Telkom – lessons from an unregulated monopoly

A free market in telecoms is near impossible. But many young tech enthusiasts are blissfully ignorant to this fact. South Africa is no different. Often one hears the mantra, by the ZAdigirati: If only there was competition in South Africa, then the outrageous internet and telecoms costs would come down.


Telkom Hellkom Djouma
Originally uploaded by Deon Louw Botha.
How does this idea explain this story then?

Mhambi read via Wired Gecko about report on Engadget that the Indian Government aims to supply each citizen with a 2Mbps internet connection by 2009. Wow, amazing.

“…now the real hotness is in connecting up an entire nation. According to IndiaTimes, the government is proposing that all citizens of India receive complimentary 2Mbps internet by 2009, and the service would be provided by the state-owned BSNL and MTNL. Officials backing the plan are hoping that giving all residents access to high-speed internet would “boost economic activity””

The government intervening to supply cheap telecoms dumbfounds most of the tech ideologues. Even when it worked before in places like South Korea.

Ideologues?

Yip, you heard me. In the West the prevailing orthodoxy is such – there must be competition in telecoms provision, because the free market must prevail, service will spread and it will drive down prices. A British academic, Richard Barbrook, hit the nail on head when he coined this pervasive ideology the Californian ideology. It’s worth a read.

A brief look at the history of telecoms should indicate that things are not that simple. Telecoms tend to be natural monopolies. The economic value of the network rises exponentially with the connections or users added, and considering the costs of constructing the network, especially the last mile, it’s economically inefficient to have two separate networks. If left alone the larger network will swallow the smaller.

In practise Western governments accepted this fact. The USA realised that for the US to get a large network they should allow AT&T to develop unhindered, but to regulate the prices and the the roll-out to sub economic parts of the country (called universal service). Although nominally a private company Ma Bel (AT&T) under these conditions grew fast and provided all Americans with cheap phone calls. The government regulated its prices but the economy of scale it achieved made it still possible for AT&T to be hugely profitable.

In the 80’s with the rise of Thatcherism and Ronald Reagan, right wing ideologues launched an assault on this old idea of a public telephone monopoly under government control. Competition was forced into all markets and also this market. But this particular one was no free market. To create competition a web of legislation, regulation and monitoring had to be spun, else the incumbents would just swallow up the new comers.

After more than a decade of a dearth of true competition, the UK started showing some of its benefits in 2003. Broadband prices started to fall, and true competitors entered the market. By this time however countries like South Korea enjoyed much higher bandwidth at lower prices for a number of years. That is broadband provided by monopoly state owned companies.

Why had competition taken so long to take hold in the UK? BT, the UK incumbent, had tried every trick in the book to forestall competition in the last mile. (The so-called local loop.) Competitors had to be allowed to connect to BT’s local exchanges, because it would not have been economical for them to replicate this infrastructure. It was even claimed that BT had engineered its technical protocalls to interface less effeciently with that of its rivals. But with the vast amount of resources thrown at the problem of opening up BT (including regulatory splitting it into two seperate parts, one of which only business is to allow acces to the local loop), eventually it paid dividends.

In the US they did not try to solve the real problem at all. Instead of opening the local loop they split AT&T into a number of geographically defined telcos. They kept them separate via regulation. Each was a monopoly in his own back yard. Prices predictably went up. Today with regulation lifted somewhat, the telcos are swallowing each other once again.

What can South Africa learn from the US, UK and Korean experience?

It is possible to create a competitive market of sorts in telecoms, but it takes years, and complex legal and technical regulation, constant vigilance and strong willed enforcement. The simpler route to the information super highway, is to ditch the copious amounts of regulation and have one national monopoly, with no or little profit motive.

Currently, with Telkom, South Africa has the worst of both worlds. A private company that’s not properly regulated. That coupled with tech stake holders barking up the wrong ideological trees is a recipe for disaster. No wonder predatory elites can use this state of affairs to milk South African internet users dry.

Do you Digg Blik?

ZuluZulu discovered Blik today. Blik (Afrikaans: view, stare, look) is a web 2.0 Afrikaans link recommendation site ala Digg. Already there is an English language South African recommendation engine called Muti.

Digg, which started off as a tech news recommendation engine, is so popular that it soon overtook that other massive tech news site Slashdot. Slashdot used to be so huge that the phrase “you have been Slashdotted” became synonymous with the surge in traffic when Slashdot put a link to your website and cause your servers to keel over.

But where Slashot had editors recommending stories and deciding their prominence, Digg took this one step further, allowing its users to submit them and deciding how popular they should be.

Sites like Digg are bad news for traditional professional media and traditional marketeers. It allows the lone blogger, filmmaker, web producer to compete with mighty media behemoths like the BBC and Naspers. It allows an interesting web service to be found, without throwing marketing money at it.

If the Digg community thinks your point of view is better, or you know something before the Guardian does, your story can experience a traffic surge.

Did you know you can “Digg” Mhambi’s stories by clicking on the link at the bottom of each story? And that increases the prominence of my story on Digg. See, six of you Digged my story on how many $100 laptops Oprah could buy South Africa.

Back to Blik. Is it a good thing to have an Afrikaans recommendation engine? Well it certainly does not suffer like Muti does in competing with Digg (who has long since moved out of being just about tech news). There are allot of South African stories on Digg.

But this brings to the fore a perennial problem Afrikaans faces. By using Afrikaans, Afrikaners can have a very unique, local, and intimate exchange of views and maintain their identity free from cultural imperialism. But its also self referential, self contained and incestuous. Often really interesting, sophisticated, open debates happen, like this Blik to a story on a farmer who’s micro credit system has helped his labourers invest happen, but nobody outside the Afrikaans community would know about it.

How many $100 laptops could Oprah Winfrey buy South Africa?

You may know Oprah Winfrey has opened a $40 million school for girls, south of Johannesburg. Apparently this is a greater sum than the US government spent on development in the whole of Africa last year.

ZuluZulu says many thanks Tannie Oprah. But Mhambi would wonders how many of Nicolas Negroponte’s $100 laptops she could have bought with $40 million and if it would not have been money better spent?

A quick bit of maths brings me to believe that Oprah’s money could have bought 400,000 laptops. Which is quite allot. Who would she give it to? I would suggest the poorest children in Gauteng.

The South African government has divided all school pupils into 5 categories according to how poor they are. In Gauteng, the smallest but most developed province there are 383,674 pupils in the poorest and largest category. This province would be ideal, relatively densely populated and with good roads, the wireless mesh technology built into the laptops could cast a wireless blanket.

Oprah could have given all of these poorest pupils $100 laptops, and probably could have covered of the next poorest category with what she will need to maintain the school and pay its staff. Just imagine 400,000 plus laptops creating their own wireless mesh all over the province and giving access to the poor to the Internet.

I’m no pedagogue but he reckons that if you give children the opportunity they will learn to use these instruments themselves, without too much hassle, as if by magic. (Many South African teachers have no clue how to use a computer). Imagine the creativity it could unleash?

Now if only the South African government could deal with the predatory monopoly that is Telcom and bring down internet access costs.

And if Joe Modise’s estate could repay the £500,000 and $10 million bribes for British Hawks and German subs, we would be looking at another 110,000 plus laptops, and if Shaik and Zuma…

Can tech save the earth?

There was a time when a UK academic, Dr. Richard Barbrook, accused the digirati of California of believing in a misleading ideology, the “Californian Ideology“.

According to him Net heavy weights like Kevin Kelly, Esther Dyson and Steve Jobs were beholden to this Californian ideology. A weird hybrid ideology that married ideas associated with the right – free market economics – and those that came from the left, counter-culture libertarianism.

Barbrook said:

“On the West Coast, skilled workers and entrepreneurs in the hypermedia industries form the ‘virtual class’. Like the ‘labour aristocracy’ of the last century, core personnel in the media, computing and telecoms experience both the insecurities and rewards of the marketplace. The Californian Ideology reflects this ambiguity by simultaneously advocating the New Left utopia of the electronic agora and the New Right’s vision of the electronic marketplace.

However both left- and right-wing anarchists ignore the key role of taxpayers’ dollars in the creation of the PC and the Net. The exclusion of public institutions from the construction of cyberspace can only increase the fragmentation of American society into antagonistic, racially-determined classes.”

But today one of the cyber gurus that Barbrook accuses, Nicolas Negroponte, made an announcement that both disproves and supports Barkrook’s contention.

Negroponte, head of the Massachusets Institute of Technology’s (MIT) Media Lab announced the wonderful news that the first batch of computers built for the One Laptop Per Child project could reach users by July this year.

The One Laptop Per Child Project aims to deliver the children’s laptop — a potent learning tool created expressly for the world’s poorest children living in its most remote environments.


Originally uploaded by ozymiles.

The laptops will run a bespoke form of Unix operating system where they are encouraged to work on an electronic journal, a log of everything the user has done on the laptop. Because says Negroponte:

“…one of the saddest but most common conditions in elementary school computer labs (when they exist in the developing world), is the children are being trained to use Word, Excel and PowerPoint,” Mr Negroponte said.

“I consider that criminal, because children should be making things, communicating, exploring, sharing, not running office automation tools.”

The proposed $100 machine will also have a dual-mode display—both a full-color, transmissive DVD mode, and a second display option that is black and white reflective and sunlight-readable at 3× the resolution.

The laptop will have a 500MHz processor and 128MB of DRAM, with 500MB of Flash memory; it will not have a hard disk, but it will have four USB ports. The laptops will have wireless broadband that, among other things, allows them to work as a peer-to-peer mesh network; each laptop will be able to talk to its nearest neighbors, creating an ad hoc, local area network. The laptops will use innovative power (including wind-up) and will be able to do most everything except store huge amounts of data.

Why do children in developing nations need laptops? Why not a desktop computer, or—even better—a recycled desktop machine? Negroponte answers:

Desktops are cheaper, but mobility is important, especially with regard to taking the computer home at night. Kids in the developing world need the newest technology, especially really rugged hardware and innovative software. Recent work with schools in Maine has shown the huge value of using a laptop across all of one’s studies, as well as for play. Bringing the laptop home engages the family. In one Cambodian village where we have been working, there is no electricity, thus the laptop is, among other things, the brightest light source in the home.

Why is it important for each child to have a computer? What’s wrong with community-access centers?

One does not think of community pencils—kids have their own. They are tools to think with, sufficiently inexpensive to be used for work and play, drawing, writing, and mathematics. A computer can be the same, but far more powerful. Furthermore, there are many reasons it is important for a child to own something—like a football, doll, or book—not the least of which being that these belongings will be well-maintained through love and care.

What about connectivity? Aren’t telecommunications services expensive in the developing world?

When these machines pop out of the box, they will make a mesh network of their own, peer-to-peer. This is something initially developed at MIT and the Media Lab. We are also exploring ways to connect them to the backbone of the Internet at very low cost….We are working with the local governments and the private sector regarding how to reduce the cost of Internet access.

This includes connectivity to the Internet from the mesh through gateways at the schools. And how will these be marketed?

The laptops will be sold to governments and issued to children by schools on a basis of one laptop per child. Initial discussions have been held with China, India, Brazil, Argentina, Egypt, Nigeria, and Thailand. An additional, modest allocation of machines will be used to seed developer communities in a number of other countries. A commercial version of the machine will be explored in parallel.

How will this initiative be structured?

The $100 laptop is being developed by One Laptop per Child (OLPC), a Delaware-based, non-profit organization created by faculty members from the MIT Media Lab to design, manufacture, and distribute laptops that are sufficiently inexpensive to provide every child in the world access to knowledge and modern forms of education. OLPC is based on constructionist theories of learning pioneered by Seymour Papert and later Alan Kay, as well as the principles expressed in Nicholas Negroponte’s book Being Digital. The founding corporate members are Advanced Micro Devices (AMD), Brightstar, Google, Marvell, News Corporation, Nortel, and Red Hat.

To keep the cost down we will market the laptops in very large numbers (millions), directly to ministries of education, which can distribute them like textbooks.

So there you have it. Barbrook was right. Negroponte can not deviler his digital utopia and save the world without the help of not-for-profits, academia and government.

But he was wrong because Negroponte is well on his way to actually have an almost unimaginably positive impact on the lives of poor people in the developing world.

Will the Venice Project save TV?

Have you heard about the Venice Project? The project by the Skype and Kazaa founders Janus Friis and Niklas Zennstrom that some claim is set bring telly into the internet age? So what’s it all about?

Here are some snippets form the Venice project blog:

For those who’ve not quite caught on to what Venice is all about – in essence the various journalists got the story almost exactly right: we’re fixing TV; removing artificial limits such as the number of channels that your cable or the airwaves can carry and then bringing it into the internet age; adding community features, interactivity, etc.

But we’re also bringing something back from that old TV – of having a shared experience with your friends, something you can talk about, rally around and enjoy with others.

And it is that latter part – embodied in the community tools and APIs – which we expect will play a prominent role in this early beta. Since we’re based on some widely distributed Open Source software we do expect people to quickly be able to leverage it and tune it to their own wild ideas, hobbies and interests.

And suprise surprise, like Kazaa and Skype, its P2P.

We are in the process of launching a secure P2P streaming technology that allows content owners to bring TV-quality video and ease of use to a TV-sized audience mixed with all the wonders of the Internet. All content on The Venice platform is provided by content owners directly, and it’s all protected with the highest standard of encryption and we are working within the Digital Millennium Copyright Act (DMCA) framework to ensure that it complies with appropriate content protection and ownership regulations.

Besides making a product that we trust users will love, we think that quality content and the respect of copyright is central to making The Venice Project successful. We cannot mix the best of the Internet with the qualities of TV without the content industry’s help and support, which is why the service has been developed with this thought at the heart of our business.

So the bet is that if people can access all the professionally produced content they want, over their broadband connection, when they want, and recommend this content to friends – well have a wildly successful new way of watching TV programming. Some commentators like Anthoney Lilley even predict that it would knock the impact of YouTube into a cocked hat.

I have some doubts.

Who pays for the bandwidth?

Distribution of high quality video files via the Net on mass is relatively expensive. Especially compared to normal broadcasting TV signals. P2P solves that for the Skype boys as a user can download a program (or get a stream) from many other users who carry and split the cost of the bandwidth. What will these users’ ISPs make of this? Especially as these ISP’s are trying their hand at video on demand as well.

Will TV companies be comfortable putting their content into the same pot?

To negotiate the licenses to all the content that will sit on the same platform will be a nightmare and one of the biggest challenges the project will face. TV stations are strong brands. How will these brands prosper in this environment? How will the brands fit into the navigation and programming guides, if at all? The tech part is comparitively easy to getting the TV companies to agree to this.

Pro vs amateur

Since the inception of the net we have had ‘professional’ websites. The Yahoo’s, Lycos’s, AOL’s, Amazons of this world. They are huge, and last time I checked the top 10 sites attracted alost 80% of internet users in the UK. Not unlike print and TV where the big players’ reach are significant.

But if you look at frequency and time spent on a website, these numbers drops precipetously. Although most users visit the big ‘pro’ sites regularly, these sites make up only a small fraction of the sites they visit. The bulk of our life online is spent on niche and often amateur sites.

Look at Flickr. There are a number of very important established photographers using it. Often they get tenfold more views than that of the average user. But as a percentage of the overall usage of Flickr, they are in a small minority.

Yes, ripped TV shows are poppular on YouTube. But if they are all removed tomorrow would we see a crash in traffic numbers. My bet is that you won’t. Another example: How many blogs have ripped and how many orginal and often poor content? What point am I trying to make? Venice will ignore ‘amateur’ content at thier peril.

And the lack of amateur authors create impacts on other things. The Venice Project aims to create a community around TV. Unfortunately a community of collectors and fans are just not as sexy, rich or alive as a community of creators.

The Venice Project P2P video on demand community would seem rather bare if it featured no amateur content.

The big challenge in the future of filmmaking and TV – funding

Lilley points out that: “The big problem for broadcasters won’t be distribution but rather how to fund new content.” The Venice Project does attempt to address this. But this is also the main concern of the amateur filmmaker in his bedroom (which is what Google is trying to address).

Sky surfs the second web wave

Three smart moves by Sky and its clear that you don’t need to be a New Media company to be successful online. You just need to understand media. Yahoo!, take note.

First Sky bought MySpace and then it decided to dicth satelite for broadband via lines, thus enabeling interactivity and not just one to many broadcasting services. Then this deal was done by Sky with Google:

BSkyB has announced a partnership with Google to provide its broadband customers with branded search, email and other services including a YouTube-style video sharing website.

The deal is being touted as Google’s first global partnership to provide such a range of services and the agreement will also lead to the US search engine giant making its first move into TV advertising.

Initially Google will provide the “click through” search bar and display advertising on Sky’s broadband portal – sharing ad revenues with the satellite broadcaster.

But wait, there’s more!

The two companies are also exploring “future forms of web, TV and mobile advertising”. Under the deal with Sky, Google will look at the possibility of using the information about viewing habits that can be obtained through the satellite broadcaster’s set-top boxes to produce more targeted TV advertising.

Google is already experimenting with newspaper, magazine and radio advertising in the US, using its technology to sell and target adverts.

As part of the deal, Sky Broadband customers will be able to edit, upload and share their video clips on the new user-generated video portal, and can also post and download clips from their mobile.

New communications tools available to Sky Broadband subscribers will include a customised version of Google Mail, Google’s web-based email service for the UK, and instant messaging. Subscribers will be offered addresses at the sky.com domain and the service could be extended to Google’s internet telephony service.

Google’s search tool and targeted search advertising will be introduced across Sky’s network of websites, with revenue shared between the two firms. Financial details were not revealed. Sky is aiming to tap into the UK’s booming online advertising market through the deal.

Compare these bold moves with Yahoo’s dithering over user generated content and Channel 4 and BT’s hamfisted moves into Web TV through their 4oD and BT Vision services.

As Anthoney Lilley points out in today’s Media Guardian (registration required), the biggest problems of prospective broadcasters is how they fund production and not distrinution.

First, video on demand was already here anyway – in the form of the Sky+ box and DVD collection and, for some, Home Choice, NTL or via peer to peer on the net. But I doubt the fanfare amounts to much for another reason. Broadcasters need more than new distribution platforms to define their place in the emerging media ecology. Basically, most VOD services are shops. That’s it. Their biggest effect is to turn media and telecoms companies into retailers. The big problem for broadcasters won’t be distribution but rather how to fund new content.

He continues:

Of course, finding new distribution platforms will be part of solving that challenge but it won’t do the whole job. Likewise, BT Vision might help to lock some people into BT broadband products. The big money for BT is in access and services across a wide front, not in broadcasting.

As for 4oD, it’s early days, but the shop shelves seem a bit empty. I know how hard rights deals are to put in place, but if you download the application – which is a smooth process – and then have a look at what you can, or more accurately can’t, watch from last week’s schedule, you’ll see what I mean.

More tellingly, the 4oD service is conspicuous for its lack of social networking features. C4 claims to be an “editor of choice” for its audiences in that they trust its brand to help them choose what to watch. This is definitely correct in some circumstances.

But not all the time – and it isn’t mutually exclusive with recognising that the “audience” is now an active part of services such as iTunes Music Store and Amazon. Can I send a preview of a show to a friend? No. Can I review it? Don’t think so. Is 4oD aware of my viewing habits and those of people like me and does it prioritise content or recommend stuff as a result? No.

You get what C4 thinks you might be interested in – which has a strong relationship to what they have on the shelves. 4oD is rooted in the mindset of a TV channel.

Locked up in his statement about funding production being the main challenge is this. In this WebTV value chain it is important to be a content and rights owner. Distrubution is taken care of by Google, MySpace and thousands of blogs.

To be able to fund their productions, broadcasters will need advertising or subscription revenues and if they are web savvy, they can get their users/ viewers to make content for them on the cheap.

It’s interesting then that the young Murdoch – sounding a bit like a member of the digirati – spelt out where BT and Channel 4 have been getting it wrong. According to Murdoch: “The weird thing about the media market is that people have thought about it in two halves; online and TV. The truth is, in a connected market, everything is connected.”

Sky knows that they have to open up and give their users an opportunity to watch what they want, and they know that the advertising has to be personalised and targetted like on the internet.

Antony Lilley again:

This is the nub of the problem with 4oD and, for different reasons, BT Vision. Both services have their roots as extensions or protections of existing business models.

Companies which fail to take this kind of thing into account usually lose out to rivals who approach “their” business from a new direction.

And Lilley gives an interesting snippet of news and a big prediction:

With this in mind, look out for The Venice Project from the people behind Skype – it’s aiming to combine social networking and legitimate TV content and I think it might knock the impact of YouTube into a cocked hat.

Yahoo! reorganises – will it help?

ZuluZulu doubts it.

News reports claim that the latest reorganisation buy the massive internet portal signifies a rethink by Yahoo and the web community at large about content on the web.

The departure of television veteran Lloyd Braun from Yahoo Inc. underscores a shift, or at least a major hiccup, by major Internet companies away from creating costly original content.

Braun, who once ran primetime programming for the Walt Disney Co.’s ABC network, left Yahoo this week after his role was greatly diminished in a companywide reorganization that placed his group into a newly created division.

Yahoo’s hiring of Braun to run the new Yahoo Media Group two years ago sparked speculation that the online company was itching to become, in effect, a TV network on the Web, producing its own shows to attract eyeballs to its lucrative Internet advertising.

After all, Braun was responsible for ABC’s nascent turnaround and the genius behind its hit show “Lost.” Analysts saw great symbolism in the consolidation of Yahoo’s far-flung media sites — music, video, finance and news — into a new Santa Monica office that was once home of fabled movie studio Metro-Goldwyn-Mayer.

But two years ago, no one foresaw the rise of sites such as YouTube and MySpace, which became huge companies by aggregating user-generated videos and creating communities where people could network. YouTube was eventually bought by search giant Google Inc. for $1.76 billion, while MySpace was snatched by News Corp. for $580 million.

Err… obviously not. But hell they should have. Anybody that poured over internet usage paterns 6 years ago would have told you what the web gurus like Tim Berners Lee were saying for ages AND that was blidingly obvious anyway.

The web is an ultra democratic medium. Anybody can publish cheaply. It’s less of a one to many medium (broadcast) and more like point to point. The first killer apps on the web were search engines and email. Did any of these highly paid guys spend some time to think about it why this was so?

I mean Yahoo had a very succesful email service, search engine, intstant messenger, Yahoo! Groups, Geocities – what did these extremely succesful services have in common? They all enable web users to find, communicate, and create content. Who cares if most IM conversations are inane or most Geocities websites are junk. Yahoo! paid nothing for this content or conversations. And websites like blogs.marketwatch.com agree:

“About 30% of the pageviews on the fast-growing new-media newspaper company Topix.net come from community comments.

The figure tells you something about what the Internet generation wants to consume online.”

 

Yahoo dispels first mover myth

Could Yahoo’s! management not also extrapolate on this logic??

Braun also had to curtail ambitions to produce original shows for the Web. Replicating the TV network model would be prohibitively expensive, especially if such shows could only be viewed on a small computer screen.

Yahoo did create several new video and other programs, including news dispatches from war journalist Kevin Sites. The company also recently launched a series of live music performances similar to those featured on rival AOL’s site.

But in a twist, one of its most popular shows, called “The Nine,” features host Maria Sansone counting down nine notable user-generated video clips found on other sites such as YouTube.

And the new chiefs at Yahoo don’t inspire much confidence. The LATimes report:

The new rising star is Sue Decker, the chief financial officer, whose promotion Tuesday positions her, analysts say, as the heir apparent to Semel. As head of a new group that caters to advertisers and online publishers, she will oversee Yahoo’s biggest moneymaking ventures.

“What we’re doing is aligning ourselves with our strategic priorities,” Semel said in an interview.

Yahoo said it was searching for an executive to run a second group focused on users. The audience group includes search, communication products, online shopping and media properties.

Farzad Nazem, Yahoo’s chief technology officer, will lead a third group that is focused on providing technology for the other two businesses.

If Yahoo has any sense, the person who runs the audience group would have the most say. Without careful attention to their users and what they want to do, Yahoo will be adrift.

Read more about the problems of being an internet portal.