around them. People are relying more heavily — both during peak moments and in general — on platforms that can deliver news when audiences want it rather than at appointed times, a sign of a growing “on demand” news culture. People increasingly want the news they want when they want it.”

Pew has also found that the number of people going online regularly to get their news continues to grow to the point that now almost 40 percent say that get their news at least several times a week that way.   Other media, such as newspapers and traditional TV, have seen dramatic declines in audience shared as noted in the AEI paper.  

What surprised me was not just the numbers but the fact that upcoming generations – those raised on digital technologies – have it appears in some cases – almost completely gotten away from traditional media like the TV and newspapers.  This study published by Morgan Stanley does not claim to be scientific. It was written by a 15-year-old summer intern at the company based on interviews and discussions he had with many friends.  Still, it has the ring of truth about it based on the younger relatives I know in my family.   The study notes the following:

“Teenagers are consuming more media, but in entirely different ways and are almost certainly not prepared to pay for it. They resent intrusive advertising on billboards, TV and the Internet. They are happy to chase content and music across platforms and devices (iPods, mobiles, streaming sites). Print media (newspapers, directories) are viewed as irrelevant but events (cinema, concerts etc.) remain popular and one of the few beneficiaries of payment.”

So if Walter Cronkite were still in his prime today, it is hard to know how he would be viewed.  There is evidence, despite all of this research, that traditional media sites like those operated by major newspapers and companies like CNN, remain major online sites visited by people to get news. 

But unlike the days of Cronkite where a large share of households watched every day, at the same time, viewing the same content, the topics, issues and media consumed now is diverse and the topics that get the most attention may not be the ones focused on by the major news organizations.  After all, the 40^th anniversary of the landing on the moon occurred just about the time of Michael Jackson’s death.  At one point, twenty million people had gone on YouTube to watch Michael Jackson’s first moonwalk.  Only two million downloaded the video of the first walk on the moon at about the same time.  I’m not making any judgments but it does bear testament to how the news is shaped and viewed nowadays.

The Verizon Wireless Developer Community Conference was held in San Jose, CA this past Tuesday.  I was there, live-Tweeting as @VDCConference. There was also a world-wide discussion that took place on Twitter about the event, some of which was unified by the hashtag #VDC. Lots of great reaction to this bold new chapter, as Verizon laid out its plan to partner with developers, share our APIs and open a streamlined channel to get the latest apps on your smartphone through a V CAST Apps Store opening later this year.

But don’t just read the Tweets, watch for yourself.  The events was webcast and now can be seen by registering here (click on "Webcast").  Lots of great VZW speakers, even better details and some guest stars like RIM’s co-CEO and speakers from Softbank Mobile, EA Mobile, and Slacker – so don’t miss it!

UPDATE 8/3/09:

I've added the highlight video onto our YouTube channel.

The Changing World of Video and Old Business Models

The main point in Henry Blodget’s piece is that the traditional broadcast, advertising supported video distribution model is dead and traditional content distributors (cable companies but also telcos) will have to change their business models.  Content providers will go directly to the consumer via the Internet.  Content providers will no longer have to go to cable companies to negotiate distribution agreements.   If they don’t change their business models soon, they will go the way of the newspapers which are losing all kinds of eyeballs (in fact, newspaper reading is down substantially from what it was just a few years ago).

Of course, Blodget is right in one very important sense – in today’s broadband world with higher capacity, more capable and more diverse devices, and more ways to connect, especially via the Internet – business models cannot remain static.  So the question is whether traditional providers of access to content – cable companies, broadcasters and increasingly telcos – are capable of adapting their business models.   

But another question is what are the business models that will work?  And more fundamentally what is “content” in this new world?  Is it just commercial video content which is what Blodget seems to imply?  And can non-traditional content – such as consumer generated content – become valuable and generate substantial revenues (YouTube is still losing Google lots of money and it is primarily about user generated content)?

First, the traditional business model for video distribution has been broadcast TV with mass market audiences and large scale, undifferentiated advertising.  It arose during the “mass market, manufacturing” era of the mid-`1900’s where products and services were all developed for a largely undifferentiated, mass market.  It was advertising supported, as we all know too well.  The old cliché was that half the advertising dollars spent were wasted but no one knew which half.  

That model has been changing on both the product side and the services side for quite a number of years.  Increasingly, communications networks and technologies allow for the development and use of more targeted types of content.   The technology now allows for “prosumers”, consumers who both create and use content.  And content today is no longer just video based or commercial. It is also computer and applications based - meaning gaming, social networking and mobile and online applications of various kinds.  Communications is content too - in other words people talking to each electronically in the myriad of ways they can today.  Text messaging is content and it growing rapidly as its cousin, Twitter.  So the range of content consumed today is far different from what dominated in the old broadcasting days.

Second, advertising is changing too.   Targeted advertising is much more feasible today and advertising related to search, for example, now more closely matches the content people are searching for.  As a result, it is a growing and successful medium.

Third, there is no longer just one screen – the TV – as Blodget suggests.  But he forgets the third screen – mobile devices – which are increasingly robust, and attached to networks that can distribute more and more content.  With the arrival of 4G networks in the near future, there is no reason that mobile screens won’t be just as important as the TV and PC are today. Maybe more so, especially for live events which people don’t want to miss no matter where they are, like sports.

But all of this content is not easy to find today.  Yes, search is better than ever but you still are primarily doing searches based on metatags and text based identifiers.  True video search – looking video content and identifying a scene, clip or video based on an actor, a scene or a musical number in the video – is not possible. In a world without channels, better search capabilities for video content are needed.  I would argue that despite Christopher Anderson’s “long tail” argument, it is still important to have aggregators of content to make video and applications of all kinds easier to find.  Convenience remains a strong driver of consumer demand and fulfillment.  Not everyone wants to be a “tech geek” to search online for content.

In point of fact, cable did help change the broadcast TV model.  The broadcast model was based on limited channels, mass market TV programs, and linear, time based programming.  Cable exploded that model so today, niche programs are common, diverse programming options are the rule, and time shifting is common.  It is true broadcast TV viewing time is going down but total TV viewership is increasing.  It just that today, more of the viewing is done over cable networks than broadcasting networks.  At the same time, online video consumption is up – and it is now more common for people to no longer just view two minute video clips – which used to be the rule a few years back.  Now it is not uncommon for people to watch hour long or even longer videos via their PC.  Why?  Partly because broadband is more widely available but partly too because it faster and more capable. And the PC screens people are watching are now often big – such as the 24 inch iMac or HDTVs that today often build in Ethernet connections.   And just as importantly content providers are offering TV shows and movies online.

So, yes, business models have to change.  And on demand will continue to grow in importance.  But we do have the all important “third screen” – mobile networks – and as they evolve, I think you will see more and more content going over mobile networks, especially for time sensitive content like sports events.  Growth in access to online services due to the emergence of smart phones is already exploding according to the Pew Center.

Further, applications are an important form of content too and Verizon is already moving to partner with applications developers to offer their wares on our mobile networks, especially over our 4G network.  

We are also working on technologies to make it possible to integrate the “three screens” and watch content over mobile, broadband and TV networks.  While these ideas are in the formative stages, I think we will have a big role working with content developers to distribute their content over our networks.  

It is still very early days too in terms of figuring out how to do advertising in this new world.   More targeted ad systems are very possible and while there are privacy issues involved, the industry is moving to address them with voluntary standards.   Advertising remains a valuable medium to help pay for content and targeted it so it meets consumer interests while being more efficient and effective for the advertiser is very important.  And local advertising remains very important because it is so relevant and we are a significant player in providing local advertising through FiOS TV.

Our FiOS TV system is also built on technologies our IT group has developed for organizing content and searching for it.   Our new video interface for our FiOS TV product is superb at finding specific movies by actor, topic and date.  As more content becomes available, organizing it and making it easy to find will remain a very important differentiator in the market.  

Finally networks continue to have value in this new world.  Prices have come down for broadband and mobile service due to competition but through bundling of these services, the companies have continued to find ways to provide value to the consumer while remaining profitable.

So, yes the old models cannot remain a crutch.   Adaptation will be important but it is hard to see how broadband providers like Verizon at least don’t have many more opportunities to succeed in this new world.

In a letter today to key lawmakers on Capitol Hill, Verizon Wireless’ President and CEO Lowell McAdam announced “Effective immediately for small wireless carriers... any new exclusivity arrangement we enter with handset makers will last no longer than six months – for all manufacturers and all devices.”

Read the full letter for yourself below.

July 17, 2009

The Honorable Rick Boucher
Chairman
Subcommittee on Communications, Technology and the Internet
House Committee on Energy and Commerce
U.S. House of Representatives
2187 Rayburn House Office Building
Washington, D.C.  20515

Dear Chairman Boucher:

Last February, a group of 24 small wireless providers asked Verizon Wireless to eliminate long-term exclusive handset agreements with LG and Samsung.  We agreed to do so for those small providers.  Today I am writing to reaffirm that commitment and to let you know that Verizon Wireless is taking an even bolder step to transform exclusive handset arrangements.  Effective immediately for small wireless carriers (those with 500,000 customers or less), any new exclusivity arrangement we enter with handset makers will last no longer than six months – for all manufacturers and all devices.   

This new approach is fair to all sides.  Exclusivity arrangements promote competition and innovation in device development and design.  We work closely with our vendors to develop new and exciting devices that will attract customers.  When we procure exclusive handsets from our vendors we typically buy hundreds of thousands or even millions of each device.  Otherwise manufacturers may be reluctant to make the investments of time, money and production capacity to support a particular device.  This of course constitutes a major risk for us, because if the device is not popular in the marketplace we end up with excess inventory and potential competitive losses.  On the other hand, if the device does well in the market, six months is a reasonable time for us to earn the benefit of our risk and investment. 

Moreover, we have no objection to small carriers having full access to any manufacturer’s portfolio of prototypes and products in development, without being informed which may have been selected by Verizon Wireless.  Obviously our pre-launch product selections are proprietary and must remain confidential between us and our vendors.

Our actions today are consistent with our long track record of leading the vibrant, highly competitive wireless industry in new and innovative directions that benefit consumers.  We would be happy to meet with you or your staff to discuss this further. 

Sincerely,

Lowell C. McAdam

cc:     Chairman Waxman
Ranking Member Barton
Ranking Member Stearns