The New York CeBIT conference in June has me thinking about what’s wrong with the bandwidth business in the United States and what might be done to fix it. The keynote speakers provided thunder and technical vision in abundance. And it is undeniable that while Internet stocks melted down two years ago, Internet use keeps expanding. But hardly anyone turned up to exhibit new technology. Worse, perhaps, hardly anyone turned up to tour what exhibits were there. Mark Dineen, managing director of CeBIT America, estimated about 15,000 attendees, about one third of what he had hoped for. In contrast, CeBIT in Hanover, Germany, attracted 560,000 this March. Isn’t New York supposed to throw big parties?
“Consumers will pay for new stuff, but not for more of the old stuff,” intoned Michael Capellas, the MCI repairman, er, CEO in the opening keynote. Capellas, and almost everyone else at CeBIT, said this translates into telephony and the Internet merging, and robust mobile connectivity. Instant messaging becomes peer-to-peer video. What it doesn’t translate into, however, is investor interest or a valid business plan. If a show like CeBIT can’t attract a crowd in New York, it is clear that IT is not attracting much Wall Street mindshare.
In a weird way, MCI’s troubles make things worse for the whole industry. Capellas took over what was then called Worldcom last December after an $11 billion accounting scandal and bankruptcy. In this case, bankruptcy gives MCI a competitive edge: the company gets out from under a huge debt load, and thus can undercut its major U.S. wireless competitors-folks like T-Mobile, ATT Wireless, and Verizon, who haven’t had to destroy their shareholders’ futures by declaring bankruptcy themselves.
Of course, in bankruptcy the worth of common stock sinks to zero, which is not much lower than what a lot of competitors’ shares are selling for now. But the MCI debacle reinforces the path U.S. wireless carriers have taken-to offer more of the old stuff, at a low price. And low prices don’t generate enough profit to allow these folks to create much in the way of new businesses themselves. Investors, for their part, keep looking for the next big thing, to no avail. As Capellas noted, “under the covers,” the online and wireless world has continued to expand from a consumer point of view, even as companies have been going bust. Or, as he put it, “business has slowed down from a business point of view.”
We got into this situation because investors in the mid-1990s believed Internet use would double every year-which it had in one year, 1994. Then they believed we’d spend our time watching bandwidth-munching video online.
The gutsiest exhibitor at the New York CeBIT was NTT DoCoMo, which last year launched a high-speed, third generation (3G) wireless service (branded FOMA) in Japan. The launch created barrels of red ink. Speaking at CeBIT, NTT DoCoMo president and CEO Nabuharo Ono said his company is looking for breakeven in three years and full recovery of the startup investment in five. Only a half-million of DoCoMo’s 33 million subscribers were using 3G by late spring, despite its lower costs for basic services. In Japan, voice connections typically cost 31 yen per minute (about 25 cents), with the FOMA service. E-mail is 0.02 yen per 1-kilobit packet, with a volume discount that requires users to spend 8,000 yen a month (about $65). But Ono could have signed up everyone in the audience of his keynote address. It was easily the highlight of the show.
For the press, Ono answered the tough questions, pointing to DoCoMo’s partnership with (and 16 percent ownership of) ATT Wireless as proof of his organization’s commitment to the market. The strategy? DoCoMo has opened its doors to any partners who can get folks to use the phone. The partners need less cash to get going. This sort of thing isn’t new. The French did it with Minitel and the Brits with Prestel, long before the Web existed. Think small. Stay flexible.
DoCoMo has 38 million subscribers in Japan for its slower, i-Mode service; half the traffic is e-mail, not voice. The I-Shot service, for sending images over the phone, now has 10 million subscribers. Need a printed picture? You get them at 24-hour convenience stores for 80 yen apiece-about 65 cents.
According to Ono, the way out of the price war that U.S. cell providers are waging is new services-and nothing is too outlandish. In Japan, for instance, DoCoMo services the iSeePet device. It is a feeding station that sits on the floor. Users can call their stay-at-home pet by phone, causing the station to play music. Once the pet comes, the phone’s users can see the animal on the phone’s video screen-and even talk to it. Ono also sees phone-activated devices placed in objects; there are a lot more objects than there are humans. Already, GPS-enabled phones allow parents to track the arrival of school buses or the whereabouts of cars and motorbikes. Can cameras, portable PCs, and pets be far behind?
By 2010, Ono said, 70 to 80 percent of DoCoMo revenue in Japan will be from data, not voice. He noted that DoCoMo is thinking about a 3G/WiFi combo modem card and is already opening WiFi hotspots. He sees 4G service coming. Those who have been trying to define 4G (in Europe, mainly) talk about 100 megabits per second (300 times faster than FOMA), “smart dust” sensors in everything, and customers paying for services rendered rather than bits moved.
But at CeBIT, introductions of real products were few and far between. On the equipment side, Toshiba showed a mockup of the portable computer of the future-a full-size rollup flexible organic LED screen, tablet operating system, multi-gigabyte SD flash memory card for storage and a methanol fuel cell providing a few days’ power. It fits in a suit-jacket pocket and may be available in late 2005 or early 2006. By then, they’ll certainly throw in a phone as well.
On the software side, Expertcity showed GoToMyPC 4.0 for wireless connectivity to corporate networks. There’s also a PocketView version, to access a PC from any Windows Pocket PC. Want a total solution? MCI’s latest vision is voice over IP service, with almost seamless text-to-voice conversion. Voice messages travel as data, wrapped in XML. Sounds like another service with enough competitors to keep prices low enough so that no one makes any money.
Don’t get me wrong. We need these things. But we need the cute stuff, too. Perhaps we should start with a plastic on-the-floor feeding station for investors. You call up the unit with any old phone, and it would emit the tone of the New York Stock Exchange’s opening bell.
Call it the iSeeFool.
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