THE CANADIAN TELECOMMUNICATIONS CONSULTANTS ASSOCIATION
TORONTO, ONTARIO. OCTOBER 13, 1994
We all understand that convergence in communications technology results from the digitization of everything. It is this digitization that allows interactive Multimedia to happen. This whole process is now referred to as the new Digital Age.
Like many other recent terms, the name digital is not sales oriented. It is only slightly better than cellular telephony or pay TV. In fact, it is a complete misnomer. Obviously, the process has nothing to do with the real meaning of digital. The term refers to the Arabic numbers 0-9. It derives from the Latin digitus, meaning a toe or finger. The digitization we are talking about today involves the transformation of voice, text, graphics, still photos and full motion video into a stream of binary bits. Perhaps a better term would be bitification.
Oh well, we are stuck with the term and can better spend our time looking at the implications of the Digital Age. Nicholas Negroponte has often referred to this converging Multimedia phenomena as an interactive stream of co-mingled bits. The co-mingling refers to interspersed bits that tell a receiving device what meaning to place on the bit stream.
In fact he believes that there is a huge business in bits about bits. He used the example of TV Guide which is simply information about information.
At Softworld ’94 he went farther, and concluded that all businesses are now about either atoms or bits, i.e. you are in the business of creating, selling and servicing physical things or you are in the information business. The rate of change of an industry is directly related in his opinion to the ratio of atoms to bits.
The technological conversion of everything to bits allows convergence of information technologies to be dramatically more effective. It allows effective compression of data. This compression is becoming evermore dramatic. Although audio digital disks have only been on the market a few years, even simple technological changes could increase the density perhaps 16X’s (one could get a 4X’s compression simply by switching to a blue laser with better resolution and another 4X’s using better encoder techniques).
Even more dramatic compression can take place by storing or transmitting only the changed elements in a full motion video mode.
A second major advantage of the Digital Age is effective encryption. It is far easier to encrypt a digital signal than an analogue signal. This will be vital for the protection of privacy and the protection of Intellectual Property Rights (IPR). But if digitization makes convergence possible, what is making it practical and what are the constraints?
As with most new technologies the drivers and constraints have far more to do about power struggles, regulation, politics and yes – even the consumer’s desire, than it has about actual technology.
The power struggle is primarily between the major telecommunications carriers. The regulatory struggle is between Heritage Canada and the CRTC/Industry Canada over content control. The political questions revolve around NAFTA and GATT. Regardless of all of these, the consumer will ultimately determine what happens when he or she buys the product or service or not.
Let’s look at some of these drivers and constraints:
THE BATTLE OF THE TITANS
The CRTC decision 94-19 re-wrote the rules. Canada has taken a lead over the United States where a Bill to change the Telecommunications Act to allow similar competition has been delayed in Congress. It is now a national free-for-all with cable companies being allowed into the local loop business and the telephone companies being allowed into the information and entertainment business.
It did not take Stentor long to announce it’s Media Lime Interactive organization which will spend $250 million over the next couple of years to enter the Video-On-Demand business and other forms of interactive wannabes.
Ted Rogers had already announced a deal with Bill Gates to trial the Tiger software to provide the same kinds of services over the cable network.
So who will be the winner?
To understand the approaches to convergence, it is important to look at the mind-set of the cable companies and the phone companies.
The cable companies believe in the set-top box. This is a derivative of the channel converter with a remote control, with which we are all familiar.
Phone companies want to move the intelligence outside the home to the network.
Both approaches reflect traditional positions.
The phone companies have always been big switch thinkers – sort out remotely what the customer wants, and deliver just the desired signal over a narrow band wire. This is necessary because the phone is essentially a dumb device, similar to the old dumb computer terminals before smart work stations.
The cable companies have traditionally brought everything into the home and let the user select what he or she wants at the set-top.
These are fundamentally different approaches. The set-top box is betting on the TV set as the major device for convergence. The belief is that the consumer will want to do everything over the set in the family room and only the cable company has the band width to be able to deliver five hundred (500) digitally compressed movies or whatever the consumer may wish to that device. Whatever intelligence is necessary is built into the set-top box.
The phone companies do not have this luxury and therefore likely to bet more on the PC as the terminal device. The PC has some inherent advantages:
• It is here! In 1994, home PC’s numbered over 30 million in the United States alone with about 5 million with Multimedia capability. Set-top boxes may start to appear in 1995-6, but by 1997 there will be well over 50 million home PC’s, and 15 million with Multimedia capability compared to about 2 million set-top boxes.
• The PC has a keyboard.
To understand the importance of this requires us to understand the reality of interactive Multimedia. In my opinion, the average householder will not use interactive shopping, interactive education or other applications that require extensive access through menus. This is simply too complex to be usable.
The only way someone would reasonably shop for an item of any complexity is to key-in directly the desired parameters. Even with Personal Digital Assistants, it is doubtful if people will want to sit in front of their TV set with a bulky keyboard. They are already well attuned however to using a keyboard with their PC.
Another factor mitigating against the TV set as the primary interactive Multimedia device is the use and location of the unit. By and large a TV set is still viewed as an entertainment device. I have no doubt that delivering the five hundred (500) channels to the TV set will be a real and viable application. However the TV set traditionally sits in a room designed for group viewing. Further you are not that close to the screen and it becomes almost impossible to see icons and then use a remote mouse from perhaps fifteen (15) feet away. The CRT on a PC is however designed for one-on-one viewing from perhaps two (2) feet.
So my conclusion on which device or approach will be the winner is both. I believe that the TV set will stay right where it is and will be used for VOD. The PC will be in the den and will be used for applications requiring a high degree of interactivity.
However, this does not really answer the question about who wins between the cable companies and the phone companies. Negroponte has stated on many occasions that it should be possible to get full motion video over a 64K bit copper pair. I am sure this will be possible but this still puts the phone companies back in the position of having to deliver five hundred (500) channels down the street on fibre and then having the consumer select from that stream only what can be transmitted over the phone line into the home for Multimedia purposes. As undoubtedly, most homes will have multiple PCs and multiple TV sets. This is really not a suitable solution.
This would seem to give the nod to the cable companies who at least have coaxial drops in the homes. But it will not be all that easy for them either. They will still have to add a switching capability as access to the international PSTN will be required for Internet and other uses. Also, a number of the cable companies do not yet have two-way amplifiers in their systems.
The solution seems very obvious, although I assure you this is not a position of either Rogers Communications or as far as I know Stentor. The best approach would seem to be to allow both organizations to bring their specialty networks into a box in the basement and thence into a HAN (Home Access Network). Any device in the home could then access the switched PSTN, a broad band capability with as much spectrum as required or any combination. It would seem to me that this is sensible conversion best utilizing the national resources we already have.
I note that even Japan has backed away from the enormous cost of putting fibre into every home by the year 2015. If Japan cannot afford this, I doubt that Canada can. The implications are significant e.g. who owns the customer in this case and who provides the bill? It may be that for the time being the easy answer is to allow each organization to bill separately for it’s own services with the convergence being essentially electronic.
REGULATING THE UNREGULATABLE
The CRTC and Industry Canada have made their intentions known. Canada is to have a wide open competitive telecommunications system with minimum price regulation and then only in the form of caps. The market will decide what it wants.
Well, almost! The problem is the CRTCs mandate to protect Canadian culture, whatever that may be. There is more likelihood of the five hundred (500) channels being held up here than there ever will be because of the technology. I can see years of debate on how Canadian content can be protected in a five hundred (500) channel world.
The problem of course is competition from foreign satellites. Direct Broadcast By Satellite (DBS) will be here whether CANCOM likes it or not. I am reminded of Pat MacGeer’s comment years ago that if the Canadian government did not like him to watch foreign satellite programming then they should stop the signals from falling in his backyard. There will be no practical way to stop foreign satellites from delivering whatever the customer wants. The CRTC and Heritage Canada are going to have to resolve their differences, put in minimum Canadian content requirements and then let any carrier deliver whatever signals the customer will pay for.
As noted above, no country can protect it’s borders from the Global Village. We have not been able to do that for years.
If this is true of electronic signals, it would be equally true of foreign companies operating in Canada. CRTC 94-19 allows any Canadian company into any part of the telecommunications business or at least implies this as the direction the government is going. I question how long Canada can maintain a Canadian exclusive in this area. As Canadian companies, more and more must go abroad to continue growing, there will be increasing pressure on Canada to open up its telecommunications business to a much higher percentage of foreign ownership.
Already the government has undertaken to allow a communications holding company to go to 33% foreign ownership. This is absolutely essential for the financing of companies given the limited size of the Canadian financial markets.
I believe we will see pressure under NAFTA, GATT and the World Trade Organization to open up even local loop competition, wireless communications and broadcasting to more foreign competition. The implication of this is that Canadian companies operating in the Multimedia business are going to have to look well beyond their borders. Convergence in Canada will become less an issue than International competition in the Digital Age.
AN THE REAL WINNER – THE CONSUMER
The real winner in all of this convergence will be the consumer. What the consumer wants, as John Evans, President and CEO, News Electronic Data noted the other day at Softworld 94, is content. The consumer cares little about technology. In fact technology only becomes useful when it becomes totally transparent. He reminds us of the failure of High Density Television (HDTV). People did really not care about how many lines there were on a screen as long as the program was reasonably clear. They certainly cared however about whether the baseball season was cancelled.
If the secret to real estate is location, location, location, then the secret to Multimedia is content, content, content.
If you thought that the reason Ted Rogers is buying Maclean Hunter is for some additional cable capacity in a paging company, you are missing the point. The value of Maclean Hunter is its access to content. I might add that CRTC 94-19 in my opinion likely, ensures the approval of the Maclean Hunter deal. I cannot see the CRTC saying that anyone can get into anyone else’s business, the Stentor companies can put together a Multi Linx but the cable companies cannot rationalize their own networks.
But what does the consumer want? Recent surveys such as that done by Anderson Consulting indicate that Canadians will opt for business over entertainment. 58.7% said they were interested in educational services. 50.2% said they wanted banking from the home. Only 48.3% said they viewed as a priority seeing movies of their choice whenever they wish to see them. Other studies have indicated something the same. My own bet is that some of the winning applications will be very financially oriented e.g. using interactive Multimedia to get the best price on a car, a mortgage or an insurance policy (watch out if your title has the word ‘agent’).
But ultimately the consumer is going to want even more technological transparency than a PC or a set-top box will provide. I am a believer in voice recognition. Negroponti indicated that it might be two hundred (200) years before we would actually match the Star Trek capability of a replicator being able to respond to Jean Lues’ request for Earl, Grey, Hot. However, I believe that interactive Multimedia could work well with the assistance of a Commentator. This is essentially the way Comp-U-Card (CUC) works. This is really a electronically available sales clerk. This may not be High Tech but it is High Service.
BACK TO THE FUTURE
In summary, regardless of what the carriers, the regulators or the politicians want, the consumer will drive the process.
I am pleased to see that CTCA has as one of its objectives to “Encourage the Exchange of Information between Telecommunications Consultants and Organizations that contribute to the Telecommunications Industry in Canada”. You will be providing the right advice to your clients, if you ensure that the convergence of technology converges on what the consumer will pay for.