Wirless Carriers and Standards

In the NY Times today some author is commenting on the ATT iPhone mess and standards. Well let me make a few comments since he could probably blame me.

It was 1989 and I was then head of R&D at NYNEX. We saw that the analog cellular systems were soon to run out of capacity and we needed to go digital. We needed to do this change quickly. This was a time when we had no single R&D group, Bell Labs was gone, and historically they were always too slow. We had to now rely on American entrepreneurial leadership, a change for the regulated telephone world.

Irwin Jacobs, from Qualcomm, my former advisor from MIT some 25-30 years earlier came pitching CDMA. This was an elegant and doable approach which solved so many problems. I saw the potential immediately and became "Paul on the road to Ephesus". Sitting besides by biblical horse I went about selling the idea.

But, ATT, and especially SW Bell, now ATT, had chosen a TDMA standard and Jacobs and myself and a few others chose to go CDMA, because it was clearly better.

The SW Bell folks were adamant, and wrong. They chose TDMA.

Thus there was a war on amongst the cellular carriers in the US.

Meanwhile, slowly the Europeans were developing a different standard, GSM, but mobile was slower to develop in Europe yet we had a real problem in the US, cellular was growing faster and we had introduced portable phones at lower power.Thus we saw portable phones, more users, greater demands and a need to get out of analog before it was impossible to do so. You see the FCC had mandated auctions which made getting more spectrum impossible in the short run.

Thus we in the US had to make a decision earlier. And decide we did.

By late 1990 I became COO at NYNEX cellular and my prime task was clearly to sort out this mess. I brought all carriers together in September 1991 in California and we got a significant agreement, five of the 7 agreed on CDMA. SW Bell, now ATT, was the prime hold out, they stuck with TDMA. They later bought a company which had GSM, which is why they are GSM now. So many accidents of history.

One thing we, the carriers, did not want was the FCC saying or doing anything. The FCC, incompetent as usual, would have taken longer and made the wrong choice.

The Times states:

The continent’s system is looser in part because Europe settled on a single technological standard for wireless carriers 20 years ago. Countries there wanted to ensure that their citizens’ phones would work as they traveled throughout the Continent. No such agreement was reached in the United States, which had recently deregulated its telephone industry, and carriers built their networks on separate technologies. 

“I’d call it the culture of competition,” said Alex Hills, a professor of engineering and public policy at Carnegie Mellon, explaining why a single standard was not set in the United States. “There was interest in allowing the standards to compete with one another, and let the market decide who would win.” 

 It was not a culture of competition. As the one who worked the problem it was the exploding market growth and the fact that the technology was changing rapidly and there were people in the system who "felt" their way was the best way. Was CDMA better, yes, is GSM good as a standard, yes, is GSM better, as a single standard yes, not as a technology.

We now are entering 4G which because of the advances in technology uses a much more efficient standard. Hopefully we will not see the Tower of Babel here, but the reason is not because we did not have enough regulation, if we had we would still be using auto based luggable phones.

China, The PLA, and Risk

There is an interesting write up today in the NY Times regarding the potential loss of power of the Chinese political leadership, now apparently taken over by the PLA.

The Times states:

By any measure, Mr. Hu is the most constrained Chinese leader in modern times. The notion that he could engineer a sweeping policy change the way that Mr. Deng threw open China’s economy three decades ago is unthinkable; more often he is a negotiator, brokering deals in a collective leadership where he never seemed to fully consolidate power. 

Any China watcher would for years have seen that the PLA has its hands in many pots, industrial, military, financial, and as such has also stretched itself far and wide with interests in many of the countries in which one observes China's reach.

This poses a significant set of risks that we never saw in Russia. The Russian Army was under the control of the folks in Moscow, and they had no separate sources of revenue from their own businesses. They did not control telecommunications, the press, and many other key elements of their economy as the PLA does.

The position of the PLA has rarely been spoken of as what it is, a shadow government, and one whose path seems to be diverging from the apparent government. The challenge to the US will be to assure that we do not see another 1941 where a strong Army decides to go off on its own.

The Times continues:

The rise of state-owned corporate behemoths, independent power centers in their own right, has also changed the politics in China and made it harder to address disputes with the United States and other big trading partners. 

 But behind the behemoth is the PLA in many cases. And we are not talking with the PLA, and when we seem to approach them they stretch their wings and show their talons.

The Times then states:

China’s ban on exports of crucial rare earth minerals, cast by the government as a corporate decision made without state direction, is the most recent example of the tensions this drift toward state control has raised. But there are others: China Mobile, which dominates the nation’s vast wireless market, is pressing phone makers to adopt a Chinese standard for wireless communications that ignores the accepted global standard. 

 If you have 1.2 B people then who cares about a wireless standards especially if what you design allows for widespread access by the PLA and its agents. In addition when you manufacture devices and chips used elsewhere, you may make the Iranian software issue pale by comparison. We have discussed the rare earth issue several times before, well before the national press. This is a small issue which the US can overcome by just opening the mine in California if the EPA would let us. Albeit not a problem for the PLA it could become a strategic issue for the US.

We never had to negotiate with two countries with Russia, we may when dealing with China.

Voice From the Past

It was two years ago on January 11, 2009 that the former head of the CEA told the world what their plan would do. As we tracked it during her time in office never once did it ever get close. So why would one ever listen to her again, just go back and teach and educate some more economists who have no idea what they are doing.

But no, today she blurts out in the NY Times what should be done:

One important provision of the law was the creation of the Independent Payment Advisory Board, which must propose reforms if Medicare spending exceeds the target rate of growth. But the legislation exempted some providers and much government health spending from the board’s purview. The president should work to give the board a broader mandate for cost control. 

The fiscal commission recommended that military spending — which has risen by more than 50 percent in real terms since 2001 — grow much more slowly in the future. It also proposed thoughtful ways to slow the growth of Social Security spending while protecting the disabled and the poor. And it recommended caps on nonmilitary, non-entitlement spending. 

President Obama needs to explain that while these cuts will be painful, there is no way to solve our budget problem without shared sacrifice. At the same time, he should give a ringing endorsement of government investment in infrastructure, research and education, which increases productivity and thus improves both our standard of living and the budget situation over time. And, following the fiscal commission, he should ensure that spending cuts not fall on the disadvantaged. 

Finally, the president has to be frank about the need for more tax revenue. 

Now after her performance why does she not just go home and fix California!

Now the Medicare Board as we have discussed at length is the rationing board that everyone has been worried about. They way they do it is via CER, the comparative effectiveness ploy, telling physicians what procedures are approved. She seems clueless as regards to the impending threat from China, we have been following that closely. What do we think China will do, South China Sea hegemony, threaten Thailand and Malaysia, threaten Japan and South Korea, and then feed the North Koreans with more nuclear weapons!

As for more infrastructure spending, look at the mess last time, it just fed state workers till they blubbered up, and finally, well just tax everyone.

She seems ignorant of the entrepreneur, the core of creativity in this country. She seems to feed at the trough of the taxpayer in California and Washington, perhaps she should find a real job!

CPI, PPI, Productivity and Labor Costs

 

The CPI and PPI are shown above.  We can see the dip in both at the bottom of the recession and we can also see clearly the rapid expansion just before the burst. Also not the PPI seems to be getting above the trend line again indicating upward price pressure seems to be returning. However the CPI remains below the trend line perhaps for reasons we will see later.

 The above is the annualized changes in PPI and CPI and we have plotted a six month running average. PPI has remained at a positive growth level for the past year and runs about 5% over that period. CPI appears to be lower.

 The productivity indices for business and manufacturing are shown above. We see a continued rise in manufacturing. This is most likely a clear indicator of systemic unemployment in a bloated manufacturing sector. Business is also high.

Finally above we show the unit costs in business and manufacturing. We can see the build up to the burst and then the drop. Manufacturing has dropped a bit and business and manufacturing are now on a par.

The Real Problem is Hard

In December 1951, I went on an annual Christmas visit to Willowbrook Psychiatric Hospital on Staten Island with the Cub Scouts. I was somewhat aware as an astute 8 year old as to what I was getting into because my grandmother’s roommate from Med school, Louise Despert MD, was at this point a close family friend and a well know psychiatrist on Park Avenue, treating wealthy psychotic children, a somewhat correlated event at the time. She often spoke with me under the assumption I was normal. I hope I have never disappointed her. 

The experience at Willowbrook was somewhat shocking. I can remember it still today as if it had just happened. It was one of those events which had quite strong limbic valence. We were all in our neat Cub Scout uniforms and we had Christmas decorations and we had small wrapped presents for the patients in the ward. The wards were immense halls, no walls, with beds stacked one upon another with bright lights overhead.

The smell of urine was pervasive and the patients wandered aimlessly around in some state of confusion in white tied gowns, the steam heat was high, steam heat with the hissing of the steam and the increase humidity it brings to intensify any and all smells. There were well over a hundred or more inmates, yes they were called inmates as if they were in prison, in the hall. This was the group we were to bring presents to and sing our well prepared Christmas carols. I often wondered what drove the patients there; parents, the police, the courts, just what was the driving factor. That was eight.

Segway to the late 60s and McLean Hospital in Belmont, the Harvard affiliate institution for psychiatry. Meds were being used and it was much cleaner with many people with depression and bipolar disorder, fewer paranoid schizophrenics. Smaller rooms, better care, less of a smell. Patients were confined in “group” sessions. But there were meds, and to understand psychiatry, you learned the meds, what to use to quiet them down, to sedate them and pretend that they were back to normal. The meds with the side effects which at times could be just as bad.

From 68 to 72 when the meds came on in full force the institutions were then closed one by one. The Willowbrook facility was considered Medieval and was shut with the help of the New York Press. I often wondered where they all went, those people twenty years earlier who we had given gifts to, but in no time the streets became crowded with “homeless”, and the faces became all too familiar again.

There is a quote from Martin Kelly MD which states:

“When chlorpromazine was first introduced in the United States in 156, the number of patients in mental hospitals was steadily rising, and 50% of all hospital beds were devoted to psychiatric patients. Since that time the population of patients chronically hospitalized for psychiatric reasons has steadily declined. Forty years ago in Massachusetts there were 20,000 to 25,000 patients in mental hospitals; now there are fewer than 2,000.This remarkable decrease can be attributed primarily to the use of antipsychotic drugs.” (by Martin Kelly, MD, Psychiatry in Brunwald and Rose, Review of Internal Medicine, Harvard Med School, 1993.)

So in this short period of time we saw tens of thousands sent out on their own, assuming that the meds would “cure” them, namely would just allow them to exist quietly in society. Unlike the statements made by many “television docs”, it was not Reagan and the 80s, it was meds and the 60s which drove these folks out. As physicians one could now write script for quieting meds, assuming that the patient was compliant. That was the nub, compliance.

Then came the rights of people, of patients, so that committing someone became a difficult process, something which required judges and lawyers to prove that they were an imminent harm to themselves and others. Which gets us where we are today, with those random “rocks from heaven” which fall on the rest of us, it is not the John Wilkes booth of Lincoln, but the madman who shot Teddy Roosevelt, and if not a gun, then a bomb, as we have seen from so many terrorists.

It is not a simple problem with a simple answer. Sometimes family members never really recognize the problem for what it is, even if the family member may be trained to do so, it is often the frog in the pot syndrome, the heat rises slowly and the frog never sees the bubbles of boiling coming its way. Thus for problems with no real easy answer, we should not expect easy solutions. That is the real problem. It is a hard problem, but a problem.

Where Do Some People Get Their Ideas?

In the NY Times today there was a piece by some English teacher at a local public college in Brooklyn. Now English and Brooklyn together should set the stage, no one ever thinks that English is used in that Borough, I should know, both my parents were born there, and to this day despite six languages and 26 countries of residence, I still say "huh" for her, but not "earl" for oil, nor "urnyun" for onion. And certainly not "udder" and "muddah" for other and mother, or "moyne" for mine.

So why am I surprised that this writer apparently admits to purloining someone's property and then is clueless as to what value it has.

The writer states:

Paying for Internet access, after all, isn’t like paying for cable TV, where cable providers pay cable networks in turn. My establishing a new network instead of sharing with neighbors does nothing to benefit the Web sites whose content benefits me and whose value to advertisers is based on views and visits. 

Nor is it like paying for phone service, where the physical object that makes and receives calls is inseparable from your unique number. My e-mail address is utterly portable: it’s not bound to an I.P. address or one computer — and, like the vast majority of the Internet’s services and information, it’s free

Let me try and explain. First nothing in life is free. Even I, from lowly Staten Island, home of the Jersey Shore family, albeit I left well before the bridge went up to Brooklyn, know that. Any user of the Internet is using something, they are getting bits and sending bits over someone's network, and that network is connected to someone else's. So who pays for that? Is it free?

Second, the cable company or the telco built out a network to someone's home and this network is delivering the Internet connection. That network costs money. Third, the network connects to a backbone, they charge a fee to carry your bits from and to some one at the distant end. Lots of costs add up. Thus the fee.

Let me add some specifics from reality:

1. The capital per subscriber can be roughly $2500 and we can assume a loaded monthly repayment of 1.5% which is $32.50 per month. Okay, okay, if you share that with cable TV perhaps we can cut it in half, but then again it may be as high at 2% so let's split the difference and say $25 per month.

2. The cost to connect to a backbone is $20 per Mbps per month. What that means is that if you had transmitted 1 Mbps continuously for a month. That further means that since there are 2,592,000 sec per month you can send 2.5 Tb per month on the system for $20.

3. But let us look at a download of a movie. That assumes an MPEG4 or H.264 download at 5 Mbps for say 2 hours, or a total of 36 B bits, or 1.5% of that $20 cost. That is $0.30 per movie. Just keep going and pretty soon you are costing quite a bit.

4. Thus using a few facts the costs, not prices for a friend in Brooklyn, are well into the $30+ per month. Now the CATV company charges $50 but that includes some other stuff like network management and repairs and billing and the like. Even profit.

5. Thus, you are purloining if you take what you have not paid for!

So let us return to the Times piece. Now let us read this teacher's logic. The very first sentence admits cable has to pay someone, well they still do dear teacher, they still do! As to the second sentence, what does this teacher think those wires are? Chopped liver? They are capital assets and they cost, yes dear teacher, they cost money. Oh and yes, there is a franchise fee and taxes and all that stuff which is going to pay your salary to teach, I believe writing.

Part of writing, unless it is all fiction, is dealing with facts. Perhaps learning about them first would be useful.