One Good, Two Better
April 29th 2002
Connecting the World
The computer revolution is now almost a page in the history books, even though its global reach has happened in the past few years. The conventional wisdom about this conflagration is that cheap computers and user-friendly software created the magic. While it is partly true, another important facet of the creation of the cyber world is the underlying worldwide infrastructure that appeared almost like magic. This infrastructure is composed of the wires that carry the information from one point to another.
Communications is the basic substrate of the Internet and communications is the world of “telecom”. Telecom, the abbreviation for telecommunications is a huge and varied bastion of technologies, companies, services and politics that is truly global in nature. The vastness of this empire, once upon a time, had hardly any peers. Yet today, it seems to be in shambles, even though life goes on quite fine amongst the rubble.
The most visible part of the telecom world in the good old telephone. Once upon a time, the good old telephone was the cornerstone of telecom, and people used it to communicate with each other. Telephone service was provided by government run establishments (except in the US) and talking on the horn was quite expensive. The service quality was fair in advanced countries and rather poor in the developing world. Phone calls beyond cities were quite costly and calls made across country boundaries were unthinkable.
Even in the United States, the poster child of advanced telecom infrastructure, one monopoly (AT&T) controlled the phone network. Service was good, but the price was high. In 1980, the cost of a telephone call between two cities was about $0.50 per minute, and international calls ranged from $1 to $3 a minute. This was a year when $1 was worth what $2.20 is today.
The telephone network was mainly built on wires that ran over land and under the sea. Wires were replaced in many instances with microwave links. Then came the geo-stationary satellites. Satellites were hailed to be the new age of communication, promising humongous capacity at low cost. Yet people did not quite warm up to the era of satellite communications. At a distance of 23,000 miles above the earth, a satellite can relay voice signals to distant corners of the world. Yet it takes time for the voice to reach the satellite, and back to earth. Traveling at the speed of light, it takes a whopping 1/4th of a second to make a round trip to a satellite. While that seems a tiny sliver of time, most phone users noticed it and found the delay not only noticeable but also irritating.
The satellite revolution in telecom did not quite happen; it was upstaged by a different kind of wire, the fiber-optic cable. A fiber-optic cable contains thin strands of glass, and this glass carries pulses of light (actually laser light). The fiber has become rather ubiquitous; it not only connects telecommunication hubs located in cities, but travels between cities over land. It also connects far-flung continents and is laid on the ocean floor. A fiber cable, when it was introduced, carried a megabit (106 bits) of data per second, which rapidly escalated to a gigabit (109 bits) and today stands at a whopping 2.4 terabits (2.4x109 bits). Today, under the high seas lie millions of miles of fiber, densely connecting the US, Europe, Western Asia, Australia and South America. Glaringly sparse are connections to Africa, Russia and the Indian subcontinent.
The fiber laying was spurred by the growth of the voice telecom networks. In the early nineties many countries, notably those in Western Europe and the Pacific Rim embarked on privatizing the long distance phone carriers. This caused a reduction in call costs, and a surge in demand. To satisfy the increased call volume and to cash in on the emerging markets of global communication, the investment in over-land and undersea cables looked (and was) wise.
As the fiber laying was ramping up in the mid-90’s, the other revolution suddenly appeared out of nowhere—the Internet revolution. Since Internet traffic has to permeate the world, the obvious choice for whizzing the bits of data around the planet was fiber-optic networks. While the dot-coms stole the media limelight the real frontier pushers were small startup telecom companies. They started building fiber optic networks as if the telecom world had no limits.
In a matter of years, these companies became the kingpins of the world telecom scene. Unheard of names such as Global Crossing and Qwest became players that challenged the existence of once behemoth telecoms such as AT&T, MCI, British Telecom. The dizzying rise of these upstarts were of course blamed on the failed “stodgy” business practices of old time telephone companies, who could not see a forest even when hit by the trees.
In fact, it was quite astonishing that in 1996, the 3-year old Qwest suddenly purchased, the huge USWest, for $40 billion. USWest was a phone company, born in 1985 by the breakup of the AT&T Empire, which provided phone service to almost all humans living in the western 14 states of the US. Compared to that, Qwest was a puny startup with highly leveraged investments in undersea cables.
Unlike computer companies, which can operate in a garage with a few scraggly programmers, telecom requires massive physical infrastructure. It requires laying of cable, building switching stations. Connecting one consumer to another necessitates burrowing though roads and parks and buildings. The infrastructure of telecom service is horrendously costly, but the returns were expected to be like free gold.
The explosive mixture of sharply rising voice communications, the advent of the fax machines, the modems bleeping louder than ever and the backbone communications of the fledgling Internet sounded like the siren call to action. The telecom sector was predicted to grow without bounds. Investors poured money into the sector. The number of people (even people with questionable skills) hired to work for the telecoms soared. The salaries paid defied gravity. The party was on.
But like most good things, it had to come to an end. Some pessimistic fool, noticed that about 90% of the new fiber laid in the telecom gold rush was “dark”, that is, they were not being used for anything. This observation led to the stomach-churning fall that has dissolved $2 trillion in wealth and countless jobs in the last two years. Countless telecom companies have plunged into bankruptcies (including Global Crossing). The erstwhile big boys (Qwest, Lucent, Worldcomm and so on) are tethering on the brink of demise.
The irony is that telecom is far from dead. People are making phone calls in record numbers. Computers are chatting up a storm, as the reaches of the Internet continue to grow. The infrastructure is alive and well and utilized quite heavily. So what is the problem?
There is not a single answer that explains the sorry state of affairs. Partly to blame is the euphoria that led to over-deployment and unbelievably irresponsible spending. But there is another reality. Regardless how cheap phone calls become, people have only so much time in their lives to talk on the phone. If phone calls were totally free, there would not be much of a rise in telephone traffic any more. Similarly, the Internet traffic is not expected to rise sharply either.
Phone calls are in fact, close to free. Long distance phone calls in the US costs about $0.05c per minute. International phone calls from the US to developed countries cost about $0.10-$.015 per minute. For most practical purposes this cost does not deter anyone from using the phone, the time available for conversation is much more limited.
The cost of phone calls is remarkably correlated to the economic progress and governmental control of a country. The published call rates of the most expensive company (AT&T) tell a rather interesting story. Calls from the US to England is 10c, Japan, Australia, Germany is 14c. South America and Eastern Europe costs more, varying between 25c and 35c. Neighboring Mexico costs 21c. Higher still are Egypt, Bolivia, Turkey at 35c to 45c. After the Indian deregulation in April, the cost went down from 55c to 42c and is poised to fall further. The countries with the least technological and economic prowess are the most expensive (Nepal $1.34, Angola $1.51, Bhutan $1.94, Laos $2.51, Myanmar $2.79, Afghanistan $4.90).
The recent deregulation of the Indian telecom market brings this traditionally shielded country into the fray. Calling rates to the US from India have dropped from over Rs. 80/min to Rs. 40/min (0.80c/min) and are expected to tumble further. Even though such prices are astronomical in terms of western phone rates, calling volume is expected to go up. While much money will be made and economic gains will be dramatic, there will also be losses and hand wringing much like what happened in the rest of the world.
Partha Dasgupta is on the faculty of the Computer Science and Engineering Department at Arizona State University in Tempe. His specializations are in the areas of Operating Systems, Cryptography and Networking. His homepage is at