July 2009 Archives

Chair:              Next up, we have Alan Quayle, an independent consultant.

Alan:                Good afternoon, change of pace I'm afraid.  We've had some excellent presentations.  I guess you could say on the geeky side of the equation, now some really boring stuff around operators and what they're thinking, processes, and a few simple numbers as that tends to be how they think about it, in terms of business cases.

What I'm going to represent here is I work with a number of operators, supplies application developers in the industry, generally in terms of new services.  I am trying to give you some perspective in terms of the thinking that is going through operators' minds at the moment, around why they're opening the network.

What I would like to do, first of all, is to provide a little bit of framing around how operators typically do their business case.  The first of course, is this is a strategic business case, which is "The boss told me."  It could be basically, "Well, I'm not sure exactly how we're going to make money about this, but with this sort of fuzzy idea of what we're going to do, it looks like we're going to make a lot of cash."

What I'm actually focusing on in this presentation is on the really boring operation of business case, that is here is what we anticipate our revenues to be, here is what we think about customers are going to be - oh look, we can actually make money out of this.  That's where I'm going to be focusing this presentation.

Then, of course, there is a third typical business case, unless of course there is copying.  You look across at what other operators are doing, for example PushToTalk, or Fento, and you go, "Hey, let's do that as well.  I'm not sure of the business case, but because they're doing it, let's copy them."

That's the typical cases; I'm going to be focusing on the operational piece of that.  One of the things I want to provide, in terms of the little bit of background, is what has changed.  What is driving operators to look at this concept of opening their network? 

First of all, operators are getting a clear understanding of the fact that their new product development process is broken.  I show here a simple example of the process that takes place; opportunities are identified, they do some market research.  Once you can see that, "Maybe customers are going to be interested in this," you then have the fight for the budget.  Of course, it's a big corporation so if you are lucky you get your timing right so you can get it into the annual budget cycle, or basically you have to beg, borrow, and steal from other projects.

Then, once you get all that, you have the new product development process, which of course is all focused on delivering a scalable product that works across millions of customers and integrates with all the billing, CRM, etc, all the other processes that an operator deploys.

Once you get through that new development process, you then are at the point whereby you can launch.  The time it has taken you to get from that initial market research, getting the budget together, and getting through the new product development process, what you launch with tends to be, unfortunately, a little bit different from what you were talking to your customers about initially, in your market research.

You basically have to go through and re-launch the product, to actually get to where you wanted to get to in the first place.  The typical time lines you are looking at for an operator's new product development process, to get to launch - twelve to eighteen months.  Then for re-launch, it's anywhere between eighteen to thirty months. 

Operators do realize that this process is broken.  What's driving that realization is actually their customers.  I think this is the real driving force.  We can talk about regulations, we can talk about competitive environment; it's the customers that are driving operators.  Customers' expectations around how they experience services is changing and changing quitedramatically.  They're now engaged in service relationships with a whole range of brands out there.

Just to quantify what I mean, in terms of that change in expectation; I show on the top here, a typical operator process that I just showed before.  I am just picking on Shai Berger and his company Fonolo, as an example of a cool Voice 2.0 application. 

The numbers I want to highlight here - first of all, from concept to launch, as I indicated with the operator process, is between eighteen to thirty months.  I'm not saying Fonolo has done it in four months, but typically, with a lot of the cool apps, you are looking at something that is a far shorter time frame from concept to launch. 

Of course, they don't have the scalability issues.  They don't have to integrate with billing, with CRM, and all those other pieces, so as you would expect; it's quicker to get out the door for the initial launch.  The more important figure I want us to focus upon is between launches. 

An operator has their cycle, and it will be between six to twelve months in terms of when they're updating those applications.  With a lot of the apps that customers are experiencing and using today, they are now engaged in a dialog with those applications. 

As a result, they're seeing that app changing on a weekly basis.  A customer uses Fonolo and says, "You know what; could you add in Bell Canada's IVR into this app?"  Within a week, you can imagine you could get the scenario where now, the capability is added in there.

There are these expectations from customers in how they're experiencing those services.  Also, the dialog that they're engaged in is really starting to worry operators. 

Another aspect is really the emergence of a whole range of inadvertent commerce, open service platforms that are appearing at the edge of the network.  We've had some great presentations in terms of the mobile devices that are out there, but it's not just the mobile side of the equation.  It's also the broadband side of the equation, as well. 

There is a whole range of platforms that are being put out there with PlayStation and the Sony Store where you can basically rent or buy HTDV movies or TV content.  You also have the WEtv.  In one of the WEtv channels, you have a browser and actually, content providers, for example BBC, have realized that "I don't need a set top box.  I don't need to go through all this hassle.  There is a service platform that sits on the network where customers can access a WE channel and be able to access my content."  There is a whole range of over-the-top platforms coming out that really are starting to bypass operators. 

Of course, at Mobile World Congress, we saw a lot of announcements in terms of app stores , and a lot of operators making their launches, and it's to the point whereby, for a lot of developers, it really is noise in the system. 

Apple, of course I show there, is one that a lot of developers have focused on.  In fact, I know I can give quite a few examples of application developers that have given up on the mobile industry, and have decided to focus on Apple.  Why?  Because it provides a clear channel to market so those twenty million plus customers that are using not just the iPhone but the iPod Touch, and once you get Apple approval - if you get Apple approval for your application - you're there.  There is a clear model and you have a market of twenty million people buying your application.  That is the key; it's a direct channel to market that the developers care about.

What I've just provided are some of the issues and concerns that are going through operators' minds in terms of how do we react to the fact that customers are changing in terms of their expectations?  We now have a set of open service platforms at the edge of our network that are enabled for delivery over the top services, and what have emerged are a range of development communities that really are driving service innovation and resonating with customers.

On to the boring bit, now, in terms of what operators are doing around the business case.  I'm just giving you a flavor of the typical operationally focused business case that I've seen for a number of operators as they're looking at how can we make money out of opening our network. 

I'm giving a simple scenario, just so you have some quantification around some numbers.  This is a converged operator so it's a mobile and a broadband operator.  They're in a mature Internet-centric market.  There are about ten million customers, 20/80 split between pre-pay and post-pay, just so you understand the type of operator I'm looking at in this scenario.

Looking at this over a three year period, you want silo consolidation across messaging location, billing, of course with a lot of operators in mature markets.  They have a lot of people in a lot of silos.  This is actually an important piece of the business case. 

I really focused around getting the processes sorted out, in terms of service exposure.  Year one is actually set up.  It's year two, year three, where they actually focus on service capabilities. 

The service capabilities I show here are just for example purposes.  Every operator is different, depending on what capabilities they have in their network, depending on the competitive environment that they're in, depending on the services they already have in their product mix.  There is not a defined recipe, in terms of what you should and shouldn't expose.  All I'm showing here are some examples.

Because of the audience, I'm going to skip over the year one.  Basically, I just draw an analogy to BT that implemented a service-delivery platform across those silos.  You can see here, it was able to achieve a 60% reduction in work force.  That is the boring stuff; we'll skip over that.  All it's saying is there is fat within those operators and by putting a service-delivery platform in, you can remove some of the fat.

Let's have a look at the services that you can enable through opening capabilities in the network.  I show here just a few.  I show here service categories, rather than going down and giving specific use cases.  We have, of course, communication-enabled business processes.  As we have Tom Howe here, if you want to ask about that, just talk to Tom Howe.

Enterprise, voice mashups there, a whole range of cool apps there; you can see there for example, eHealth, Dial2Do, really cool app in this space.  I have here content 2.0.  What I mean by that is rather than using the inefficient and expensive messaging platform for delivering content, just deliver it over IP.

Also, for a lot of operators, they're finally waking up to the fact that social communications present a market where they can get their brand out in that market.  There are one hundred seventy-five million Facebook customers, which actually presents quite an interesting opportunity for them.  They're starting to get their heads around some of the opportunities there.

Presence and location is actually pretty boring stuff.  It's asset management machine-to-machine, more enterprise focused than it is on the consumer side.  Then, I throw in that set top box services because there are a whole range of opportunities emerging, particularly from the cable space, with true two-way, with EBIF, where you now have on that set top box a whole range of cool widgets that are enabled.  You saw that with the Adobe presentation, very much that they're looking also to that set top box as a platform for a whole range of services.

With these services that are enabled, one thing I didn't point out earlier on and I should have stated; the underlying assumption here is you're not charging for these capabilities that the operators are exposing.  You're exposing these capabilities to make the services easier to use, to make the services cooler for customers. 

What you are doing is sharing in the revenue that is generated through those services.  This isn't nickel and diming in terms of location.  You offer location and then because that app uses location, it is easier to use. 

Also, the model that you use, in terms of what the customer pays - I always say customers pay on three dimensions:  in cash, in time, or in privacy.  Here, I basically showed that the user chooses the model, whether it's usage subscription or ad supported. 

Typically what I'm seeing is around $40 to $75 million rev in year three.  These aren't like, "Oh my God, it's going to fundamentally change our business," but you can make the case for opening the network and actually taking a very pragmatic approach. 

The key here is focusing on the few key services that the executives within the operator can believe, "Yes, I can see how we can make $10 million there.  I can see how we can make $15 million on that service."  Everything else is really just jam that sits on top of the business case.

In opening the network, there are a few critical issues.  I think first of all copy smart; don't copy dumb.  An operator's business is very different from Apple.  Apple doesn't really care about making money in the App Store.  It cares about making the iPhone and the iPod Touch cool so the App Store is about driving value there and making money on those devices.  For an operator, they need to make money on the App Store.

Another of course, is operators are boring and stodgy.  There is no point in trying to be a forty-year old dressed as a twenty-year old in this game.  As an operator, just focus on what you are. 

In opening the network, it really does impact all lines of a business.  Operators have got distracted in a way, by focusing on the consumer side, when actually for them, there is a lot more money to be made on the enterprise side, and to be honest; the innovation cycles - there is a lot more over-the-top services that are going to be far more adept at making money there than operators.

As you saw, this isn't a groundbreaking business case, but at least it's enough to justify action.  Hopefully, just giving you a perspective on some of the thinking, on some of the numbers that are going around in terms of operators, and to bring it back to the point I made at the start; we've been talking about an operator turning into a utility for over a decade, now. 

I think where we are is really starting to reach a crossroads, not because of regulation or competitive environment, but it's actually the customer making that decision.  With that, I'm finished and I apologize that I've used up my full fifteen minutes, but you can catch me at coffee break.  Thank you.

Malcolm:         I can't start without first of all saying that one person you've left out, Lee, is yourself.  I think it's quite remarkable; I've had the privilege of just being one of your band.  I've not done much.  I've watched you work tirelessly.  I don't know how you have the room and the space to live as well, but I think we all say thank you to you.  You've done something very special. (applause)

I want to talk about this.  How many of you read the welcome note that Lee wrote on your little bracelet or on the web, I thought it was very aposite.  I thought that was very helpful.  Hopefully, today, we can have a little look at this.  Because since the beginning of time, the human spirit has been thriving on being able to exchange ideas, emotions, and information, creative output, and freely formed relationships with other people.  We call it conversation.

Obviously, we have to invent something very special to call it, but it's basically conversation and it lies at the very heart of what it means to be a human.  It's independent of any technology, face-to-face, early simple smoke signals.  It doesn't matter; it's conversation.  Whether or not it's technology in the earliest form of the telephone, or as we've got now, obviously these wonderful wireless; it's conversation.

On that day in 10th of March, 1876, when the great Alexander Graham Bell uttered those first famous words down the telephone, at the end of the day, he sat in his bedroom and he wrote to his father and he said, "Dear Papa, I feel that I've at last found the solution of a great problem, and the day is coming when telegraph wires will be laid into houses just like water or gas is, and friends will converse with each other without leaving homes." 

He understood that conversation was at the heart of what he created.  Of course, for a hundred years, the whole of the telephone network ran off user-created content.  There was no provider of content; we were all both creators and consumers of content.  It was conversation. 

Conversation, I think you would recognize, requires an open, unmediated, and symmetrical connectivity.  It's what I think we now refer to as network neutrality.  I want to suggest to you that conversation is most relevant and meaningful when it happens in the context of community.  As individuals, I would suggest to you that by-and-large, over time, we've all lived in four community domains.

There is the private "me," there is the intimacy of my family and my workplace.  There is the city or the village in which I live, and of course, there is the world beyond that.  It remains very much the same today.  I have a personal, private interest, I have a home and work community, and I have a community in which I live, a city.  Of course, I have the rest of the world, which for most of us nowadays involves the whole of the planet.

I have a private network, a family and a work network, and a community in which I operate.  I have a physical social network, and of course, virtual social networks that transcend the whole of the world.  These are not discreet; they obviously overlap and communicate with each other.  These aren't islands, but let's look at them and see some of the characteristics.

Let's take a private network.  I've now got around me masses of intelligent bits of kit.  In fact, I'm so old, that I'm told that what I carry in my briefcase is more intelligent stuff than existed on the whole of the planet on the day that I was born.  This stuff is able to communicate with each other on whatever way, across an unmediated, edge-to-edge communication, unmetered, undifferentiated, and symmetrical by and large.  It's nonproprietary on an open access basis.  It has a net neutrality. 

I enjoy net neutrality when I'm syncing my phone to my laptop, or I'm changing my channel on my TV set.  That happens in the home, too, irrespective of what technology is; we enjoy the same end-to-end neutrality in the same manner.  We call it net neutrality, and of course, what we've all come to understand is the same experience in the office environment.  Basically, we can send stuff around the office to the extent that the office operator allows us.  There is a degree of network neutrality in that, as well.

If I look at the world beyond, of course, we enjoy the conversation now, on a net neutral basis in the Internet, something we've got to fight to preserve, of course.  There is one issue here.  There is the question of who pays for the bits that create the network.

In the home network, how do you pay for the hub and the cable?  How do you pay for the wireless router?  It's the same in the office.  There are several ways in which we could approach this, obviously.  We could each buy a piece of the cable and share the costs of the intelligent router.  The family or the company could buy it and own it outright, or we could go and get somebody to finance it, a third party to provide it.

Whichever way we choose, there are not ongoing restrictions on how we use it.  The last thing I would suggest to you we ought to do is to let a third party buy it all, own it, control it, and then offer it as a service based on charging us as much as they can for using it, but only in a way that they are happy with.

This principle that once you've found a means of financing the bits of hardware, the bits of software go free; I think it is a very significant, fundamental fact in the digital world and it's a business model which can be scaled without limit - the principle of network neutrality.

We've got these three domains in which I live, communities in which I experience my life, and there is a fourth of course, the city.  This is what I wanted to touch on because this is the final chain that shackles us from having end-to-end net neutrality.

We all live in cities.  50% of the world last year, for the first time ever, lives in major cities.  Basically, the rest of the world live as hermits; they live in communities, little village, smaller towns, small gatherings.  One or two people do live in an extraordinary way, but there are not many of them.  I'm not going to address their specific interests, this morning.

Let's look at one of those.  Let's look at the single city.  From Mr. Bell's invention, there were two telephone wires that went from every house, every building, to a central office, the PTT (Post Telegram and Telegraph).  There were a small number of wires that went from that to the city, the telecom's operator in the next city, the central office in the next city.  Dumb customer premise equipment, intelligence sitting usually as an operator and obviously, mechanized and digitized in the central office and scarce capacity in the main network. 

If you look at four cities, and look at my simple map of the telephone network in the world, two people who want to have a conversation across that; the first person picks up a dumb signaling to the intelligence in the local exchange, pays some money, gets transferred to another intelligence center, the International trunk exchange, a circuit is set up there to another local exchange, and the connection is made.

A dedicated dumb instrument, accessing routing intelligence within the network in order to allocate scarce network capacity, to enable conversation; I know I'm not telling you anything new, but I'm refreshing your mind as we start this conference, about this fundamental business model.

The telephone operators' business model, which came out of that technology and which has persisted for a hundred years, and I think largely persists today, is generating revenue by, on the one hand, charging users for exclusive access to some local connectivity and copper wires, maybe some CP equipment.  Secondly, the orderly allocation of scarcity in the trunk network, and finally, developing and trying to sell network embedded services.

A vertically integrated service provider business model - infrastructure plus the operation of the network, plus services on top; and that's a multi-trillion dollar industry.

The three great seminal technologies of the second half of the 20th Century, I would suggest, were the silicon chip - silicon fiber, optical fiber, and spread spectrum - Hedy Lamarr there, with her boyfriend came up with this idea of software controlling or at least allocating spectrum.

1984 is a seminal year, I think, if we are going to understand why we are where we are.  What happened in 1984, apart from the prediction by George Orwell, that there was going to be a terrible nemisis for the whole of humankind.  In that year, two things happened.  One was that the political drive for privatization, competition, and regulation started.  Ma Bell was privatized, BT was privatized, and other telcos.  It was also the year that there was a sort of lift off in each of us getting digital equipment in our own hands. 

Let's look at it first.  What happened, if you look at the history of the telephone, was that each city had its own telephone company, its own telephone network.  There was a degree, and looking at this in the U.K was a degree of merger and acquisition.  By 1912, the heavy hand of the state came in and nationalized the lot and put it in something called the general post office.  Come 1984, when it was the fashion for privatization, they privatized that vertically integrated the monopoly.

That's basically what happened around the world.  Nations ended up with privatized former monopolies.  In Great Britain now, local access through wherever you are, is for a single, formerly nationalized monopoly carrier.  You've got no choice.  It's the same, of course, in France, Italy, Germany, Brazil; it doesn't matter where you go.  Instead of what in 1984, allowing the digital disruptive technologies that I've looked at, to be deployed by communities, by their city communities, in a way that they felt benefited their own citizens, we had this terrible dead hand of duplicating vertically integrated, artificially created service provider monopolies.  Of course, we had to have a regulator.  Now, it's called Ofcom in the United Kingdom, to regulate it.

I suggest to you that that is terrible.  That was a collision between this disruptive technology, which had tremendous power, and has tremendous power to transform our lives in ways we cannot imagine, being deployed at the hands of vested interests.

What happens is the Ofcom looks at the technology and says, "We've got to consult the industry," so they consult the industry and the industry says, "Oh yes, very good technologies; we know how to deploy these," and you get them doing it.  Vested interests were handed power in 1984, by the state, to tame disruptive technologies against our interests, I would claim.

I want you to imagine; let's just look back.  Imagine if that had happened at an earlier age, 1759, Francis Egerton goes with his girlfriend to France.  He owns some coalmines.  He takes her on a visit to France.  He sees that they've got a canal that takes the coal from the coalmines to the market.  He thinks, "I could go home and I'll build one of those in Manchester; that could be useful."  He does that and it's a fantastic success.  Everybody benefits and over the next fifty years, there is an explosion of canal building.  It's an absolute rage, such that by 1825, there are 4,500 miles of canal. 

In 1829, what happens?  Unforeseen, unplanned, out of nowhere comes a little piece of disruptive technology.  Of course, if we had then what we have now, there would have been an office of canal operations and management, obviously Ofcom, not to be confused with this one.  Ofcom, what would it have done?  It would have gone out, consulted the industry, and come up with this wonderful report "steaming ahead with Britain."  It would have said, "Of course we know how to deploy the technology.  We'll put railway lines up the sides of the canals, and we will enable those to be used to pull the barges and get higher throughput." 

If you looked at it, you would have said, "That's wonderful, isn't it.  What a brilliant idea; faster moving the coal and other materials, greater utilization of canal capacity, no public risk because it's a regulated industry, a birth of new engine manufacturing industry, massive growth steel output and rail output, and even very happy horses."  We didn't do that.  What actually happened?  The canal industry withered and lay dormant within twenty years, for a century.

Disruptive technology plus free markets of end users, without sector specific regulation delivers what I would call a golden age of social and economic prosperity.  I haven't time to go into what happened as a result of the railways because it was totally unforeseen and unpredicted.  It changed the world.

Take a moment; if you haven't read Carlota Perez's book, I urge you to do that.  She looks back, as a Venezuelan economist, at five of the earlier technological revolutions.  There is the 1771, the Revolution in England; the age of railway in 1829; these are the ways she categorizes them.  The age of steel and electricity in 1875; 1908 is the age of the automobile; and of course the one we are in now in, the age of information technology. 

She says that the key to each of those and the incredible world changing, socioeconomic transformational impact that they all had on our society, underpinning each of them was new infrastructure, new specific infrastructure.

When I first heard this I found it very empowering.  If you read the book you will find it persuasive, as well.  It caused me to ask the question and a simple question; in no previous industrial revolution was the infrastructural network that enabled the next one ever derived by or evolved from the one that was dominant in the preceding age.

What was the philosophical, political, or economic rationale for regulating to do that, in 1984?  That is exactly what we did.  Here we are and of course, everybody says, "Oh great.  We got faster download speeds, increased ISP competition, lower end users.  The popular and political view is that we're making progress.

But I tell you; where we are and where we're going is never going to deliver that golden age of transformation.  Public policy formulation through consultation of self-appointed stakeholders inhibits progress and works against innovation and against the interests of you, me, and society at large.

How then were these technologies deployed?  Well, let's just look and refresh our mind.  That's the typography that we had; what did they do?  The first thing phone companies did was to put a massive amount of fiber between the telephone exchanges, eliminating that scarce resource.  They also put computers, obviously, into the exchanges.  I suspect; they probably listened to Ken Olson, who if you remember, made that terrible prediction.  They got that wrong because now we all have masses of intelligent kit around ourself, around our homes, and offices.

We now have the intelligence.  We have a restricted access locally.  We have dumb routers in the network and abundant network capacity.  The world has literally been turned upside down. 

What do they do?  Looking at one city, they put fiber from the city to other cities.  The capacity effectively became infinite.  We had these dumb routers in there and the government legislated to promote competition by allowing other ISPs to cluster around that business model and around that central office.  The intelligence was with us, but we are network captive in every city, I would suggest to you; no local P2P connectivity.  An asymmetrical topography implicit in the technology of ADSL, primary value still sucked out by this vertically integrated cluster of service providers, and closed metered pipes.

What we want, what our cities want, I suggest is something like what we've got at home.  We want to have abundant fiber flowing around the city.  We want to all be able to connect to it.  We want to be able to allow anybody to connect it, service providers, doesn't matter who.  We can of course, hopefully have the PTT itself connecting to it.  We can extend it out to allow private developers to put their own fiber in and connect to it.  But, have a network that's running there for the public benefit, the community benefit, like the roads.  Of course, people can come and hang other services on it, that again, will transform the life of that city.

I suggest to you that the mother of all battles is sort of beginning and it's well in place in some places and certainly is running in a city near you.  The issue is this; the dual dire issues are who will control local connectivity within that city that I live in?  Will it be the telco or cable co or will it be citizens? 

Put it another way; will our devices remain free to communicate directly with each other, or will they be forced to go through some vertically integrated toll extracting toll booth of a service provider?  Will we be able to have conversation with anyone other than the telco?  Will we have network neutrality or will we be network captive in our cities?  You know this phrase very well.  I'm afraid the telcos, when they look at it and see what we're trying to do in the cities, realize there is another implication for it. 

I make this bold statement and that is, from the work that I've been doing, my professional opinion now is that the blind perpetuation by the incumbent telcos and cable companies of the vertically integrated service provider model in the local community business model is recklessly destroying their own shareholder value.  

We've got the passive network.  We've got the active layer and the applications running on top.  This is the way that the industry likes to structure itself, at the moment.  Yet, if you look at the difference in terms of investment requirements, they're massive.  All the high value and the high risk are at the top in the applications.  Somebody living in some bedroom five yards from here is going to create the next Google. 

If you look along a various number of criteria, you will see, and I can't go into this but you can pick it up on the version that will be on the web; you can see that there are vastly different characteristics.  How do we get from here to here?  I think there are three necessary and sufficient components to do it, and they're tough.  I've really learnt this over the years, in a very hard way. 

You need to have a development partner with a sound, strategic understanding, and I suggest that the foundation which I've founded and the Open Planet, which is the operating arm of it; we do have some understanding.    I'm not alone in this.  Anybody can take the ideas.  There is nothing proprietary about this.  This is about liberating cities and citizens. 

The second is that there should be local, political vision and commitment.

Third, I believe the local telco incumbent needs to be a strategic partner.  Let's briefly look at this for a moment.  There is a new generation of enlightened politicians growing up.  Lynden Johnson built his political career, I understand, on realizing that there were votes at the ballot box by taking electricity to remote homesteads in the southern states of America. 

There is a new group of politicians that I recognize, young digitally savvy politicians who are saying, "What if my city or local community could have an open, public, local access network which would not only massively save costs but would allow us and our citizens to do things that we can't even dream of, and to benefit in order that we can compete against other cities in this global economy?  What if we had this open access infrastructure here?  They're waking up to the fact, of what you and I know, that the last thing they ought to be doing in their city is allowing some third party to own this strategic community asset, in order to offer a service based on charging as much as it can and restricting how it's used.

Here we have the Deputy Mayor of Amsterdam, desperate to compete for inward investment in the knowledge economy, with every other city in the world.  He says, "We make a big step towards the deployment of a citywide, open access fiber network and the reason; to enable our city to compete with other European cities," one we've worked Eindooven exactly the same.  We believe that the development of an open, public, open access network to serve the community is vital to it remaining globally competitive in the 21st Century.  It's the same here in Athens, dear Panayiotis Tzanikos, his English isn't very good.  He says, "We need to have this open access infrastructure in order to compete."  Here, counselor in Jull, John Robinson, "It's essential that the city of Hull has an open, public, local access network if it is to solve its social and economic problems resulting from other industries like fishing being replaced in the knowledge economy."

There is a political will.  That's one.  You have to have a city led by democratic leadership that says, "We want this.  I, as a political leader, want to liberate my citizens and allow them to converse and to send massive amounts, on high capacity bandwidth, around the city in ways that's not for me to control, but it's for them to discover."

The second thing I would suggest is that you really need to have the telco.  There are two ways to get an open, public, local access network.  One strategy is to do an overlay network and that's the one that is favored at the moment.  Most cities are doing that.  Amsterdam is doing it.  Most of them are doing it, simply because to-date, there has been no appetite. 

There has been fierce opposition in fact, from the local incumbent, and it proved pretty powerful.  It's really very debilitating because it results, first of all, in that local economy financing two networks.  That puts it, at the start, at a disadvantage to any city that has a single infrastructure.  If we allow Toyota and Ford to compete by laying their own road networks, that city would have a very high tax taken, I'm sure.

There is a low penetration.  You've got both networks with less than ubiquitous penetration, which for the public sector, is useless.  They want to talk to everybody.  It's divisive.  It's a very expensive solution, too.  25% of laying a brand new access network in an urban environment consists of civil engineering. 

What about converting and upgrading the existing local, copper incumbent network?  It would deliver near ubiquity.  That would be great.  It would avoid wasteful duplication and over capacity.  It's a massive 25% CapEx savings, obviously, as I suggested, but of course, the problem is that these national carriers have no appetite to abandon their vertically integrated business model, which seeks to capture maximized end-user value.

Due to the earlier nationalization that we touched on, if I in one city want to have a talk with the incumbent, who do I talk to?  I talk to the national incumbent and he's not going to break his business model in one city, only for it to be replicated elsewhere.

I've learned that with great hardship, I must say.  I put my thinking cap on and I tried to find and look for cities that have their own dedicated incumbent.  I looked very hard; I haven't travelled the whole world, but basically, there are four.  There are four cities on this globe that have a dedicated local incumbent.  We're working in one of them - oops, I hope that's not prophetic.  That goes down two minutes before, doesn't it? 

There are four cities on the globe that have their own incumbent and we're working on that; I profoundly believe that an exemplar is what is needed.  If we do it in one city, it's like the Stockton to Darlington Railway.  If we provide the citizens of one city with an open access network, then they, the citizens, will deliver such sensational use of it that every other city will say, "What's going on there?  We want it," and that will force our political leaders and the regulators to take a fresh look.

Going down to lobby in Washington, or in London, to try and get different political opinions or public policy in place is a dead duck.  I don't have a strong voice at British Telecom.  We want to go to that and deliver that.

I simply say to you; you're invited to come along.  This is a big task.  I don't know anybody who can come and kick tires with us, or if we get there - we're not there yet, but if we manage to get and acquire this incumbent, and break it up, and end up with a passive piece of physical infrastructure, owned for the benefit of the community and structured in that way; please, we need anybody in this room who has any idea of how to help that community, either to use it themselves, or you've got a service to deliver into it.  If you can bring anything to it, you can be sure I will not say it's not invented here.  You're very welcome.

Lee, I close with simply saying conversation is what this is about.  Walter Litman, the great journalist said, "The role of the press is to keep a community in conversation with itself."  I would suggest to you that in the digital age, the role of an open, public, local access network is to keep a community in conversation with itself.  Thank you very much.  You've stayed awake.  If you've got any questions, I'd be very pleased.  [applause]

Brought:          What are the four cities or the five - your slide said five and you said four?  Could you name them?

Malcolm:         [laugher[ If you don't mind; I won't tell you specifically.  I can tell you one of them is Vatican City.  I don't have much influence there.  [laughter]  The reason I'm not mentioning them is not for anything.  I will one-to-one, until I know why you want to know.  I can tell you there are people who would be very keen on making sure this doesn't happen.

Lee:                 I think we have one minute.  Please note; there are two ladies walking about with microphones.  If you have a question, just put your hand up.

Audience:        You seem to put a lot of emphasis on where the fiber - you seem to be putting a lot of emphasis on where the fiber is running.  What do I care about where the fiber is going if I can connect cheaply through the cloud?  I'm sort of missing the - there is a logical leap here.

Malcolm:         Just as in my home, I want to send stuff, for security reasons and other reasons, to the bedroom next door.  A city might not want to have to go onto the public Internet and make sure a massive file gets on the other side of the world before it comes back to go to the next door neighbor.  I think it is important.

Audience:        I understand if you said you don't want ...

Lee:                 It's strict timing.

Chair:      Gert Leonhard to talk about the future of content and telecoms.

Gert:        Thanks very much.  That was a great presentation.  I hope that with I want to talk about, in fact, one would think we have synchronized as far as the dress is concerned - two guys in black - but we did not.  It was just an accident.

I'm from Switzerland.  Is anybody here from Europe?  Interesting, I work as a futurist.  I run a site called www.mediafuturist.com.  You can download this presentation sometime in the afternoon or later when I get to upload it. 

I want to talk about a few things.  I work as a futurist for companies that are interested in figuring out how to use content and technology in the future.  Here are some of my clients.  I work with a lot with telecom companies, handset manufacturers, record labels, and publishers; even though you would think it's impossible to work with both of them. 

I wrote a book called The Future of Music and a second book called Music 2.0.  It's about how to solve the music problem.  If you want an actual copy a deb3 version, you can get one from me; I have free books.  If you prefer to download, it's www.music20book.com.  It's a free PDF.  My third book coming out later this year is The End of Control.  Why is it called The End of Control?  You'll see in my presentation.

Basically, what we're looking at now in 2009 is we have the rise of a new ecosystem.  Finally, after ten years of messing around from mp3.com to what have you, we finally have a situation to where we have colliding search engines, web portals, social networks, and telecoms. 

All the telecoms around the world are thinking about what they are going to do about content?  "Are we going to dive in or not?"  Voice and data are commoditized.  We're talking about major change here, especially in Asia, where you have huge companies thinking about how they can actually make money in the future; what is the next SMS and how will it work. 

All of a sudden, these sectors that were previously separated, and I'm giving you some very fancy colors here, all of a sudden they're all mixed up.  All of a sudden we're thinking "search, media, entertainment, telecom, and advertising."  It's all sort of colliding in various business models all over the web.

I spoke at Google on Monday and Google is in the midst of this.  We're looking at drastic role changes for a lots of these players, just like Johnny Deep who plays anything from the pirate to a transvestite.  In the middle of that are the telecoms thinking about their role changes and how it would go forward. 

The old content economy where I come from - I used to be a musician and a producer.  I worked in the music business for a long time.  I ran a bunch of Internet startups, including here in San Francisco.  In the old content economy content was king in the middle of everything.  We would essentially donate our dollars by buying books, individual unit sales, whether it was books or whatever; it was a payment per unit.

That made Hollywood very happy.  In that model, it was easy to count the units.  It was easy to restrict them, like with DVD region coding and copy protection and all that stuff.  It worked out quite nicely.

Now, as my friend Chris Anderson says, "The same consumers today are saving their money, playing free games, listening to Pandora, cancelling cable, watching Lulu and of course, using Skype."  A lot of people are saying Google is the master of making things free that used to be paid for.

That fits right into this.  The web has become a place where a lot of people are thinking the reverse of the old content model.  Content is in the middle but the payment is actually made around it, or what Chris likes to call "freemium."  There is a payment that comes out of giving content away and then charging some of them as a consequence.  FlickR is an example, and other services like Spotify, which is a fantastic service that just got started in Europe. 

The idea of saying content actually creates value out of which we make money; for example, here is the iPhone app for Pink, and a company called Kite, straight from San Francisco here.  You may know Kite as a great mobile application.  It's the idea of making money as a consequence of people using this rather than the other way around.

Of course, next generation advertising - I'm not talking about disruptive models, but integrative models.  And of course this, the money in the network.  How do we get the money out of a network - this is from Kevin Kelly - that copies everything for free?  How do we get this, from Kevin Kelly's site, www.kk.org.  You may know Kevin; I'm pretty sure.  He writes extensively about this.  How do we get this little Christmas tree on there?  I'm sure you've been following what happens in Europe, and in some cases, also in the U.S.

Now, the record labels, RAA and RFPI are asking the networks to disconnect people.  They are no longer suing them; they're asking for them to be disconnected if they download.  They're lobbying the government essentially for censorship. 

The very idea of getting the ISP to control what I do on the web; I think content 2.0, as I like to call it, is going to come down to selling everything around it.  As Kevin says, "When copies are free, you need to sell things that can't be copied."  What is a better job to have in this context than to be a telecom?  If you can sell stuff around the content, that's the mission.  You don't own the content and you're not going to own the content.  That's a good position to be in. 

Basically, if you look at it like this, I went to this great place in London called Inamo.  It's a sushi place; I like sushi.  It doesn't quite beat Sushi Run, but it's pretty close.  Inamo has great sushi but here is the thing; it uses a surface computer to interact with the kitchen and the ordering.  That's why you do there.  The sushi is fantastic but you can change the color of your table.  You can play Battle Ship if you have a boring date.  You can watch the kitchen remotely and you can look at the food in all different variations.  You can change the design of your table.

This is what I call making money around the content.  What Inamo sells is the packaging, it's not the food.  If you call the food the content, I would say yes, I pay for the content because it's a given that it's supposed to be good.  I'm really paying for the experience.  That is the future of content, for me.  I'm paying for the packaging, the experience, the context, the rating, the exchange, the social network around it, and then eventually I pay for the content as well.

The future of content really goes in this direction.  This is my own conjecture, so you can like it or not, but that's my proposal; I think copy-based revenues are steeply declining.  That doesn't take a futurist to notice.  The record industry has been dropping 25% per year.  The same is going to happen with DVDs, and books. 

Attention-based revenues are the flip side of things; they're increasing.  What are attention-based revenues?  It's selling data, selling advertising but not only advertising, and selling many other things that come out of the fact that people pay attention.

If we look down this road, we can clearly see the value of a copy is steeply declining.  In other words, the value of a piece of music when it is just copied, is zero.  Just a copy of it doesn't make money.  Record labels that are trying to sell copies are not going to be able successful.  Of course, they all know that.  The value of context, of filtering, of curation, of what I call "meta content," what people say about it, how they make comments, how they forward it; that is completely exploding.  Of course, that gives fantastic opportunities of packaging and the experiences. 

This stuff will basically make us think about the fact that the money is moving from selling the copy to selling the experience.  Of course, this is pretty much good news for everyone.  It's also drastic disruption. 

You go to Disney and say, "You're selling experience," and they're not going to like that very much.  They prefer to sell copies.  Record labels are still suing people that don't want to buy the copies.  Amazing, how stupid can you be?  After ten years, it's still the same idea.  We need to move on and think about selling experience.  This is just starting happen.

I was here in 1998; we were thinking about that already, in those days, with Internet underground music archives.  That was a long time ago.  Of course, telecoms and telecom companies are in a very good spot to sell that experience, if they know how that works.

If we go forward, I call this "twenty-first century content economics," and I didn't make it up.  It's somebody else's but I am stealing it here, influenced by people like your Yochai Benkler and Don Tapscott; I think we're looking at trust being the basis of this new economy. 

Companies that I trust, people that I trust, artists that I trust, I voluntarily give my money and of course, Google used to be - maybe Google still is for a lot of people - "In Google we can trust."  That was the initial paradigm of Google. 

Intimacy - a company in London called SellaBand; you donate money for a band to go to the studio and make a record.  You are the record company called Crowdfunding.  You pay $50 for a share, and when the band has $50 thousand, they go in the studio and record.  You own the band.  You're very close to the band; you make the band successful.  You pay for that.  You don't pay for the music.  You pay for the intimacy. 

Of course, individualization, like LastFM allows me to make my own program.  Packaging, like iPhone applications; I pay for the iPhone app but I would never pay for the music.  I pay for the ringtone, but I would never pay for the download.  That is just a different logic we can use.

Selection and filtering -  a company called Harlots of Space in Sausalito, www.hos.com, has a fantastic service of ambient space music.  Guess what; people don't pay for the music.  They pay for the program or the filtering.  And, of course, the convenience, like buying a ringtone on your mobile phone; it gives you a penalty payment of whatever it is because you can make the ringtone, but you make the payment. 

Here is the question; who controls what?  This question is immaterial.  It doesn't matter, as long as a system can be monetized, and I think if we have to learn something from the music industry, it's how the battle over control declined; The Pirate Bay, the most successful sharing site, is currently in court in Sweden.  I think the verdict should come out today.  It's growing and exploding in terms of growth.  Radiohead and Nine Inch Nails, iPhone and of course, Nokia are now rolling out their own music service; all these signs are showing now. 

In 2007, the Recording Industry Association of America was the most hated company in America.  This is the head of Halliburton.  Halliburton makes the bombs but they don't get to be the most hated ones.  The RAA did.  That's a brilliant success.  Down in Indonesia, it's Kentucky Fried Chicken is the biggest distributor of music.  This is how far we've gotten in digital music.

Basically, it's free-falling sales and total disaster while everybody else is spending money on content.  What's wrong with this picture?  There is something wrong here.  Money could be made and people are spending money on content; why not on music?  The answer is because permission hasn't been given to make money.  It has not been given for a different model.

Victim of control - for example Rhapsody, is anybody a Rhapsody user?   It's a great service; 750,000 subscribers.  Why isn't it working?  It's copy protection, price, mobility, and all these issues don't make it work.  Everybody could have Rhapsody if it was $1 a week, with an open format; everybody would have it.  Bundle it into the ISP.  This is something that could easily happen.

Of course, iPhone - we have the consumers basically saying go and you know what; go away.  We don't like music this way.  Attempts at controlling music have created zero revenue streams for the creators themselves, at this point. 

Let's move onto the future, rather than the past.  What I see happening this year is advertising, content, and telecommunication finally starting to mesh, to look at how a new ecosystem can be built.  It is also a consequence of the economic crisis. 

We're looking at a redefinition of telecom.  This is probably nothing new to you.  The users are forcing us to actually get our stuff together and merge telecom and content in some interesting ways, where we're becoming data pipes, content pipes, and most importantly, experience platforms.

I talk to telecoms all the time.  This is a tough mission.  Being an experience platform, content, advertising, we don't know anything about these things.  Now, we're going to see new partnerships.  It's only a question of time until we have Google and Facebook making deals with the likes of China Telecom, or Singapore Telecom, or Reliance in India. 

Hollywood is now screaming in horror as people are sharing stuff for free.  I think this crisis is a huge opportunity, the "control crisis."  I see this happening this way; we have what I call the new "data economy."  That means making money with data that's being given by the user.  As we see data is vastly important.  Of course, you all know that or I wouldn't be here.  The Facebook thing last week, where they changed the terms of use, shows us how important data is.  They tried to get it and we didn't like it so they went back.  Now they have to think of a smarter move. 

We have the content economy and of course, next generation advertising.  We're going to look at these things all mashing up in different directions, this year.  This is not an easy mission, obviously, but I think this is the direction we're going, in terms of this overall status.

IBM Global Business Services is a very smart outfit.  They say, "Advertising will constitute nearly half of the content market by 2010,"  In other words, half of the content is going to be paid for advertising.  Of course, all of us say it will never happen because advertising sucks.  Nobody wants to run these ads.  I think we're looking at a new generation of advertising.  The challenge will of course be to get people to consent to advertising, to consent to me sending stuff along to them.

I think I call this "next generation advertising."  We're going to see engagement, involvement, and activity - the Facebook Syndrome.  The new deal has been the old deal; in exchange for value, we surrender data.  In other words, I got free music, free videos, free TV shows, and maybe even free software because I give my data to be sold or given or leased to somebody else.  The attention data that I actually give produces content.

I'll give you some examples.  Widgets are a way of doing that very effectively.  Facebook, I think, will be the leader in what I call "personal information and data currency."  People are going to see something emerge there.  Gmail is a great example for getting value in exchange for surrendering user data.  The Nike Plus running shoe  - some of you can do this.  Actually, you can connect your running shoe with the iPod and publish it.  That is a great example for launching a product that actually has marketing built in.

I call this Advertising 2.0.  You used to have a budget to buy the audience and now you have to invent ideas to attract the audience.  That's where the whole thing is going.  Don't think of advertising as we know it; think of advertising as an idea to invent ideas to attract a new audience.  Information becomes conversation and interruption, engagement, and entertainment.

This is probably not really news to you, but the drastic shifts that we're seeing here will fuel a lot of momentum this year, especially because of the economic crisis worldwide. 

The future holds, "Where is the money?"  Data creates pictures of people.  It sounds very scary and it is scary.  In creating pictures of people, I create enormous value that will pay for the whole process and lubricate the engine.  I think we will have to be careful of becoming utterly transparent or being forced to hide out behind a sack because we fear to be transparent.

These are large issues that we have to fix, but let's look at some of the players in this turf.  Of course, Google now has a great situation, basically getting it from three sides, from the data, the content guys which they basically out mode for free, and next generation advertising.

Nokia Comes With Music is a great example of advertising.  Sony Ericsson, and of course the iPhone is creating a new content economy in the mobile and connecting back to advertising.  Of course, the New York Times is a very similar example of having an application that connects advertising and content.

We're going to see hundreds of these examples, people coming up with new value chains of how this works.  We're going to see the telecoms, like Orange, [0:18:27.2 unclear] Telecom, SK Telecom come up with ideas about how to connect these things, the data and the content. 

$1 a week, per user of the Internet in the U.S., $1 per week will be enough to earn the music industry more money than they make with everything else, $1 a week.  That's not even me paying the $1.  That's just me saying I'll be part of it, somebody else can pay the $1. 

The flat rate for digital music is imminent already in twelve countries around the world.  It's already in place in Denmark; it's been looked at in China, by Google.  There are a whole bunch of things in this direction that we're going to see, and of course, all these guys - the ad, the marketing agencies, they're going to connect to figure this out for their clients, how to connect the data economy with the advertising.  Of course IPTV is another major driver of this.

To make it even more confusing, with this nicely confusing diagram already, this is all going to get mixed up.  We'll all turn around forever.  This is the opportunity and the challenge.  We'll figure essentially; the crowd and the cloud - I think that's the future.  If we can figure out how to use the crowd and connect it to the cloud, with the content, then we have the next big thing that we're all looking for, the next shiny thing that will explode in some way.  Of course, we'll print money for all of this.

A few final words because I'm running out of time, the importance of filtering, Clay Shirky has said, "It's not really overload, it's filtering failure."  I think many of us will be involved in creating filters for content.  They may actually make more money than the content itself.  In other words, people will pay for the filter directly, but not necessarily for the content.  We already have this in blogs like Hype Machine or FriendFeed.  Keep in mind we're using FriendFeed to filter stuff.  And of course, it's stuff like LastFM.

For bottom lines - the fight for control was the fight for distribution.  TV studios, motion picture companies, networks, it was all about distribution.  The fight for attention is a fight for trust, the beneficiaries of control, which we've had until just recently, the monopolies of the studios, and then moving onto collaboration.  I think you are going to kick me off now.  Thanks for listening. 

Chair:      Great job.