[NEC] 2.5: Permanet, Nearlynet, and Wireless Data

[list-replies@shirky.com]

NEC @ Shirky.com, a mailing list about Networks, Economics, and Culture 

           Published periodically / # 2.5 / March 28, 2003 
        Licensed under the Creative Commons Attribution License
               Subscribe at http://shirky.com/nec.html

In this issue:

 - Introduction
 - Essay: Permanet, Nearlynet, and Wireless Data
    (Also at http://www.shirky.com/writings/permanet.html)
 - Worth Reading
   - Interesting new social software from Harvard Law.

* Introduction =======================================================

Telecom this time, an essay on two patterns of network deployment --
perma-net and nearly-net. Permanet is the visionary approach -- big
ideas, big engineering, high quality, high cost. Nearlynet, by
comparison, is a baling wire and twine, What works today? and built in
pieces kind of network. 

Though everyone likes the idea of permanet, the article concerns the
ways nearlynet is better aligned with the technological, economic, and
social forces that help networks actually get built. This pattern is
particularly important as wireless data services are being built today
around these two visions -- 3G as permanet, and Wifi as nearlynet.

-clay


* Essay ==============================================================

Perma-net, Nearly-net, and Wireless Data
  http://www.shirky.com/writings/permanet.html

"The future always comes too fast and in the wrong order." -- Alvin Toffler

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

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

- "I'm (Not) Calling From 35,000 Feet"

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

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

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

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

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

- 66 Tears

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

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

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

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

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

- 3G: Going, Going, Gone

The biggest and most expensive permanet effort right now is wireless data 
services, principally 3G, the so-called 3rd generation wireless service, 
and GPRS, the General Packet Radio Service (though the two services are 
frequently lumped together under the 3G label.) 3G data services provide 
always on connections and much higher data rates to mobile devices than 
the widely deployed GSM networks do, and the wireless carriers have spent 
tens of billions worldwide to own and operate such services.  Because 3G 
requires licensed spectrum, the artificial scarcity created by treating 
the airwaves like physical property guarantees limited competition among 
3G providers.  
 
The idea behind 3G is that users want to be able to access data any
time anywhere.  This is of course true in the abstract, but there are
two caveats: the first is that they do not want it at any cost, and
the second and more worrying one is that if they won't use 3G in
environments where they have other ways of connecting more cheaply.

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

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

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

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

- The Vicious Circle

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

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

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

- Partial Results from Partial Implementation

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

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

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

- Permanet is as Permanet Does

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

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

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

-=-

* Worth Reading  =========================================================

Harvard Law has launched an interesting site, called H2O, which is an
attempt to use social software to create "communities built around ideas."

More specifically, the project, sponsored by Berkman, wants to build
"...an interlocking collection of communities based on the free
creation and exchange of ideas." They have launched with software that
supports a conversational pattern called the Rotisserie. The
Rotisserie works by "...assigning every post within the conversation
to another, specific participant for response. The resulting
conversation guarantees that every post will be responded to by at
least one other participant and that every participant must respond
directly to the post of another participant."

More on H2O at http://h2o.law.harvard.edu/

* End ====================================================================

This work is licensed under the Creative Commons Attribution License.
The licensor permits others to copy, distribute, display, and perform
the work.  In return, licensees must give the original author credit.

To view a copy of this license, visit
http://creativecommons.org/licenses/by/1.0 

or send a letter to
Creative Commons, 559 Nathan Abbott Way, Stanford, California 94305, USA.

2003, Clay Shirky