Stratus World 2006 – Las Vegas
The Second Derivative:
New Opportunities in Telecom
Roderick K. Randall
Senior Managing Director
Vesbridge Partners
Page 1
Why Start or Invest in a Telecom
Company?
• Why do you rob banks, Willy?
 “Cause
that’s where the money is”
Willy Sutton
Bank Robber
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Where are the New Opportunities?
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Answer:
The
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Second Derivative
Second Derivative Plays
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The Base
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Internet infrastructure
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Starting with narrowband and moving to broadband.
The First Derivative opportunities
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Internet based companies such as AOL, Amazon, Yahoo, Google,
eBay, and others
The Second Derivative Plays
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Skype - $4 Billion!
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Moogle, MeBay, Mamazon, Metc.
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Mass Personalization and Citizen Media
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MediaCos (not Telcos or CableCos, but Network TV without the
Network)
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Voogle – Video Search Based TV Ad Delivery
A Network Carol
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The Ghost of Christmas Past
The Ghost of Christmas Present
The Ghost of Christmas Future
The Ghost of Christmas Past
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Telecom was the most valuable and profitable industry in
the world
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When I joined AT&T Bell Labs in 1981 it was the worlds largest
company and its most valuable
We’ve since seen Divestiture and Trivestiture, (and now
reassembly!) along with a tremendous growth in the
competitive environments…
Along with a dramatic surge in capacity and capability in
the following 25 years..
Spurring in turn a tremendous surge in innovations, not
the least of which included the internet and the web
LGNs: Last Generation Networks
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Voice and Connectivity
Local and Long Distance
Bandwidth in $/Minute, $/Mile,
Worldwide Telecom Service Revenues
$1.4 Trillion in 2005
$1.0 Trillion
Source: IDC
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The Ghost of Christmas Present
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Strong demand for higher and higher bandwidth
Increasingly Pervasive “always on” Broadband
Enabling the 1st derivative business models to enormously
prosper such as those of Amazon, Yahoo, eBay, and
Google
Google is now worth over $100 Billion, which is more than
any telecom operator in the world, except for Vodafone
Group, which has grown by acquiring over 26 operators
Skype was already acquired for $4 Billion by eBay
P2P traffic from a small percentage of subscribers
dominates the internet backbone
All telcos are planning some form of IPTV in a triple play
with 10s of Mbps of BB BW
The Ghost of Christmas Future
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A number of potential futures
One is where telcos ride the new wave of opportunity by
radically transforming their business models to meet the
new challenge
Another where telcos are ridden by the new 2nd derivative
players, some of which are the 1st derivative players who
have evolved and are now gear-shifting into overdrive
Let’s look at the second one first, because that’s what
Dickens would do
Key Catalysts
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Plentiful Consumer Broadband in capacities un-dreamed of 10
years ago…
Driven by the MAD Winner-Take-All competitive threat of The
Triple Play …
Driven by the push to mix Entertainment Delivery with Telecom…
Digitally using IP…
At low costs…
Even free…
Or “apparently” free to the consumer…
Using a new advertiser supported business model…
Which is no longer broadcast based…
And everything is stored on increasingly abundant cheap
storage, and instantly retrievable by anyone anywhere
What Do You Call 1,024 Petabytes?
•
And the answer is…
An
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How many Petafiles could a woodchuck chuck, if a wood
chuck could chuck wood?
Terabytes of Storage will become common place in the
average broadband consumer home within 5 years
As the tendency to keep rather than discard data
increases, along with more sources
What is a Googabyte?
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Exabyte
1 with 100 Zeroes of bytes
Magnetic Disk Storage Cost:
Declining at a Rate of 45% Annually
$1,000.00
$1,000.00
Cost of 1GigaByte
Cost
ofDisk
1G Byte
of Capacity
of
Hard
Storage
$303.00
$100.00
$92.00
$10.00
$28.00
$1.00
$0.10
1992
Source: Berghell Associates, 2001
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1994
1996
1998
$8.37
2000
$2.53
2002
$0.77
2004
$0.23
2006
$0.07
2008
A New $1 Trillion Industry…
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It will be made up from the convergence and collision of
three different industries
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Entertainment: $72 Billion

$12 Billion Music

$60 Billion Movies

Advertising: $600 Billion

Telecom Services:$1.4 Trillion
The Tail may be wagging the Dog
Net Net: $2 Trillion  $1 Trillion
But, there will be a different set of winners and losers
Key Catalysts: Read on…
Enter Googlezon
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EPIC 2014, a short film by Matt Thompson and Robin Sloan
Ads move from broadcast TV, newspapers, print,
billboards, other, to Online
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NY Times shuts down, unable to support its printing costs
Mass personalization makes advertising much more
compelling both to advertisers and potential customers
Google buys Amazon to create Googlezon
Everything that’s bought begins with a search
With personalized, search driven, real-time inserted, online
Ads…

People get ads that they actually want to watch,

Related to something they are interested in purchasing,

Rather than are annoyed by and seek to skip
Which Becomes Googlezonage
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TV is offered for free, again, this time Pointcast over IP, not
broadcast
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Telephony rides for free on IP, leading to financial crisis in
network operators
All telcos learn to operate within bankruptcy like the airline
industry
Google buys SBC (out of bankruptcy) and Vonage to keep the
broadband pipes flowing
Wireless is the only surviving stand alone network business
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All supported by a real-time hyperlinked Mass Personalized Ad model
NBC, ABC, CBS shut down, replaced by Bloggers
MTV, Fox, and Craig’s List survive as the new Ad Aggregators (a la
Overture)
But its threatened by Googlezonage’s new Global WiFiMAX FreeNet
Enter Googlezonage Mobile
It’s a MAD MAD World
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Page 17
M.A.D.: Mutually Assured Destruction for telcos and cable
operators
But, There’s An Alternative Future
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Telcos and Cablecos not only offer IPTV, but get involved in
Internet TV
They add intelligence in their networks to make sure they are
paid for the value of connection in order to keep the pipes alive
Nobody unsustainably gives valuable network connections away
for free without someone paying the operators
The new business models that are created involve a true payment
methodology for QoS that reflects value, but that could be paid
by sponsors such as advertisers
New applications are spawned, which further institutionalize the
network providers into the value chain, rather than Skype them
out
Connection will continue to be valued and paid for
The Stupid Network is a Stupid Idea
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Stupid Networks lead to stupid and
unsustainable Business Models
Stupid Networks would ultimately only have
price/bit as differentiation…
Leading to rapid commoditization…
Which drives profitability out of all competitors…
Which makes the business un attractive…
Which makes it un-finance-able…
Which makes it un-staff-able with top talent
Which leads to collapse
Dimensions Of Network Intelligence
Signaling and Control
Control
• AIN Services
•800/900, Caller ID/Name
•Voice Mail, IVR
• Mobility
• SMS
• SIP
• Fixed/Mobile Convergence
IP Enhanced
3-D Intelligence
PSTN
Content
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Page 20
Instant Messaging
Content
Multimedia messaging
Network Based Security
Parental Control
Spam Filtering
Intelligent Content Delivery & Management
Management
Management
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DNHR
Self Healing Networks
Flow Through Provisioning
MPLS
Fixed-Mobile Convergence
Architectural Environment
HLR
VLR
RAN
GSM
CDMA
WCDMA
1x-RTT/EV-DO
HSDPA
Pre- SMSC
Paid
HLR
HLR
HLR
VLR
BSC
PSTN
A-Interface
WBSC
WiFi/SIP
BSC
MSC
MSC
Hosted Voice
Svc Provider
IMS
MS
SG
SG
VLR
SS
MG
MG
SS/MM
IP
Pico Cellular
L-AP
WiFi
L-AP
Bluetooth
U-AP
WiMax
M-AP
IP
MFW
WLAN GWY
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SS7
Fixed-Mobile Convergence
Architectural Environment
HLR
VLR
RAN
GSM
CDMA
WCDMA
1x-RTT/EV-DO
HSDPA
Pre- SMSC
Paid
HLR
HLR
HLR
VLR
BSC
PSTN
A-Interface
WBSC
WiFi/SIP
BSC
MSC
MSC
Hosted Voice
Svc Provider
IMS
MS
SG
SG
VLR
SS
MG
MG
SS/MM
IP
Pico Cellular
L-AP
WiFi
L-AP
Bluetooth
U-AP
WiMax
M-AP
Broadband
Residences
SIP PBX
Remote
Offices
IP
MG
PBX
MFW
WLAN GWY
Page 22
SS7
Fixed-Mobile Convergence
FT Server Opportunities
HLR
VLR
RAN
GSM
CDMA
WCDMA
1x-RTT/EV-DO
HSDPA
Pre- SMSC
Paid
HLR
HLR
HLR
VLR
BSC
PSTN
A-Interface
WBSC
WiFi/SIP
BSC
MSC
MSC
Hosted Voice
Svc Provider
IMS
MS
SG
SG
VLR
SS
MG
MG
SS/MM
IP
Pico Cellular
L-AP
WiFi
L-AP
Bluetooth
U-AP
WiMax
M-AP
Broadband
Residences
SIP PBX
Remote
Offices
IP
MG
PBX
MFW
WLAN GWY
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SS7
Intelligent Content Distribution
Every Song, Artist, Video, or Film Ever Recorded… On Demand
Guest Room
Master Bedroom
Home Media
Server
DSL
Home Theatre
Fiber
Ethernet
Switch
Page 24
DSL/Cable
Modem
Cable
Network Edge
Network Core
Intelligent Content Distribution
Content Replication and Pre-Caching
Guest Room
Master Bedroom
Home Media
Server
DSL
Home Theatre
Network Edge
Cable
Network Core
Fiber
Ethernet
Switch
DSL/Cable
Modem
Local DVRs
Home Media Server
Network Edge DVR
Network Core DVR
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Store most recent tv
shows
Favorites
Page 25
Store all purchased and
downloaded content

Movies

TV shows

Pictures

MP3s

Etc.
Store the most popular
content:

Most downloaded
movies

New releases

Most popular MP3s
Store all content:

All movies available
for download

All Music available
for download

All Video...
Intelligent Content Distribution
Policy Control Servers Control Network Enforcement
BW/QoS
Policy Server
PCS
Guest Room
Real Time Billing
Policy Server
PCS
Master Bedroom
Home Media
Server
DSL
Home Theatre
Network Edge
Cable
Network Core
Fiber
Ethernet
Switch
DSL/Cable
Modem
Policy Enforcement
Point
Local DVRs
Home Media Server
Network Edge DVR
Network Core DVR
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•
•
•
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Store most recent tv
shows
Favorites
Page 26
Store all purchased and
downloaded content

Movies

TV shows

Pictures

MP3s

Etc.
Store the most popular
content:

Most downloaded
movies

New releases

Most popular MP3s
Store all content:

All movies available
for download

All Music available
for download

All Video...
Intelligent Content Distribution
Search Based Personalized Real Time Ad Insertion
Search based
Personalization
Real Time Ad
Insertion
PCS
Guest Room
PCS
Entitlement &
DRM
PCS
P2P Swarm
Controller
PCS
Master Bedroom
Home Media
Server
DSL
Home Theatre
Network Edge
Cable
Network Core
Fiber
Ethernet
Switch
DSL/Cable
Modem
Policy Enforcement
Point
Local DVRs
Home Media Server
Network Edge DVR
Network Core DVR
•
•
•
•
•
Store most recent tv
shows
Favorites
Page 27
Store all purchased and
downloaded content

Movies

TV shows

Pictures

MP3s

Etc.
Store the most popular
content:

Most downloaded
movies

New releases

Most popular MP3s
Store all content:

All movies available
for download

All Music available
for download

All Video...
Intelligent Content Distribution
Controlled Peer-To-Peer Swarmcasting
Search based
Personalization
Real Time Ad
Insertion
PCS
Guest Room
PCS
Entitlement &
DRM
PCS
P2P Swarm
Controller
PCS
Master Bedroom
Home Media
Server
DSL
Home Theatre
Network Edge
Cable
Network Core
Fiber
Ethernet
Switch
DSL/Cable
Modem
Policy Enforcement
Point
Local DVRs
Home Media Server
Network Edge DVR
Network Core DVR
•
•
•
•
•
Store most recent tv
shows
Favorites
Page 28
Store all purchased and
downloaded content

Movies

TV shows

Pictures

MP3s

Etc.
Store the most popular
content:

Most downloaded
movies

New releases

Most popular MP3s
Store all content:

All movies available
for download

All Music available
for download

All Video...
Intelligent Content Distribution
FT Server Opportunities
Search based
Personalization
Real Time Ad
Insertion
PCS
Guest Room
PCS
Entitlement &
DRM
PCS
P2P Swarm
Controller
PCS
Master Bedroom
Home Media
Server
DSL
Home Theatre
Network Edge
Cable
Network Core
Fiber
Ethernet
Switch
DSL/Cable
Modem
Policy Enforcement
Point
Local DVRs
Home Media Server
Network Edge DVR
Network Core DVR
•
•
•
•
•
Store most recent tv
shows
Favorites
Page 29
Store all purchased and
downloaded content

Movies

TV shows

Pictures

MP3s

Etc.
Store the most popular
content:

Most downloaded
movies

New releases

Most popular MP3s
Store all content:

All movies available
for download

All Music available
for download

All Video...
$1 Trillion Market Grows to $3 Trillion
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Oops, what’s that ringing sound?
Was that the alarm clock waking me up from this dream, or
is it a nightmare???
You be the judge
Thank You!
www.vesbridge.com
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