Innovation Drives 802.11, VoIP-enabled DSL Modems into the Mainstream
By: Fred Zimmerman, Dennis Barrett
Texas Instruments’ VoIP Group
Recent rumors of $20 bids for 800,000 low-end DSL modems for Chunghwa Telecom may fill you with joy if you’re buying modems or disturb you if you’re selling them. Whatever the case may be, one thing is certain: low pricing is good for innovation.
The 1962 economic thesis, Incentives for Innovation (Arrow; Scotchmer and Maurer III; Gilbert and Newberry), concluded that the Theory of General Equilibrium did not apply to innovation. The theory professes that competitive markets quickly adjust resources (investment, number of participants, supply) to achieve balance between cost and demand, thereby allowing acceptable profit. While 1962 was indeed a long time ago, Arrow and his colleagues must have somehow foreseen the DSL marketplace. Even the current slim profit margins that manufacturers and chip makers are seeing have yet to show signs of slowing the pace of innovation.
In his recently published article, “The Economics of Innovation,” Hal Varian, dean of the school of information management and systems at University of California, examines the periods of technology-driven innovation in the past. He observes that there are similarities and differences with what we see going on today in the communications industry and quotes Marty Weitzman, a Harvard University economist, who describes these periods as "recombinant growth."
“The idea is that every now and then a set of components combines in lots of different ways to produce new sets of goods and services. That recombination is the source of innovation in these periods.”
In our case here, let’s examine what innovations the advent of DSL modems have spawned. If you’re an early home network adopter, you may have an Ethernet router that ties into some Cat-5 wiring that you pulled through the attic. If you’re a newer member of the home-networked ranks, you probably have an 802.11 wireless router (see diagram). For those using computers in a home office environment, there is probably a telephone near the computer. Or maybe you have one nearby for a teenager who likes to juggle phone conversations with multiple friends while Instant Messaging others on the computer.
In any of these cases, if you’re thinking “recombinant growth” you’re exactly right. However, during any integration effort, the value perceived by the customer must be carefully weighed against the cost of integrating the features. Ultimately, the customer must conclude that an integrated unit is more compelling than separate components. As such, manufacturers should focus on integrating features that will be widely accepted in the marketplace and allow service providers to reap additional revenues from their customers.
FEATURE FOCUS
One feature which will soon be integrated into DSL modems is an 802.11 wireless LAN (WLAN) router. Wide acceptance in the marketplace is punctuated by analysts, such as IDC, claiming that shipments of 802.11 equipment will increase nearly five-fold by 2007, up from 23.5 million units in 2002.
Note that this growth is not restricted to computing equipment. Sony recently announced details on its eagerly awaited handheld PlayStation console, the PSP. The new machine will feature built-in 802.11 networking to enable multi-player gaming. The broad adoption of 802.11 has not been lost on DSL modem manufacturers. Some have even announced plans to add 802.11wireless router functionality to standard DSL modems at no extra cost.
Another feature DSL modem manufacturers plan to integrate into their equipment is Voice over IP (VoIP). Last year, service providers in Asia added 1.6 million (one million of which were in Japan) new VoIP users to their networks. Yahoo Broadband is buying almost two million DSL modems with integrated VoIP and 802.11 functionality.
NTT also is planning for aggressive subscriber growth of Voice over DSL services. In Japan, DSL modems with packet voice capabilities are the most popular choice among customers for new deployments today.
China, which is three years behind Japan in VoIP deployments, is also expecting to see growth in the demand for residential VoIP. Some have predicted that voice-enabled integrated access devices (IADs) could become the technology of choice in the near future. Adoption of VoIP also is on the upswing in the U.S., with innovative service providers such as Vonage, VoicePulse and Packet8 growing quickly. In August 2003, Vonage announced the activation of 40,000 total lines and 40 million completed calls across its session initiation protocol (SIP) network. Currently, Vonage is adding more than 1,500 lines to its network every week and doubling its active line base every 90 days. According to industry pundit, Jeff Pulver, within the next five years, the number of VoIP telephone lines in the United States could grow to about 40 million. It is widely believed that major cable companies and other broadband Internet access providers will enter the VoIP fold soon.
Silicon manufacturers are actively engaging in innovation at the chip and software level to support recombinant growth in this market. To simplify the integration challenges and lower the costs of putting their technologies together, some system-on-a-chip designers are implementing chip-to-chip serial interfaces across several product lines. A low cost serial interface enables manufacturers to rapidly add features such as VoIP and 802.11 to existing cable and DSL modems.
During periods of recombinant growth it is of equal importance to understand what to integrate, what not to integrate and when to do the integration. The road to profitability is strewn with products comprised of “build-it-and-they-will-come” feature additions. Most of these added features never achieved broad market acceptance as individual component technologies. Recent examples include HPNA and Homeplug consumer networking technologies, neither of which gained the kind of universal consumer acceptance that 802.11 has achieved to date.
Other features perish because they are introduced to the market before it is prepared to accept a new combination. While video enjoys great consumer interest, much work remains to be done before we see the broad deployment of an integrated DSL-based video system for the home. Issues such as bandwidth, infrastructure improvements, and a lack of understanding which features users require, must first be addressed. For the near term, video over DSL will remain in the development and trial phases as these challenges are tackled.
Editors note: I'd like to add to their conclusions about video that some of the most interesting providers in the world - Fastweb, Free.fr, and LDCOM - are already deploying video gateways as part of their standard service. db
