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Tim's Fly Fishing Blog

  1. Opening Weekend 2010 Tim Wood (Partner) 06-Oct-2010


Data Network will thrive, Voice Network in trouble

The article below is well worth understanding -Stay away from investing in tradition voice networks. Soon the majority of voice calling will be communicated via the internet. -This was published by NZ Herald October 2010.

Chris Barton: Roll over Telecom, the Jetsons' revolution has finally arrived

Vision becomes reality as more people turn to the internet for phone calls.

  12:15 PM Sometimes a revolution sneaks up without anyone really noticing the significance of the change. The latestJune quarter gross domestic product figures signal something remarkable. Communication services were down 2.6 per cent - the third quarter in a row where communication activity has declined. Unheard of.

The raw data from Statistics New Zealand for communications (combined with postal services) is a bit crude, but look at a graph going back to 1987 and the only way this sector was going was up. Back then it was worth $400 million.

By March 2008 it was preparing to bust through the $2.2 billion mark. Then the darling of sustained growth got the jitters - falling and climbing in fits and starts. For a moment in September 2009, comms looked liked it had rediscovered its mojo as it again threatened to break $2.2 billion. But it's been downhill since then.

If it continues on this path, by next quarter it will have fallen through the $2 billion floor - a decline to March 2007 levels.

So what's going on? Statistics says it's due to fewer phone call minutes being recorded for both fixed line and mobile phones. You could put that down to belt tightening in hard times, but in telco circles the word is that it's all because of internet-based calls. In short, Skype. Rumour has it that Skype now accounts for 25 per cent of New Zealand's overseas calling. As one telco executive put it: "If it's true, it's game over for telephony. It's just one enormous data network now."

The revolution which has made the videophone a reality has been a long time coming. Morphing a TV screen and telephone was always utopian fiction, perhaps best expressed in the 1960s animated television show The Jetsons. I first saw the possibility it might actually happen in 1986 - the sultrily named Minx made by Datapoint. When you learned it stood for Multimedia Information Network eXchange and it needed integrated services digital network (ISDN) to make it work, it wasn't so sultry. It did however, have picture-in-picture videoconferencing, which was ahead of its time. But with that many ridiculous acronyms it was always doomed to fail.

The idea of using a personal computer as a videophone began around 1992 when Andy Grove, then head of chip-making giant Intel, proclaimed person-to-person video communication via a PC would be a "pervasive reality" by the middle of the 90s. Two years later he admitted he may have overhyped things a bit, but blamed the lack of uptake of fast communication networks as the problem.

With enough of us now using broadband and thanks to the "enormous data network" known as the internet, The Jetsons' videophone has arrived. It may not quite be a pervasive reality, but it's getting there.

The extraordinary aspect of Skype is not just that it allows you to see and talk to your kids for hours when they're off on their big OE. The real revolution is in how little it costs and how Telecom is so screwed. As more and more users bypass its network to make calls on the net, its phone call revenue will continue to plummet.

Little wonder the company is doing everything it can to slow the arrival of fast broadband - datacaps to limit our use, opposing fibre to the door in favour of castrated broadband via copper, and refusing to sell wholesale fibre services at reasonable rates.

But what's so great about this revolution is that despite Telecom's delaying tactics designed to bring on fast broadband at a snail's pace, it's still happening. Whenfarmers are already ploughing in fibre to their farmhouse door for themselves, and students automatically sign up to a Skype account rather than one with Telecom, you know the power is in the people's hands. As in the best revolutions this is about the redistribution of wealth - from the Telecom balance sheet back to the users harnessing cheap unlimited bandwidth.

The PC videophone is just the beginning of what can happen when users worldwide can connect devices to fast, but essentially stupid pipes. By stupid I mean unencumbered by a complicated overlay of telco services and marketing confusion. It's the revolution that says give us bandwidth, lots of it, and then leave us to it.

Though along with the benefits, there are quite a few things that I'm not so sure about. I long for the day when my TV connects so I can download what I want to watch from wherever I choose whenever I want without ads.

I'm also quite intrigued by the idea of a connected fridge, one that I can phone to see whether I need to buy milk on the way home from work.

But I'm not entirely convinced that my toilet should be online. Yes I can see that there may be potential health benefits in the daily analysis of its contents, but somehow that feels like too much information.

Then there's the issue that ever since I invited the webcam into our home to Skype, I can't help thinking its bulbous eye is watching me ... never mind. Viva la revolution.

Chris Barton's Web Walk column appears monthly, on the first Friday of every month.

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