TCP/IP Won, OSI Lost.  Or Did It?  Clue: Both Are Horizontal

Edmund Burke said, “Those who cannot remember the past are doomed to repeat it.”  What he didn’t add, as it might have undermined his point, is that “history gets created in one moment and gets revised the next.”  That’s what I like to say.  And nothing could be more true when it comes to current telecom and infomedia policy and structure.  How can anyone in government, academia, capital markets or the trade learn from history and make good long term decisions if they don’t have the facts straight?

I finished a book about the origins of the internet (ARPAnet, CSnet, NSFnet) called “where wizards stay up late, The Origins of The Internet” by Katie Hafner and Matthew Lyon written back in 1996, before the bubble and crash of web 1.0.  It’s been a major read for computer geeks and has some lessons for people interested in information industry structures and business models.  I cross both boundaries and was equally fascinated by the “anti-establishment” approach by the group of scientists and business developers at BBN, the DoD and academia, as well as the haphazard and evolutionary approach to development that resulted in an ecosystem very similar to what the original founders envisioned in the 1950s.

The book has become something of a bible for internet, and those I refer to as upper layer (application), fashionistas who, unfortunately, have, and are provided in the book with, very little understanding of the middle and lower layers of the service provider “stack”.  In fact the middle layers all but dissappear as far as they are concerned.  While those upper layer fashionistas would like to simplify things and say, “so and so was a founder or chief contributor of the internet,” or “TCP/IP won and OSI lost,” actual history and reality suggest otherwise.

Ironically, the best way to look at the evolution of the internet is via the oft-maligned 7-layer OSI reference model.  It happens to be the basis for one dimension of the InfoStack analytical engine.  The InfoStack relates the horizontal layers (what we call service provisioning checklist for a complete solution) to geographic dispersion of traffic and demand on a 2^nd axis, and to a 3^rd axis which historically covered 4 disparate networks and business models but now maps to applications and market segments.  Looking at how products, solutions and business models unfold along these axis provides a much better understanding of what really happens as 3 coordinates or vectors provides better than 90% accuracy around any given datapoint.

The book spans the time between the late 1950s and the early 1990s, but focuses principally on the late 1960s and early 1970s.  Computers were enormously expensive and shared by users, but mostly on a local basis because of high cost and slow connections.  No mention is made of the struggle modems and hardware vendors had to get level access to the telephone system and PCs had yet to burst on the scene.  The issues around the high-cost monopoly communications network run by AT&T are only briefly mentioned; their impact and import lost to the reader.

The book makes no  mention that by the 1980s development of what became the internet ecosystem really started picking up steam.  After struggling to get a foothold on the “closed” MaBell system since the 1950s, smartmodems burst on the scene in 1981.  Modems accompanied technology developments that had been occurring with fax machines, answering machines and touchtone phones; all generative aspects of a nascent competitive voice/telecoms markets.

Then, in 1983, AT&T was broken up and an explosion in WAN (long-distance) competition drove pricing down, and advanced intelligent networks increased the possibility of dial-around bypass.  (Incidentally, by 1990s touchtone penetration in the US was over 90% vs less than 20% in the rest of the world driving not only explosive growth in 800 calling, but VPN and card calling, and last but not least the simple "touchtone" numeric pager; one of the percursors to our digital cellphone revolution).  The Bells responded to this potential long-distance bypass threat by seeking regulatory relief with expanded calling areas and flat-rate calling to preserve their Class 5 switch monopoly.  

All the while second line growth exploded, primarily as people connected fax machines and modems for their PCs to connect to commercial ISPs (Compuserve, Prodigy, AOL, etc...).  These ISPs benefited from low WAN costs (competitive transit in layer 2), inexpensive routing (compared with voice switches) in layer 3, and low-cost channel banks and DIDs in those expanded LATAs to which people could dial up flat-rate (read "free") and remain connected all day long.  The US was the only country in the world that had that type of pricing model in the 1980s and early 1990s. 

Another foundation of the internet ecosystem, PCs, burst from the same lab (Xerox Parc) that was run by one of the founders of the Arpanet, Bob Taylor, who could deserve equal or more credit than Bob Kahn or Vint Cerf (inventors of TCP) for development of the internet.  As well, the final two technological underpinnings that scaled the internet, Ethernet and Windows, were developed at Xerox Parc.  These technology threads which should have been better developed in the book for their role in the demand for and growth of the internet from the edge.

In the end, what really laid the foundation for the internet were numerous efforts in parallel that developed outside the monopoly network and highly regulated information markets.  These were all 'generative' to quote Zitrane.  (And as I said a few weeks ago, they were accidental).  These parallel streams evolved into an ecosystem onto which www, http, html and mosaic, were laid--the middle and upper layers--of the 1.5 way, store and foreward, database lookup “internet” in the early to mid 1990s.  Ironically and paradoxically this ecosystem came together just as the Telecom Act of 1996 was being formed and passed; underscored by the fact that the term “internet” is mentioned once in the entire Act and one of the reasons I labeled the Act “farcical” back in 1996.

But the biggest error of the book in my opinion is not the omission of all these efforts in parallel with the development of TCP/IP and giving them due weight in the internet ecosystem, rather concluding with the notion that TCP/IP won and the OSI reference model lost.  This was disappointing and has had a huge, negative impact on perception and policy.  What the authors should have said is that a horizontally oriented, low-cost, open protocol as part of a broader similarly oriented horizontal ecosystem beat out a vertically integrated, expensive, closed and siloed solution from monopoly service providers and vendors.

With a distorted view of history it is no wonder then that:

• recently at CES Vint Cerf, generally called a cofounder of the internet (whereas in reality there were hundreds of players, with 10-20 of equal import), today is perplexed by the lack of competition and has no “solution” to today’s lack of choice and relatively high costs and slow speeds. 
• competitive apologists like Susan Crawford, whose recent book Captive Audience, resorts to comparing the current monopoly environment with the railroad monopolies of the late 1800s and is so easily attacked by monopolists. 
• in the recent ITU debate the high-cost monopoly service providers actually had a more sound and defensible approach than the bill and keep settlement approach supported by the US “internet” and service provider giants; strange bedfellows to say the least. 
• people say a “new internet” is needed to efficiently and effectively support the exploding array of devices and network/user endpoints. 

The list of ironic and unfortunate paradoxes in policy and market outcomes goes on and on because people don’t fully understand what happened between TCP/IP and OSI and how they are inextricably linked.  Until history is viewed and understood properly, we will be doomed, in the words of Burke, to repeat it. Or, as Karl Marx said, "history repeats itself twice, first as tragedy and second as farce."

Last summer I attended a Bingham event at the Discovery Theatre in NYC’s Time Square to celebrate the Terracotta Warriors of China’s first emperor, Qin Shi Huang.  What struck me was how far our Asian ancestors had advanced technically, socially and intellectually beyond our western forefathers by 200 BC.  Huang's reign, which included the building of major transportation and information networks was followed by a period of nearly 1,500 years of relative peace (and stagnation) in China.  It would take another 1,000 years for the westerners to catch up during periods of war, plague and socio-political upheaval.  But once they passed their Asian brethren by the 15^th and 16^th centuries they never looked back.  Having just finished Art of War, by Sun Tsu, I asked myself, is war and strife necessary for mankind to advance?

This question was reinforced over the holidays upon visiting the Loire Valley in France, which most people associate with beautiful Louis XIV chateaus, a rich fairy-tale medieval history, and good wines.  What most people don’t realize is that the Loire was a war-torn area for the better part of 400 years as the French (Counts of Blois) and English (Counts of Anjou; precursors to the Plantagenet dynasty of England) vied for domination of a then emerging Europe.  The parallels between China and France 1,000 years later couldn’t have been more poignant.

After the French finally kicked the English out in the 1400s this once war-torn region became the center of the European renaissance and later the birthplace of the age of enlightenment.  Francois 1^st brought Leonardo from Italy for the last 3 years of his life and the French seized upon his way of thinking; to be followed a few centuries later by Voltaire and Rousseau.  The French aristocracy, without wars to fight, invited them to stay in their Chateaus, built on the fortifications of the medieval castles, and develop their enduring principles of liberty, equality and fraternity.  These in turn would become the foundations upon which America broadly based its constitution and structure of government; all of which in theory supports and leads to competitive markets and network neutrality; the basis of the internet.

And before I left on my trip, I bought a kindle version of Sex, Bombs and Burgers by Peter Nowak on the recommendation of an acquaintance at Bloomberg.  Nowak’s premise is to base much of America’s advancement and success over the past 50 years on our warrior instincts and need to procreate and sustain life.  I liked the book and recommend it to anyone, especially as I used to quip, “Web 1.0 of the 1990s was scaled by the 4 (application) horsemen: Content, Commerce, Communication and hard/soft-Core porn.”  But the book also provides great insights beyond the growth of porn on the internet into our food industry and where our current military investments might be taking us physically and biologically.

While the book meanders on occasion, my take-away and answer to my above question is that war (and the struggle to survive by procreating and eating) increases the rate of technological innovations, which often then result in new products; themselves often mistakes or unintended commercial consequences from their original military intent.  War increases the pace of innovation out of necessity, intensity and focus.  After all, our state of fear is unnaturally heightened when someone is trying to kill us, underscoring the notion that fear and greed are man’s primary psychological and commercial motivators; not love and happiness.

Most people generally believe the internet is an example of a technological innovation hatched from the militarily driven space race; which is the premise for another book I am just starting Where Wizards Stay Up Late, by Hafner and Lyon.  What most people fail to realize, including Nowak, is that the internet was an unintended consequence of the breakup of AT&T in 1983; another type of conflict or economic war that had been waged in the 1950s-1970s.  In that war we had General William McGowan of MCI (microwave, the M in MCI, was a technology principally scaled during WW II) battling MaBell along with his ally the DOJ.  At the same time, a group of civilian scientists in the Pentagon had been developing the ARPAnet, a weapon/tool developed to get around MaBell’s monopoly long-distance fortifications to enable low cost computer communications across the US and globally.

The two conflicts aligned in the late 1980s as the remnants of MaBell, the Baby Bells, sought regulatory relief through state and federal regulators from a viciously competitive WAN/long-distance sector to preserve two arcane, piggishly profitable monopoly revenue streams; namely intrastate tolls and terminating access.  The regulatory relief provided was to expand local calling areas (LATAs) and go to flat rate (all you can eat) pricing models.  By then modems and routers, outgrowths of ARPA related initiatives, had gotten cheap enough that the earliest ISPs could cost effectively build and market their own layer 1-2 nationwide "data bypass" networks across 5,000 local calling areas.

These networks allowed people to dial up a free or low cost local number and stay connected with a computer or database or server anywhere all day long.  The notions of “free” and “cheap” and the collapse of distance were born.  The internet started and scaled in the US because of partially competitive communications networks, whom no one else had in 1990.  It would be 10 years before the ROW had an unlimited flat-rate access topology like the US.

Only after these foundational (pricing and infrastructure) elements were in place, did the government allow commercial nets to interconnect via the ARPAnet in 1988.  This was followed by Tim B Lee's WWW in 1989 (a layer 3 address simplification standard) and http and html in subsequent years providing the basis for a simple to use, mass-market browser, mosaic, the precursor to Netscape, in 1993.  The result was the Internet or Web 1.0, which was a 4 or 5 layer asynchronous communications stack mostly used as a store and forward database lookup tool.

The internet was the result of two wars being fought against the monopolies of the Soviet communists and American bellheads; both of which, ironically, share(d) common principles.  Participants and commentators in the current network neutrality, access/USF reform and ITU debates, including Nowak, should be aware of these conflict-driven beginnings of the internet, in particular the power and impact of price, as it would modify their positions significantly with respect to these debates.  Issues like horizontal scaling, vertical disintermediation and completeness, balanced settlement systems and open/equal access need to be better analyzed and addressed.  What we find in almost every instance on the part of every participant in these debates is hypocritical and paradoxical positions, since people do not fully appreciate history and how they arrived at their relative and absolute positions.

A year ago it was rumored that 250 Apple employees were at CES 2012, even as the company refused to participate directly.  The company could do no wrong and didn’t need the industry.  For the better part of 9 months that appeared to be the case and Apple’s stock outperformed the market by 55%.  But a few months on, and a screen size too small for phones and too big for tablets, a mapping app too limited, and finally a buggy OS, Apple’s excess performance over the market has narrowed to 10%.

Two major themes of this year’s CES--mobile device screen size and extensive application ecosystems to connect just about anything--will place Apple’s mobile dominance and lead further in doubt.  To us it was already in evidence last year when we talked about the singularity.  But the real reason today is becoming apparent to all, namely that Apple wants to keep people siloed into their product specific verticals.  People and their applications don’t want that because the cloud lets people update, access and view information across 3 different screens and any platform.  If you want Apple on one device, all your devices have to be Apple.  It’s a twist on the old Henry Ford maxim, “you can have any device…as long as it is Apple.”

This strategy will fail further when the access portion of the phone gets disconnected from all the other components of the phone.  It may take a few years for that to happen, but it will make a lot of sense to just buy an inexpensive dongle or device that connects to the 4G/5G/Wifi network (metro-local or MAN/LAN) and radiates Bluetooth, NFC and Wifi to a plethora of connected devices in the personal network (PAN).   Imagine how well your “connection hub” would last if it didn’t need to power a screen and huge processor for all the different apps?  There goes your device centric business model.

And all that potential device and application/cloud supply-side innovation means that current demand is far from saturated.  The most recent Cisco forecasts indicate that 1/3^rd of ALL internet traffic will be from mobile devices by 2016.  In the US 37% of the mobile access will be via Wifi.  Applications that utilize and benefit from mobility and transportability will continue to grow as overall internet access via a fixed computer will drop to 39% from 60% today. 

While we believe this to be the case, the reality is far different today according to Sandvine, the broadband policy management company.  This should cause the wireless carriers some concern as they look at future capacity costs.  In their recent H2-2012 report Sandvine reveals that power smartphone users are already using 10x more than average smartphone users, or 317 megabytes a month vs 33.  But even the former number is a far cry from the 7.3 gigabytes (20x) that the average person uses on their fixed broadband pipes (assuming 2.3 people per fixed broadband line).  Sandvine estimates that total mobile access will grow from ~1 petabyte in H2-2012 to 17 petabytes by H2-2018.

My own consumption, since moving from 3G to 4G and going from a 4 to 4.7 inch screen is a 10x increase to 1-2 gigs 4G access and 3-6 gigs wifi access, for a total of 4-8 gigs a month.  This is because I have gone from a “store and forward” mentality to a 7x24 multimedia consumption model.  And I am just getting comfortable with cloud based access and streaming.   All this sounds positive for growth and investment especially as the other 95% of mobile users evolve to these usage levels, but it will do the carriers no good if they are not strategically and competitively well positioned to handle the demand.  Look for a lot of development in the lower access and transport layers including wifi offload and fiber and high-capacity microwave backhaul.

Related Reading:

Smartphones use more data than tablets for first time.
 
Broadcom develops small, multi-modal, multi-band modem chips!