Internet ex Machina

Introduction

“The net interprets censorship as damage and routes around it.”
– John Gilmore

I read a very interesting article last week. It turns out that, despite their best efforts, the Communist government of the People’s Republic of China have failed to insulate their prodigious population from the outrageous truths to be found online. In the article from the Times, Wang Guoqing, a vice-minister in the information office of the Chinese cabinet was quoted as saying, “It has been repeatedly proved that information blocking is like walking into a dead end.” If China, with all of the resources of a one-party state, and thus able to “lock down” its internet service providers, directing their IP traffic through a “great firewall of China”, can not block the free-flow of information, how can any government, anywhere – or any organization, or institution – hope to try?

Of course, we all chuckle a little bit when we see the Chinese attempt the Sisyphean task of damming the torrent of information which characterizes life in the 21st century. We, in the democratic West, know better, and pat ourselves on the back. But we are in no position to throw stones. Gilmore’s Law is not specifically tuned for political censorship; censorship simply means the willful withholding of information – for any reason. China does it for political reasons; in the West our reasons for censorship are primarily economic. Take, for example, the hullabaloo associated with the online release of Harry Potter and the Deathly Hallows, three days before its simultaneous, world-wide publication. It turns out that someone, somewhere, got a copy of the book, and laboriously photographed every single page of the 784-page text, bound these images together into a single PDF file, and then uploaded it to the global peer-to-peer filesharing networks. Everyone with a vested financial interest in the book – author J.K. Rowling, Bloomsbury and Scholastic publishing houses, film studio Warner Brothers – had been feeding the hype for the impending release, all focused around the 21st of July. An enormous pressure had been built up to “peek at the present” before it was formally unwrapped, and all it took was one single gap in the $20 million security system Bloomsbury had constructed to keep the text safely secure. Then it became a globally distributed media artifact. Curiously, Bloomsbury was reported as saying they thought it would only add to sales - if many people are reading the book now, even illegally, then even more people will want to be reading the book right now. Piracy, in this case, might be a good thing.

These two examples represent two data points which show the breadth and reach of Gilmore’s Law. Censorship, broadly defined, is anything which restricts the free flow of information. The barriers could be political, or they could be economic, or they could – as in the case immediately relevant today – they could be a nexus of the two. Broadband in Australia is neither purely an economic nor purely a political issue. In this, broadband reflects the Janus-like nature of Telstra, with one face turned outward, toward the markets, and another turned inward, toward the Federal Government. Even though Telstra is now (more or less) wholly privatized, the institutional memory of all those years as an arm of the Federal Government hasn’t yet been forgotten. Telstra still behaves as though it has a political mandate, and is more than willing to use its near-monopoly economic strength to reinforce that impression.

Although seemingly unavoidable, given the established patterns of the organization, Telstra’s behavior has consequences. Telstra has engendered enormous resentment – both from its competitors and its customers – for its actions and attitude. They’ve recently pushed the Government too far (at least, publicly), and have been told to back off. What may not be as clear – and what I want to warn you of today – is how Telstra has sewn the seeds of its own failure. What’s more, this may not be anything that Telstra can now avoid, because this is neither a regulatory nor an economic failure. It can not be remedied by any mechanism that Telstra has access to. Instead, it may require a top-down rethinking of the entire business.

I: Network Effects

For the past several thousand years, the fishermen of Kerala, on the southern coast of India, have sailed their dhows out into the Indian Ocean, lowered their nets, and hoped for the best. When the fishing is good, they come back to shore fully laden, and ready to sell their catch in the little fish markets that dot the coastline. A fisherman might have a favorite market, docking there only to find that half a dozen other dhows have had the same idea. In that market there are too many fish for sale that day, and the fisherman might not even earn enough from his catch to cover costs. Meanwhile, in a market just a few kilometers away, no fishing boats have docked, and there’s no fish available at any price. This fundamental chaos of the fish trade in Kerala has been a fact of life for a very long time.

Just a few years ago, several of India’s rapidly-growing wireless carriers strung GSM towers along the Kerala coast. This gives those carriers a signal reach of up to about 25km offshore – enough to be very useful for a fisherman. While mobile service in India is almost ridiculously cheap by Australian standards – many carriers charge a penny for an SMS, and a penny or two per minute for voice calls – a handset is still relatively expensive, even one such as the Nokia 1100, which was marketed specifically at emerging mobile markets, designed to be cheap and durable. Such a handset might cost a month’s profits for a fisherman – which makes it a serious investment. But, at some point in the last few years, one fisherman – probably a more prosperous one – bought a handset, and took it to sea. Then, perhaps quite accidentally, he learned, through a call ashore, of a market wanting for fish that day, brought his dhow to dock there, and made a handsome profit. After that, the word got around rapidly, and soon all of Kerala’s fisherman were sporting their own GSM handsets, calling into shore, making deals with fishmongers, acting as their own arbitrageurs, creating a true market where none had existed before. Today in Kerala the markets are almost always stocked with just enough fish; the fishmongers make a good price for their fish, and the fishermen themselves earn enough to fully recoup the cost of their handsets in just two months. Mobile service in Kerala has dramatically altered the economic prospects for these people.

This is not the only example: in Kenya farmers call ahead to the markets to learn which ones will have the best prices for their onions and maize; spice traders, again in Kerala, use SMS to create their own, far-flung bourse. Although we in the West generally associate mobile communications with affluent lifestyles, a significant number of microfinance loans made by Grameen Bank in Bangladesh, and others in Pakistan, India, Africa and South America are used to purchase mobile handsets – precisely because the correlation between access to mobile communications and earning potential has become so visible in the developing world. Grameen Bank has even started its own carrier, GrameenPhone, to service its microfinance clientele.

Although economists are beginning to recognize and document this curious relationship between economics and access to communication, it needs to be noted that this relationship was not predicted – by anyone. It happened all by itself, emerging from the interaction of individuals and the network. People – who are always the intelligent actors in the network – simply recognized the capabilities of the network, and put them to work. As we approach the watershed month of October 2007, when three billion people will be using mobile handsets, when half of humanity will be interconnected, we can expect more of the unexpected.

All of this means that none of us – even the most foresighted futurist – can know in advance what will happen when people are connected together in an electronic network. People themselves are too resourceful, and too intelligent, to model their behavior in any realistic way. We might be able to model their network usage – though even that has confounded the experts – but we can’t know why they’re using the network, nor what kind of second-order effects that usage will have on culture. Nor can we realistically provision for service offerings; people are more intelligent, and more useful, than any other service the carriers could hope to offer. The only truly successful service offering in mobile communications is SMS – because it provides an asynchronous communications channel between people. The essential feature of the network is simply that it connects people together, not that it connects them to services.

This strikes at the heart of the most avaricious aspects of the carriers’ long-term plans, which center around increasing the levels of services on offer, by the carrier, to the users of the network. Although this strategy has consistently proven to be a complete failure – consider Compuserve, Prodigy and AOL – it nevertheless has become the idée fixe of shareholder reports, corporate plans, and press releases. The network, we are told, will become increasingly more intelligent, more useful, and more valuable. But all of the history of the network argues directly against this. Nearly 40 years after its invention, the most successful service on the Internet is still electronic mail, the Internet’s own version of SMS. Although the Web has become an important service in its own right, it will never be as important as electronic mail, because it connects individuals.

Although the network in Kerala was brought into being by the technology of GSM transponders and mobile handsets, the intelligence of the network truly does lie in the individuals who are connected by the network. Let’s run a little thought experiment, and imagine a world where all of India’s telecoms firms suffered a simultaneous catastrophic and long-lasting failure. (Perhaps they all went bankrupt.) Do you suppose that the fishermen would simply shrug their shoulders and go back to their old, chaotic market-making strategies? Hardly. Whether they used smoke signals, or semaphores, or mirrors on the seashore, they’d find some way to maintain those networks of communication – even in the absence of the technology of the network. The benefits of the network so outweigh the implementation of the network that, once created, networks can not be destroyed. The network will be rebuilt from whatever technology comes to hand – because the network is not the technology, but the individuals connected through it.

This is the kind of bold assertion that could get me into a lot of trouble; after all, everyone knows that the network is the towers, the routers, and the handsets which comprise its physical and logical layers. But if that were true, then we could deterministically predict the qualities and uses of networks well in advance of their deployment. The quintessence of the network is not a physical property; it is an emergent property of the interaction of the network’s users. And while people do persistently believe that there is some “magic” in the network, the source of that magic is the endlessly inventive intellects of the network’s users. When someone – anywhere in the network – invents a new use for the network, it propagates widely, and almost instantaneously, transmitted throughout the length and breadth of the network. The network amplifies the reach of its users, but it does not goad them into being inventive. The service providers are the users of the network.

I hope this gives everyone here some pause; after all, it is widely known that the promise to bring a high-speed broadband network to Australia is paired with the desire to provide services on that network, including – most importantly – IPTV. It’s time to take a look at that promise with our new understanding of the real power of networks. It is under threat from two directions: the emergence of peer-produced content; and the dramatic, disruptive collapse in the price of high-speed wide-area networking which will fully power individuals to create their own network infrastructure.

II: DIYnet

Although nearly all high-speed broadband providers – which are, by and large, monopoly or formerly monopoly telcos – have bet the house on the sale of high-priced services to finance the build-out of high-speed (ADSL2/FTTN/FTTH) network infrastructure, it is not at all clear that these service offerings will be successful. Mobile carriers earn some revenue from ringtone and game sales, but this is a trivial income stream when compared to the fees they earn from carriage. Despite almost a decade of efforts to milk more ARPU from their customers, those same customers have proven stubbornly resistant to a continuous fleecing. The only thing that customers seem obviously willing to pay for is more connectivity – whether that’s more voice calls, more SMS, or more data.

What is most interesting is what these customers have done with this ever-increasing level of interconnectivity. These formerly passive consumers of entertainment have become their own media producers, and – perhaps more ominously, in this context – their own broadcasters. Anyone with a cheap webcam (or mobile handset), a cheap computer, and a broadband link can make and share their own videos. This trend had been growing for several years, but since the launch of YouTube, in 2005, it has rocketed into prominence. YouTube is now the 4th busiest website, world-wide, and perhaps 65% of all video downloads on the web take place through Google-owned properties. Amateur productions regularly garner tens of thousands of viewers – and sometimes millions.

We need to be very careful about how we judge both the meaning of the word “amateur” in the context of peer-produced media. An amateur production may be produced with little or no funding, but that does not automatically mean it will appear clumsy to the audience. The rough edges of an amateur prodution are balanced out by a corresponding increase in salience – that is, the importance which the viewer attaches to the subject of the media. If something is compelling because it is important to us – something which we care passionately about – high production values do not enter into our assessment. Chad Hurley, one of the founders of YouTube has remarked that the site has no “gold-standard” for production; in fact, YouTube’s gold-standard is salience – if the YouTube audience feels the work is important, audience members will share it within their own communities of interest. Sharing is the proof of salience.

After two years of media sharing, the audience for YouTube (which is now coincident with the global television audience in the developed world) has grown accustomed to being able to share salient media freely. This is another of the unexpected and unpredicted emergent effects of the intelligence of humans using the network. We now have an expectation that when we encounter some media we find highly salient, we should be able to forward it along within our social networks, sharing it within our communities of salience. But this is not the desire of many copyright holders, who collect their revenues by placing barriers to the access of media. This fundamental conflict, between the desire to share, as engendered by our own interactions with the network, and the desire of copyright holders to restrain media consumption to economic channels has, thus far, been consistently resolved in favor of sharing. The copyright holders have tried to use the legal system as a bludgeon to change the behavior of the audience; this has not, nor will it ever work. But, as the copyright holders resort to ever-more-draconian techniques to maintain control over the distribution of their works, the audience is presented with an ever-growing world of works that are meant to be shared. The danger here is that the audience is beginning to ignore works which they can not share freely, seeing them as “broken” in some fundamental way. Since sharing has now become essential quality of media, the audience is simply reacting to a perceived defect in those works. In this sense, the media multinationals have been their own worst enemies; by restricting the ability of the audiences to share the works they control, they have helped to turn audiences toward works which audiences can distribute through their own “do-it-yourself” networks.

These DIYnets are now a permanent fixture of the media landscape, even as their forms evolve through YouTube playlists, RSS feeds, and sharing sites such as Facebook and Pownce. These networks exist entirely outside the regular and licensed channels of distribution; they are not suitable – legally or economically – for distribution via a commercial IPTV network. Telstra can not provide these DIYnets to their customers through its IPTV service – nor can any other broadband carrier. IPTV, to a carrier, means the distribution of a few hundred highly regularized television channels. While there will doubtless be a continuing market for mass entertainment, that audience is continuously being eroded by a growing range of peer-produced programming which is growing in salience. In the long-term this, like so much in the world, will probably obey an 80/20 rule, with about 80 percent of the audience’s attention absorbed in peer-produced, highly-salient media, while 20 percent will come from mass-market, high-production-value works. It doesn’t make a lot of sense to bet the house on a service offering which will command such a small portion of the audience’s attention. Yes, Telstra will offer it. But it will never be able to compete with the productions created by the audience.

Because of this tension between the desires of the carrier and the interests of the audience, the carrier will seek to manipulate the capabilities of the broadband offering, to weight it in favor of a highly regularized IPTV offering. In the United States this has become known as the “net neutrality” argument, and centers on the question of whether a carrier has the right to shape traffic within its own IP network to advantage its own traffic over that of others. In Australia, the argument has focused on tariff rates: Telstra believes that if they build the network, they should be able to set the tariff. The ACCC argues otherwise. This has been the characterized as the central stumbling block which has prevented the deployment of a high-speed broadband network across the nation, and, in some sense that is entirely true – Telstra has chosen not move forward until it feels assured that both economic and regulatory conditions prove favorable. But this does not mean that the consumer demand for a high-speed network was simply put on pause over the last years. More significantly, the world beyond Telstra has not stopped advancing. While it now costs roughly USD $750 per household to provide a high-speed fiber-optic connection to the carrier network, other technologies are coming on-line, right now, which promise to reduce those costs by an order of magnitude, and furthermore, which don’t require any infrastructure build-out on the part of the carrier. This disruptive innovation could change the game completely.

All parties to the high-speed broadband dispute – government, Telstra, the Group of Nine, and the public – share the belief that this network must be built by a large organization, able to command the billions of dollars in capital required to dig up the streets, lay the fiber, and run the enormous data centers. This model of a network is an reflection in copper, plastic and silicon, of the hierarchical forms of organization which characterize large institutions – such as governments and carriers. However, if we have learned anything about the emergent qualities of networks, it is that they quickly replace hierarchies with “netocracies“: horizontal meritocracies, which use the connective power of the network to out-compete slower and rigid hierarchies. It is odd that, while the network has transformed nearly everything it has touched, the purveyors of those networks – the carriers – somehow seem immune from those transformative qualities. Telecommunications firms are – and have ever been – the very definition of hierarchical organizations. During the era of plain-old telephone service, the organizational form of the carrier was isomorphic to the form of the network. However, over the last decade, as the internal network has transitioned from circuit-switched to packed-switched, the institution lost synchronization with the form of the network it provided to consumers. As each day passes, carriers move even further out of sync: this helps to explain the current disconnect between Telstra and Australians.

We are about to see an adjustment. First, the data on the network which was broken into packets; now, the hardware of the network has followed. Telephone networks were centralized because they required explicit wiring from point-to-point; cellular networks are decentralized, but use licensed spectrum – which requires enormous capital resources. Both of these conditions created significant barriers to entry. But there is no need to use wires, nor is there any need to use licensed spectrum. The 2.4 GHz radio band is freely available for anyone to use, so long as that use stays below certain power values. We now see a plethora of devices using that spectrum: cordless handsets, Bluetooth devices, and the all-but-ubiquitous 802.11 “WiFi” data networks. The chaos which broadcasters and governments had always claimed would be the by-product of unlicensed spectrum has, instead, become an wonderfully rich marketplace of products and services. The first generation of these products made connection to the centralized network even easier: cordless handsets liberated the telephone from the twisted-pair connection to the central office, while WiFi freed computers from heavy and clumsy RJ-45 jacks and CAT-5 cabling. While these devices had some intelligence, that intelligence centered on making and maintaining a connection to the centralized network.

Recently, advances in software have produced a new class of devices which create their own networks. Devices connected to these ad-hoc “mesh” networks act as peers in a swarm (similar to the participants in peer-to-peer filesharing), rather than clients within a hierarchical distribution system. These network peers share information about their evolving topology, forming a highly-resilient fabric of connections. Devices maintain multiple connections to multiple nodes throughout the network, and a packet travels through the mesh along a non-deterministic path. While this was always the promise of TCP/IP networks, static routes through the network cloud are now the rule, because they provide greater efficiency, make it easier to maintain the routers, diagnose network problems, and keeps maintenance costs down. But mesh networks are decentralized; there is no controlling authority, no central router providing an interconnection with a peer network. And – most significantly – mesh networks now incredibly inexpensive to implement.

Earlier this year, the US-based firm Meraki launched their long-awaited Meraki Mini wireless mesh router. For about AUD $60, plus the cost of electricity, anyone can become a peer within a wireless mesh network providing speeds of up to 50 megabits per second. The device is deceptively simple; it’s just an 802.11 transceiver paired with a single-chip computer running LINUX and Meraki’s mesh routing software – which was developed by Meraki’s founders while Ph.D. students at the Massachusetts Institute of Technology. The 802.11 radio within the Meraki Mini has been highly optimized for long-distance communication. Instead of the normal 50 meter radius associated with WiFi, the Meraki Mini provides coverage over at least 250 meters – and, depending upon topography, can reach 750 meters. Let me put that in context, by showing you the coverage I’ll get when I install a Meraki Mini on my sixth-floor balcony in Surry Hills:

From my flat, I will be able to reach all the way from Central Station to Riley Street, from Belvoir Street over to Albion Street. Thousands of people will be within range of my network access point. Of course, if all of them chose to use my single point of access, my Meraki Mini would be swamped with traffic. It simply wouldn’t be able to cope. But – given that the Meraki Mini is cheaper than most WiFi access points available at Harvey Norman – it’s likely that many people within that radius would install their own access points. These access points would detect each others’ presence, forming a self-organizing mesh network. If every WiFi access point visible from my flat (I can sense between 10 and 20 of them at any given time) were replaced with a Meraki Mini, or, perhaps more significantly, if these WiFi access points were given firmware upgrades which allowed them to interoperate with the mesh networks created by the Meraki Mini – my Surry Hills neighborhood would suddenly be blanketed in a highly resilient and wholly pervasive wireless high-speed network, at nearly no cost to the users of that network. In other words, this could all be done in software. The infrastructure is already deployed.

As some of you have no doubt noted, this network is highly local; while there are high-speed connections within the wireless cloud, the mesh doesn’t necessarily have connections to the global Internet. In fact, Meraki Minis can act as routers to the Internet, routing packets through their Ethernet interfaces to the broader Internet, and Meraki recommends that at least every tenth device in a mesh be so equipped. But it’s not strictly necessary, and – if dedicated to a particular task – completely unnecessary. Let us say, for example, that I wanted to provide a low-cost IPTV service to the residents of Surry Hills. I could create a “head-end” in my own flat, and provide my “subscribers” with Meraki Minis and an inexpensive set-top-box to interface with their televisions. For a total install cost of perhaps $300, I could give everyone in Surry Hills a full IPTV service (though it’s unlikely I could provide HD-quality). No wiring required, no high-speed broadband buildout, no billions of dollars, no regulatory relaxation. I could just do it. And collect both subscriber fees and advertiser revenues. No Telstra. No Group of Nine. No blessing from Senator Coonan. No go-over by the ACCC. The technology is all in place, today.

I bring up this thought experiment to drive home my final point: Telstra isn’t needed. It might not even be wanted. We have so many other avenues open to us to create and deploy high-speed broadband services that it’s likely Telstra has just missed the boat. You’ve waited too long, dilly-dallying while the audience and the technology have made you obsolete. The audience doesn’t want the same few hundred channels they can get on FoxTel: they want the nearly endless stream of salience they can get from YouTube. The technology is no longer about centralized distribution networks: it favors light, flexible, inexpensive mesh networks. Both of these are long-term trends, and both will only grow more pronounced as the years pass. In the years it takes Telstra – or whomever gets the blessing of the regulators – to build out this high-speed broadband network, you will be fighting a rearguard action, as both the audience and the technology of the network race on past you. They have already passed you by, and it’s been my task this morning to point this out. You simply do not matter.

This doesn’t mean it’s game over. I don’t want you to report to Sol Trujilo that it’s time to have a quick fire-sale of Telstra’s assets. But it does mean you need to radically rethink your business – right now. In the age of pervasive peer-production, paired with the advent of cheap wireless mesh networks, your best option is to become a high-quality connection to the global Internet – in short, a commodity. All of this pervasive wireless networking will engender an incredible demand for bandwidth; the more people are connected together, the more they want to be connected together. That’s the one inarguable truth we can glean from the 160 years of electric communication. Telstra has the infrastructure to leverage itself into becoming the most reliable data carrier connecting Australians to the global Internet. It isn’t glamorous, but it is a business with high barriers to entry, and promises a steadily growing (if unexciting) continuing revenue stream. But, if you continue to base your plans around selling Australians services we don’t want, you are building your castles on the sand. And the tide is rising.