Convergence and the FutureConvergence and the Future
a presentation toa presentation toThe Institute of Electrical and Electronic Engineers, Inc.The Institute of Electrical and Electronic Engineers, Inc.
Communications and Vehicular Technology SocietyCommunications and Vehicular Technology SocietyDallas ChapterDallas ChapterMarch 11, 2003March 11, 2003
William O. HuntChairman of the BoardInternet America, Inc.
AgendaAgenda
Business FundamentalsBusiness FundamentalsConvergence and Convergence DriversConvergence and Convergence DriversTelecommunications Inventions TimelineTelecommunications Inventions TimelineUMTS (Universal Mobile Telephone System) or 3UMTS (Universal Mobile Telephone System) or 3rdrd GenerationGenerationSubscriber GrowthSubscriber GrowthThe Promise of the FutureThe Promise of the FutureTechnological Substitutions VictimsTechnological Substitutions VictimsQuestion and Answer SessionQuestion and Answer Session
Run Your Business by Good FundamentalsRun Your Business by Good Fundamentals
Two Inviolate Business PrinciplesTwo Inviolate Business PrinciplesProvide maximum longProvide maximum long--term returns to shareholdersterm returns to shareholdersProvide an attractive work environment for Provide an attractive work environment for emloyeesemloyees
LongLong--term Goalsterm GoalsFinancialFinancial
Target annual rate of return on invested capitalTarget annual rate of return on invested capitalMaintain annual operating profit growth minimumMaintain annual operating profit growth minimumTarget minimum cash operating marginTarget minimum cash operating margin
Market PositionMarket PositionAchieve leadership in key market segmentsAchieve leadership in key market segments
Human ResourcesHuman ResourcesProvide a positive work environmentProvide a positive work environment
Ethical StandardsEthical StandardsConduct all business activity with the highest standardsConduct all business activity with the highest standards
Run Your Business by Good FundamentalsRun Your Business by Good Fundamentals
Leaders communicate their vision so others understand it and accLeaders communicate their vision so others understand it and accept it as ept it as their owntheir ownLeaders surround themselves with winnersLeaders surround themselves with winners
Honest Honest -- Competent Competent -- Inspiring Inspiring -- Intelligent Intelligent -- LoyalLoyalFair Fair -- Open Minded Open Minded -- Imaginative Imaginative -- Far SightedFar Sighted
Commandments of LeadershipCommandments of Leadership
Honesty, Integrity, Fairness, and Candor are all #1 in Leadership Commandments
Run Your Business by Good FundamentalsRun Your Business by Good Fundamentals
CASHCASHISIS
KINGKING
Run Your Business by Good FundamentalsRun Your Business by Good Fundamentals
CASH IS KINGCASH IS KING
$0.00$0.00<.85><.85>Free cash flow/owner’s earningsFree cash flow/owner’s earnings<.65><.65><1.50><1.50>Change in working capitalChange in working capital<.50><.50><.50><.50>Capital expendituresCapital expenditures
.15.15.15.15Depreciation, depletion, amortizationDepreciation, depletion, amortization$1.00$1.00$1.00$1.00Net IncomeNet Income
2211Free cash flow or “owner’s earnings” Free cash flow or “owner’s earnings” (1)(1)
(1) The Warren Buffet Way
Convergence DriversConvergence DriversSemiconductor
Technology Speed/Bandwidth
Wired
ApplicationsComputerTechnology
Internet
WirelessConvergence:Coming Together in Union
Convergence DriversConvergence DriversSemiconductor Technology EvolutionSemiconductor Technology Evolution
Early1960s
Mid1970s
Now2002
Source: Intel Advertising
Microprocessor Introduced
Wafer Transistors
Chip Transistors 2300
55 Million
13 Billion
1.25” diameter 12.0” diameter
The Power of Semiconductor TechnologyThe Power of Semiconductor Technology
The HandThe Hand--held Cell Phoneheld Cell Phone
1982 1992 2002
Motorola Dynatac$4,000
Typical Handset$200
26%
14%
Annual Compound Price Reduction
Convergence Drivers Convergence Drivers –– The InternetThe Internet
Internet Technology
Courtesy of Internet America, Inc.
URL(uniform resource locator)
Introduction of Telegraph Service (Morse) 1837Introduction of Telegraph Service (Morse) 1837
The Pony Express went out of business shortly after the completion of this telegraph line in 1860.
Courtesy of Western Union Telegraph Co.
Marconi First Demonstration of Wireless Telephony Marconi First Demonstration of Wireless Telephony -- 18961896
The earliest form of mobile radio.
Courtesy of The Marconi Company, Ltd.
The Sequence of Inventions in TelecommunicationsThe Sequence of Inventions in Telecommunications18
40
1830
1850
1860
1870
1880
1890
1990
1900
1910
1920
1930
1940
1950
1960
1970
1980
2000
Telegraph Service (Morse)
Personal Communications ServicePCS
Communication SatellitesStart of the Internet
GSM Cellular (Europe) Advanced Mobile TelephoneTelephone Service (AMPS)Microwave Systems (Digital)
Improved Mobile Telephone Service(IMTS)Arpnet (Early Internet)
Television (Color)Radio Common Carriers(paging, dispatch, wireless)
Microwave Systems (Analog)Television (Black & White)
First Computer (Eniac)
Radio Broadcasting
Wireless Telephony (Marconi)
Telephone Service (Bell)
Principal Differences Between GSM and UMTS ServicesPrincipal Differences Between GSM and UMTS Services
Less than Less than wirelinewireline qualityquality
Limited multimedia applicationsLimited multimedia applications
Some limitationsSome limitations
Limited opportunityLimited opportunity
9.6 9.6 KBpsKBps –– approx. 70 approx. 70 KBpsKBps
GSM 25MHz provider A 12.5MHzGSM 25MHz provider A 12.5MHzPCS 60MHz provider A 15.0MHzPCS 60MHz provider A 15.0MHz
GSM 900 MHzGSM 900 MHzPCS 1900MHzPCS 1900MHz
WirelineWireline speech qualityspeech quality
Robust multimedia applicationsRobust multimedia applications
SeamlessSeamless
New and broader applicationsNew and broader applications
144 144 KBpsKBps -- 384 384 KBpsKBps -- 2000 2000 KBpsKBps
UMTS 60MHz provider A 10MHzUMTS 60MHz provider A 10MHzWidebandCDMAModulated
UMTS 2100MHzUMTS 2100MHz
Speech QualitySpeech Quality
ApplicationsApplications
AccessAccess
Internet/IntranetsInternet/Intranets
SpeedSpeed
Reserved Spectrum BandwidthReserved Spectrum Bandwidth
Spectrum BandSpectrum Band
GSMGSM(Global System for Mobile)(Global System for Mobile)
UMTSUMTS(Universal Mobile Telecommunications System)(Universal Mobile Telecommunications System)
{
Wireless and Wired NetworksWireless and Wired NetworksSeamless Services Across IPSeamless Services Across IP--based Networksbased Networks
Service plane
IP/ATM Network
Service planeAAA
GK
SCP
IN Server 3rd party ApplicationsSignalling GW & Call feature Server
Optical
POTS/ISDNxDSL
Wireless
VLR
Mobility Server
HLR
Courtesy of Andrew Corporation
ContentProvider
Portal -Community
Provider
ServiceProvider
NetworkOperator
EndUser
100% 72%
23% 3% 2%
0%
20%
40%
60%
80%
100%
Traditional value chain split in the market
Advertisement revenues
100%
25% 25%12%
38%
0%
20%
40%
60%
80%
100%
Future value chain split in the market
Convergence Changes Market Value ChainConvergence Changes Market Value Chain
Courtesy of Arthur D. Little
Telecommunications Market WorldwideTelecommunications Market Worldwide
Mio. users on Public Network
Source: UMTS Forum
2
11
967
700524500478
FixedTeleph.
405
80
Mobiles
300Internet
5517
Fax67
2.51.5
1
10
100
1000
10000
1980 1985 1990 1995 2000 2005
The Promise of the FutureWhat Does Tomorrow Hold?
Who Wins?
The Promise of TomorrowThe Promise of Tomorrow
Technology advances in semiconductors, wired and wireless networTechnology advances in semiconductors, wired and wireless networks, and ks, and the Internet will continue to drive convergence at a very fast pthe Internet will continue to drive convergence at a very fast pace.ace.UMTS (3UMTS (3rdrd Generation) cellular, wireless mass market rollout in next 5Generation) cellular, wireless mass market rollout in next 5--10 10 years will accelerate convergence across the board.years will accelerate convergence across the board.Voice over the Internet (VOIP) will become a formidable competitVoice over the Internet (VOIP) will become a formidable competitor to or to wireless and wired carriers in next five years.wireless and wired carriers in next five years.Cable, fixed wireless, and VOIP will begin to cannibalize local Cable, fixed wireless, and VOIP will begin to cannibalize local exchange exchange providers (SBC) business in the next five years.providers (SBC) business in the next five years.The handThe hand--held computer, held computer, PDAsPDAs, and wireless phones will converge into one , and wireless phones will converge into one fullyfully--featured handfeatured hand--held device with docking capabilities in 5held device with docking capabilities in 5--10 years.10 years.All networks will become completely seamless to the end user.All networks will become completely seamless to the end user.
What does the future hold?What does the future hold?
The Promise of TomorrowThe Promise of Tomorrow
Productivity in the service sector will improve materially throuProductivity in the service sector will improve materially through the gh the utilization of radioutilization of radio--frequency identification (RFID), tags, bar code/scanning, frequency identification (RFID), tags, bar code/scanning, and smart cards.and smart cards.Multimedia services such as videophones and videoconferencing wiMultimedia services such as videophones and videoconferencing will become ll become commodity items in the next 5commodity items in the next 5--10 years.10 years.Home and office equipment will be Home and office equipment will be connctedconncted with wireless networks, such with wireless networks, such as 802.11 (as 802.11 (WiFiWiFi), Bluetooth, and infrared data.), Bluetooth, and infrared data.Businesses must be run with good fundamentals, maximum cash flowBusinesses must be run with good fundamentals, maximum cash flow, and a , and a continuous eye for technology/infrastructure changes.continuous eye for technology/infrastructure changes.Who wins? The end user, through lower prices, improved functionaWho wins? The end user, through lower prices, improved functionality, lity, broader applications, and realbroader applications, and real--time availability of data.time availability of data.
What does the future hold?What does the future hold?
Services/Videoconference/VideophoneServices/Videoconference/Videophone
UMTS NetworkUMTSterminal
with video
display
ISDN
Internet
Computer-basedvideoconference software
Fixed networkvideotelephone
UMTS terminal with interface to external video camera and display
RadioAccessNetwork
CoreNetwork
Courtesy of Andrew Corporation
UMTS Applications (Mobile Applications Ranking)UMTS Applications (Mobile Applications Ranking)
WML browsing
SMS Info services
Micropayment
IN service admin.
Synchr. Organizer
Text Chat
Loc. dep. Yellow Pages
Enhanced City Guide
Video Telephony
Video StreamingMultimedia Messaging
Games
19991999 20002000 20012001 20022002
Unified Messaging
City map download
CorporateDirectory
Organizer
eMailOn-line Banking
HLR service admin.
Courtesy of Andrew CorporationSource: Siemens Project Team Applications
PDAsPDAs, Docking, Smart Phones, Docking, Smart Phones
Class 1Handset
voice centric
Class 4Personal IntelligentCommunicator, PIC
Class 5PCMCIA-Card Phone
Class 3Videophone
multimedia
Class 2Smartphone
multimedia capability
Voice Activated DialingVoice Activated DialingDownload Speeds up to Download Speeds up to 153 153 KBpsKBpsAddress Book Address Book ––Microsoft OutlookMicrosoft OutlookUSB ConnectivityUSB ConnectivityHTML/WAP BrowsersHTML/WAP BrowsersInfrared PortInfrared PortTwoTwo--way Text Messagingway Text Messaging
ApplicationsApplicationsColor displayColor displayMP3 PlayerMP3 PlayerMedia PlayerMedia PlayerPDA SoftwarePDA SoftwareExpansion SlotsExpansion SlotsTrimodeTrimodeCaller IDCaller IDGPS LocaterGPS LocaterWireless Fax and ModemWireless Fax and Modem
Kyocera 7135
Service Sector Productivity Improvement ProductsService Sector Productivity Improvement Products
Smart TagsRadio Frequency Identification (RFID)
Bar Coding and Scanners Smart CardsSemiconductor Chip Embedded
Technological Substitution VictimTechnological Substitution Victim
0
10
20
30
40
50
60
70
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Sources: FCC, Strategis, DLJ
Pagi
ng S
ubsc
riber
s (M
)
Total
Public Companies
DLJ 99 Forecast
Paging “Beeper” ServicePaging “Beeper” Service
Subscriber Trends
Technological Substitution VictimTechnological Substitution VictimPayphonesPayphones
1992 20021997
32% Overall Reduction
2.2 MillionIn service
1.5 Millionin service
4% Annual Compound Reduction
Technological Substitution VictimTechnological Substitution VictimLong Distance Service Companies Stock Performance 1998 Long Distance Service Companies Stock Performance 1998 -- 20022002
AT&T (T),AT&T (T), WorldcomWorldcom (WCPOQ),(WCPOQ), VerizonVerizon (VZ),(VZ), and Sprint (FON)and Sprint (FON)
$75
$69
$65
$63
Cents Per Minute Rate$.12 / .15 $.08 / .12 $.05/.07
1998 1999 2000 2001 2002
SecurityVZTFONWCPOQ
Open37262422
High69637565
Current3717120.63
The Only Constant in Convergence Evolution is The Only Constant in Convergence Evolution is ChangeChangeChangeChange
Change
Change
Question and Answer SessionQuestion and Answer Session
The Power of Semiconductor TechnologyThe Power of Semiconductor Technology
Texas Instruments Electronic CalculatorTexas Instruments Electronic Calculator
1972 1992 20021982
T.I. DatamathFour-Function
$169.95
T.I. 1795Full-Feature and Memory
$6.95
27%
15%
10%
Annual Compound Price Reduction
Convergence DriversConvergence DriversEvolution of Data SpeedEvolution of Data Speed
ReferencesReferencesStandard net voice rate over GSM channelsStandard net voice rate over GSM channels 13 Kb/s13 Kb/sCommercial Modem over standard telephone linesCommercial Modem over standard telephone lines 56 Kb/s56 Kb/sVoice channel over standard fixed lineVoice channel over standard fixed line 64 Kb/s64 Kb/sISDN ModemISDN Modem 128 Kb/s128 Kb/s
Enhanced applications on GSMEnhanced applications on GSMCurrent GSM Current GSM --Global System for Mobile (Applications)Global System for Mobile (Applications) 9.6 Kb/s9.6 Kb/sWAPWAP-- Wireless Access Protocol (slow reading of Internet text only)Wireless Access Protocol (slow reading of Internet text only) 9.6 Kb/s9.6 Kb/sHSCSDHSCSD--High Speed Circuit Switched Data High Speed Circuit Switched Data 19.2 19.2 ÞÞ 28.8 Kb/s28.8 Kb/sGPRSGPRS--General Packet Radio ServiceGeneral Packet Radio Service 70 70 Þ Þ 115 Kb/s115 Kb/sEDGEEDGE--Enhanced Data Rates for GSM Evolution Enhanced Data Rates for GSM Evolution 96 96 ÞÞ 192 192 ÞÞ 384 Kb/s384 Kb/s
UMTSUMTS--Universal Mobile Telecommunications SystemUniversal Mobile Telecommunications SystemMobiles up to ~Mobiles up to ~ 250 Km/h 250 Km/h 144 Kb/s144 Kb/sSymmetric in Real Time (up to ~ 100 Km/h)Symmetric in Real Time (up to ~ 100 Km/h) 384 Kb/s384 Kb/sAsymmetric in nonAsymmetric in non--Real Time (low mobility, almost stationary)Real Time (low mobility, almost stationary) 2 Mb/s2 Mb/s
Convergence DriversConvergence DriversConverging Applications Speed Up UMTSConverging Applications Speed Up UMTS
Audio - Video - Data
ISDN servicesVideo telephonyWideband dataservices
Cost efficient Cost efficient communication withcommunication withseamlessseamless IT & T atIT & T atthe appropriate accessthe appropriate access
UMTS
ComputerInternet accessElectronic mailReal-time imagetransferMultimediadocument transferMobile computing
– Mobility– High speed
services
Video on demandInteractive video servicesTV/radio/data contribution
& distribution – Mobility– Personal
services
Telecommunication– Mobility– Wideband
services
GSM Data Services Pave the Way to UMTSGSM Data Services Pave the Way to UMTS
1997 1998 1999 2000 2001/2002
GSM massmarket
Support for
high-speed
circuit-switched
data (HSCSD)
Support for
Internet/intranet
services(GPRS)
Enhanced data
rates over GSM
up to 384 kbps(EDGE)
Introduction of
third-generationmultimedia services
UMTSEvolution GSM
Migration
GSM - UMTS
Courtesy of Andrew Corporation
Cell Cell StucturesStuctures for UMTSfor UMTS
Courtesy of Andrew Corporation
Range: 1148 ft up to 12 miles (outdoor)• suburban/rural• high mobility• approx. 144kbps
Range: some 33 ft• Office/Home enviromnent• Low mobility (<6 mph)• up to 2 Mbps
Macro Cell
'indoor' Pico Cell Micro Cell
Range: some 164-984 ft• hot spots• medium mobility(> 6 mph)
• up to 384 kbps