Trends and Laws

1. Trends and Laws Profs. Chuah and Kishore EMC 165 Spring 2005

2. Last Time/Today • Last time, we reviewed some basics of computer and networks and we examined some “laws” describing growth in this industry. • Today, we will review some business and technology trends related to computer and network engineering.

3. Clarification from Last Time • Recall we talked about transistors. • Transistors can be used as electrical switches: For example, Volts Volts Here, 5V represents bit 1 and 0V represents bit 0. 5V Transistor 5V 0V 0V t t Or, Volts Volts 5V Transistor 5V 0V 0V t t

4. Clarification (Cont’d) • Using transistors we can then construct larger units called gates. For example, an AND gate or an OR gate: • They each have two inputs and one output. Input are bits (represented as voltage signal, e.g., with value 5V or 0V) 1 1 OR 1 AND 1 1 1 OR AND 1 0 1 1 0 0 0 0 OR 0 AND 0 1 0 OR AND 0 0 1 1 0 0

5. Clarification (Cont’d) • There are also other types of gates, e.g., NOR, NAND, XOR, etc. • All computer operations are performed using these gates. • For example, adding two numbers: numbers are converted to binary format, binary addition is performed by feeding the binary numbers to a series of gates. • Transistors are the elemental units that make modern computers (and thus digital communication networks) work.

6. Technology Penetration Rates

7. What is it? • Penetration rate of a technology (say cell phones or computers, etc) measures the number of these units per number of inhabitants (sometimes per number of households). • Measurements are made at regularly and give indication of the growth rate of a technology.

8. Penetration Rate of Several Key 20th Century Technologies Source: U.S. Census Bureau

9. Another Representation

10. What these curves show • Television experienced rapid surge in sales in the 50’s. (Due in part to increase in TV production post WWII) • VCR Sales saw similar surge in 80’s. • In contrast, some other communication technologies took far longer to spread. • For example, sales of radio initially held back due to technological complexity of crystal sets and onset of Great Depression. Today there are more radio sets than people in the U.S.

11. What these curve show (Cont’d) • Telephones have been around since 1877 but only took off after WWII. • Vehicles (not shown in curve) experienced steady growth but really took off after 1945. • Cable TV saw slow diffusion from 60’s to 80’s, when cables were being laid out. Only after sufficient cable equipment deployment did subscription growth occur.

12. What these curves show (Cont’d) • Flood of internet users since early 90’s show sharp growth. • It remains to see where the penetration rate will level off. Whether it will level off at roughly 2/3, like Cable TV, or over 90%, like TV. • How does Internet Usage in U.S. compare to the rest of the world?

13. Internet Usage • As of September 30, 2004 the number of Internet users equal 812,931,592. Average penetration rate is12.7 %. • Asia continues to lead in the number of surfers with 257,898,314 people, equivalent to 31.7% of the world total. Europe comes next with 230,886,424 surfers, 28.4% of the total. Northern America is third with 222,165,659 Internet users, a 27.3% of the total.

14. Internet Usage (Cont’d) • Remaining 12.6% is represented by 55,930,974 users in Latin America, plus 17,325,900 users in the Middle East, 15,787,221 users in Oceania, and 12,937,100 surfers in Africa. • Internet growth to date since the year 2000 has been 125.2%, or about 25% per year. At this rate, Internet will hit one billion users in 2005.

16. How to measure Internet Usage? • What is an internet user? There are some disagreements on how to answer this seemingly simple question. • The International Telecommunication Union (ITU) says an internet user as someone aged 2 years old and above, who went online in the past 30 days. • US Department of Commerce defines internet users as those 3 years or older who 'currently use' the internet. • Other market researchers have there own definitions.

17. Measuring Internet Usage (Cont’d) Data showed in earlier slide defines an Internet User as anyone currently in capacity to use the Internet, i.e., an Internet User has: (1) Access to an Internet connection point, and (2) The basic knowledge required to use the technology.

18. Measuring Internet Usage (Cont’d) • Note: In many Third World countries one same Internet connection may be shared by many individual users. • Result: Internet users might outnumber amount of Internet access subscribers and also outnumber telephone lines available in the country.

20. Source for Previous Two Tables • http://www.internetworldstats.com/top25.htm • http://www.internetworldstats.com/top10.htm • Data was updated 9/04.

21. What Influences Internet Penetration Rate? • Several researchers are looking into this. • Among the factors that they test are: • Income (GDP/capita) • Education (computer literacy) • Market size • Local/accessible content • Cultural factors

22. Factors Influencing Internet Penetration (Cont’d) • These are all structural factors. In addition, there can be access condition issues: • Regulatory framework • Access business model • Telecom infrastructure and tariffs • Also, there may be influences due to corporate strategies: • What are the telcom companies doing • What are the ISP’s doing • What are business firms doing

23. Factors that Influence Internet Penetration Rate (Cont’d) • For example, the income of a nation as measured by the GDP/capita is a strong determinant of Internet access. A lower GDP/capita is usually correlated with lower Internet usage. Some also look at purchasing power index of a nation. • Market size is another important factor as information goods often are produced with substantial economies of scale. US has an advantage in this respect.

24. Influence of GDP on US/EU Countries

25. Factors that Influence Internet Penetration Rate (Cont’d) • One study show that content matters a lot. • As the Internet first developed in the U.S., website contents tend to be mostly in English and geared to an American public. • This is not a problem for European English-speaking countries, such as the U.K. or Ireland, or for countries where English is widely understood, such as the Nordic countries. It is a major problem for all other countries. Developing local contents is therefore an essential step to improving penetration.

26. Factors Influencing Internet Penetration Rate (Cont’d) • Some studies have also found a kind-of rule of thumb as far as regulatory framework is concerned. • The more unregulated environment is the higher the penetration rate tends to be (Nordic countries, U.S.). • Not surprisingly, there is a negative correlation between cost of access (tariffs) and amount of access.

27. How many of Internet Users have Broadband Access? • First, what is broadband? • In old days, internet access strictly mean dial-up. • Dial-up: phone line becomes restrict for internet use; only internet data can be transported on this line. • Further, dial-up data rates range from 14.4 kbps (kilo bits per second) to 56.6 kpbs. • Note: kilo = 1000, mega = 1000000, etc.

28. More on Broadband • Broadband technologies (like DSL, Cable Modem, etc.) offer much higher data rates, upto hundreds of kbps to several Mbps (mega bits per second). • They not only give high-speed data access to the internet but may also bundle together voice (e.g,, DSL), video (e.g., cable modem), etc. • Other forms of broadband (aka wideband) data access: T1, T2, ISDN, wireless methods, etc.

30. Some US Broadband Trends • US has highest number of total broadband users in the world, roughly 40% in 2002. • Within the US the highest broadband penetration is in metropolitan locations (San Diego, Boston, NYC, Providence (RI), Kansas City, Detroit, etc.). • State-wise, highest residential broadband penetration rate is in Hawaii. Lowest in Southeast states and Rocky Mountain states.

31. US Broadband Trends/Facts • US contains majority of ecommerce websites, world’s internet hosts, email boxes, on-line buyers, and internet users (2003). • US online sales at some 144 billion dollars for 2004, a 14 percent annual growth rate and about 7% of total retail sales in US. • Some projections that US online sales will hit $316 billion by 2010: travel ($119 billion), home products ($43 billion), apparel ($28 billion), etc.

32. Broadband Cost Comparison

33. PC Penetration Rates • The number of PCs in-use surpassed 500M units in 2000 and will reach 1.17B units by year-end 2008. • Cumulative PC sales topped 1B units in 2002 and will top 2B in 2008. • PCs in-use reached nearly 206M in the U.S. in 2002 and will surpass 269M in 2008.

34. PC Sales Millions of Units

35. PCs in Use Millions of Units

36. Digital Divide • With all this penetration of digital technology, we should keep in mind disparity in access due to income. • This disparity is known as the digital divide. • Following charts show demonstrate statistics for digital divide in Canada.

37. Digital Divide in Canada Data for 2000 Source: http://www.statcan.ca/english/research/56F0009XIE/56F0009XIE.pdf

38. Digital Divide in Canada (Cont’d) Digital divide closes as curves move closer to black curve over time.

39. Cellular Penetration Rates • China has the largest number of cellular users, with a penetration of roughly 24%. • U.S. is second with a penetration rate of roughly 60%. • The total number of US cellular subscriber can be tracked: www.wow-com.com. • As of today (2/1/05), there are 174,908,819 cellular subscribers in the US.

40. European Cellular Rates • In Europe, cellular penetration ranges from 70% to 100%. • In fact, in Sweden, the cellular penetration rate is higher 100%. This is because people often have multiple phones (personal and work use). • Highest penetration rates in Europe are in the Nordic countries (Sweden, Finland, Norway, etc).

41. More on Cellular Penetration • South Korea and Singapore have penetration rates in the 70%-80% range. • Japan has penetration rates in the 80%-90% range. • If you are interested in learning coverage of different cellular providers in various countries, check out: www.cellular-news.com/coverage

42. Past, Present, Future of Telecommunications Industry

43. Roller Coaster Ride • The U.S. telecommunications industry is riding a roller coaster. • For most of the 1990s, the industry's future looked promising: • growth of Internet use, • promise of a broadband network, and • a less restrictive regulatory environment that was expected following passage of the 1996 Telecommunications Act.

44. Up • This led industry experts to forecast rapidly growing demand for network services and high-margin business opportunities. • The industry backed expectations with massive investments to • expand the capacity of both wireless and wire line networks and • to facilitate the expected boom in high-speed data transmission.

45. And Down • But in years following enactment of 1996 Telecommunications Act and ensuing investment boom, demand did not boom. • Demand for both standard telephone and broadband services was strong but not as explosive as the industry had anticipated. • As capacity expanded more rapidly than demand and competition began to take hold, prices fell. Not surprisingly, a few major and many minor players fell into bankruptcy.

46. Future of Industry • A recent Brookings Institute report [see references] discusses several issues related to future of industry. • The growing gap between expectations and reality in industry performance has given rise to new calls to rethink national communications policy.

47. State of Industry • In the good old days of regulated monopoly in telecommunications services, investment probably would not have exploded as it did. • Even if it had (and demand had not boomed), regulators probably would have allowed firms to recover their costs through price increases. • Because regulation no longer provides a floor for service prices in the industry when capacity is increased, providers compete much more intensely on price.

48. State of Industry (Cont’d) • This competition benefits service users. • However, investors sometimes see their profits disappear as prices fall, which is what happened extensively in long distance and to new entrants in local access, and to a lesser degree to wireless carriers. • The regulatory environment also changed for incumbent local telephone companies—the Regional Bell Operating Companies (RBOCs) and other incumbent access companies that formerly had been monopolies.

49. RBOC’s & Divestiture • Before 1984, the United States public network utilized practices, procedures, and equipment largely determined by AT&T and the Bell System. The network performed well and, for customers, life was simple. Problem: Monopoly. • With divestiture in 1984, when AT&T and its operating telephone companies “broke up,” the Department of Justice broke the seamless national network into 164 separate pieces called Local Access and Transport Areas (LATAs) to handle local phone traffic.

50. Divestiture • Through this move the DOJ created two distinct types of service providers local exchange carriers (LECs) or RBOC’s and interexchange carriers (IXCs). • LEC’s or RBOC’s (Baby Bells) handled local telephone traffic and IXC’s (AT&T, MCI) handled long distance. • There were 7 RBOC’s created.