4/98 Deshpande article. Networking in the Future
siliconindia.com
[Dr. Desh Deshpande founded Cascade Communications Corp. in 1990 where he
was chairman of the company until it was acquired by Ascend Communications
for $3.7 billion in 1997. He taught at Queens University in Kingston, Canada from
where he also obtained his Ph.D. in data communications. Deshpande holds a
Master degree in Electrical Engineering from the University of New Brunswick,
Canada and a Bachelors degree in electrical engineering from the Indian Institute
of Technology, Madras, India.
Presently, Deshpande is the chairman, president & CEO of Sycamore Networks,
Inc. and chairman, Cimaron Communications Corp.]
Behind The Net
Networking into the Future
Every major advancement in technology has had an impact on human
progress, changing the course of social and economic history. The
printing press liberated the information that was captive to a few. It
made it possible to document and duplicate knowledge and spread it
widely to a larger population. This in turn gave rise to democracy. The
steam engine brought about the industrial revolution, making it possible
to automate production and substitute machines for manual labor. It
gave rise to new transportation infrastructure that connected the
markets worldwide.
The New Network has set in motion the information revolution. Only
this time, the revolution will happen at a much quicker pace than ever
before.
When businesses use networks to reach out to customers, the pace
of the business accelerates. The product life-cycle shortens. Markets
become more competitive and more open. Innovations become the key
ingredient to win customers. I cannot think of a single business that will
not be affected or reengineered to accommodate the impact of the
network.
The Networked Economy
The role of computer networks have changed dramatically in the last
two years. In the past, the typical MIS (Management Information
Systems) networks were focused on making a company more
productive. The MIS networks helped people produce more products
and to automate processes from manufacturing to airline reservations.
But with the advent of the Internet and the Netscape browser,
networks are not only used to make a company more productive but
are also used to reach out to customers.
Networks enable delivery of information content and electronic
commerce. This will necessarily change the pace of business in all areas
of the economy, all over the world. This shift is so fundamental, that the
network will drive the new economy.
A few years ago, the U.S. economy was faltering and losing its
position as a world leader. Today, the U.S. has regained its leadership
and the economy is booming. This is directly related to the advances
this country has made in computer networking. The US economy has
already transitioned to a `Networked Economy'.
Opportunities in the New Networked
Economy
Networks will have an impact far greater than the
railroads on the world economy. Railroads created
opportunities for several businesses: manufacturing
engines and railroad cars, constructing and running the
railways, and the service industry, including tourism
and shops in the train stations. Similarly the
opportunities created by the new networked economy
can be grouped into three categories:
ú Network Plumbing Supplies
ú Running the Networks
ú Facilitating Commerce and Content
All the three categories are multi-billion dollar markets
and opportunities exist in all of these for existing large
and small companies, and companies yet to be started.
The high growth rate and the impact of changes in
technology create the opportunities. These new
opportunities can be traced back to exponential
growths of computing power and communications
bandwidth; a trend guaranteed to continue in the
foreseeable future.
To construct the New Network, the network operators
need communications equipment such as transmission
equipment, switches, fiber, wireless equipment and so
on. Cisco, Ascend, Bay, 3Com and Cabletron are
companies that have grown to multi-billion dollar
companies within the last ten years. They have now
joined the ranks of established players such as Lucent,
Nortel, Siemens, Alcatel, Fujitsu and NEC. New
companies are being founded and funded at a
phenomenal rate. Cascade, Ascend and Ciena are a few
examples of companies that were started in the '90s and
built up multi-billion dollar market caps in less than five
years. Such opportunities still exist this area.
The companies that run the network include AT&T,
MCI, Worldcom, the Regional Bell Operating
Companies, British Telecom, NTT and other
international giants. There are 12,000 small Internet
Services Providers and 100s of small carriers in the US.
UUNET Technologies, an Internet Service Provider,
started from ground zero seven years ago is now a
dominant player in the Internet space as a part of
Worldcom. The Telecommunications Deregulation Bill
has created opportunities for several new startups. In
addition to running the network to move information,
new businesses such as hosting the content on the
infrastructure is a new business opportunity that has
been championed by Exodus Communications (see next
article).
Facilitating electronic commerce and generating
content for the Internet more or less includes all the
computer hardware and software companies. Netscape
gave birth to this industry and now the forecast shows
that every company is likely to derive a majority of its
revenue from products related to the Internet. Creating
content for the Internet will be a very large segment of
the business. Entertainment companies too are a big
part of the future. Management consulting to help
businesses redesign their selling chains and reorganize
to participate in the New Networked Economy will be a
big boost to the consulting business.
Indian professionals who are already in the hi-tech
business have a tremendous opportunity in front of
them. They need to aggressively position themselves
to take advantage of it. I hope to see a lot of you
capture these opportunities and make it to the si Tech
20 Index.
Telephone Networks
The telephone network that interconnects billions of phones is an
engineering marvel. Even today, half the world's population still needs
to be wired. The number of cellular phones in the world is growing at
30,000 units a day. As a result, traffic on the telephone backbone
network is growing at the rate of five percent a year. This growth would
be admirable by any measure. However, the growth in the traffic
generated by the new network overshadows the growth in the phone
network.
We are all familiar with the exponential growth in the capabilities of
the PC. Gordon Moore, the founder of Intel, predicted in 1965, that
the number of transistors in a chip tended to double every 18 to 24
months. His observation, known as Moore's Law, has held true. In
1971, the Intel 4004 microprocessor contained 2,300 transistors;
today the Pentium II contains 7.5 million.
John Sidgmore, CEO of UUNET Technologies, predicts that the
bandwidth in the New Network will double every three months. The
power of exponential growth is amazing. The amount of traffic carried
over the New Network will surpass the total amount of traffic carried
by the telephone networks very soon. There is no debate over the
likelihood of that happening. The question is when? The more
aggressive Internet enthusiast claims it has already happened, whereas
the more conservative telephone companies think it is five years away.
In either case, the impact is profound.
Technologies to Build the New Network
Network operators have two fundamental assets to construct the
network; right of way and spectrum license. The right of way to lay the
fiber optics cables, coaxial cables and copper wires is usually obtained
by using the railroad tracks, oil pipelines, sidewalks and utility poles.
The spectrum license is used to build the wireless infrastructure; cellular,
satellites, etc. In the past, the basic transmission infrastructure was built
to support phone calls. The transmission facilities are connected to
switching equipment to switch phone calls.
There is a fundamental difference between the phone network and
the New Network. When a phone talks to another phone, a connection
is set up that is dedicated to that conversation. This connection lasts
until the end of the phone call. In the New Network, when one
computer talks to another computer, one computer sends information
packets to the network that are addressed to the other computer. The
network takes the responsibility to send the packet to the appropriate
destination computer. Therefore, the New Network can be divided into
two pieces; the access network and the backbone network, similar to
ramps to the highway system and the highway system itself.
The most common way to access the New Network today, is to make
a phone call using a modem. In this case, we are trying very hard to
make the computer behave like a person making a phone call. We use
very complex digital processing technology to achieve 56,000 bits per
second over the modem. There are better ways to use the copper wire
from our home to the central office of the Network Operator. New
emerging Digital Subscriber Loop (DSL) technology is capable of
modulating signals to send computer data over the copper and achieve
6,000,000 bits per second. There are several flavors of DSL, and are
referred to as XDSL. The telephone companies are deploying this
technology to provide high speed access to businesses and homes.
The television cable companies have jumped into the new game as
well. Their existing cable plant is capable of broadcasting information at
high speeds to carry television signals to homes. By adding additional
technologies to provide a return path from homes back to the network,
they can provide high speed Internet access. For example, we have a
cable connection to the Internet at home for $39.99 per month at
1,500,000 bits per second.
The beauty of the access technology is that it does not have to be
monolithic. That is, even though I use the cable modem, I can reach
others who are using modems or any other technologies including
wireless. This means there will be no clear winners and losers in the
access world. Competition and pricing will dictate the technologies for
access in different geographical areas.
The backbone network needs a lot of capacity. Recent advances in
photonics and transmission over the fiber optic cables are fascinating.
Dense Wave Division multiplexing is a new technology that promises to
enable transmission of one terabits (1,000,000,000,000) per second
over a single fiber optic cable. Just a few years ago, being able to send
signals at high data rates over a fiber was magical. But, now, not only
can you send information at high rates, you can send several signals at
different frequencies simultaneously. The signals on fiber operate at
approximately 200 tera-hertz (cycles per second). It is now possible to
send signals from lasers that are 50 giga-hertz apart. Therefore, several
optical waves can be launched on the fiber at the same time and
detected at the other end. This is a promising technology that can help
us build super fast information highways with unlimited capacity for the
foreseeable future.
These new technologies promise the feasibility of keeping up with
doubling of bandwidth every three months. New access technologies
will allow us to get to the highway at faster rates. The backbone will run
with very high capacities to get the information across. In this
architecture, it is clear that the information should reside on the
highways. This has created the new business of web hosting.
Companies like Exodus have lead the way in facilitating the hosting of
content and making it available on the high way.
Build up the New Network
The new players are setting the pace for the evolution of the New
Network. There are Internet Service Providers (ISPs) who are
innovating new Internet services. Competitive Access Providers
(CAPs) and Competitive Local Exchange Carriers (CLECs) are
bringing new services to the consumers. Then there are new players
such as Quest and Level3 Communications who have raised billions of
dollars to build new high speed fiber optic networks.
The big players in the industry today get a major share of their
revenue from the phone business. The New Network threatens this
business. With the existing telephone network, a phone-call occupies
64,000 bits per second. The traditional carriers sell bandwidth in terms
of how many phone calls you can fit in a given bandwidth. In this
model, bandwidth is expensive. In the New Network, bandwidth will
be cheap. Once you can get plenty of cheap bandwidth, it can be used
to make phone calls almost for free which will no doubt be a major
threat for the big players in the industry.
But even if the phone call revenues decrease, the new services will
grow exponentially and all the current innovative large players will
benefit at the end. They will invest heavily in constructing the New
Network.
In the networked economy, bandwidth will be a basic commodity like
wheat, oil and soybeans and will be traded on the exchange like any
other commodity. Network operators who can harvest bandwidth and
deliver to the market will be handsomely rewarded.
Looking to the Near Future
Consumers will access the New Network for three reasons; to
communicate with others, for electronic commerce, and to access
content. The Internet game will be very similar to the PC game. For the
past 15 years, we have been paying approximately $2,000 to buy a
decent PC. But what we get for it, has dramatically changed. Similarly,
consumers will pay $30 to $40 a month to access the network. The
speed at which they access the network though, will double every year.
As the network speed increases, applications such as video
conferencing will become perfectly feasible. In addition to the existing
voice communication, video will add a new dimension. Consumers will
routinely go to the network to research and buy products. The Internet
will be the new source of information and will be as indispensable as a
phone and TV.
Dr. Desh Deshpande founded Cascade Communications Corp. in 1990 where he
was chairman of the company until it was acquired by Ascend Communications
for $3.7 billion in 1997. He taught at Queens University in Kingston, Canada from
where he also obtained his Ph.D. in data communications. Deshpande holds a
Master degree in Electrical Engineering from the University of New Brunswick,
Canada and a Bachelors degree in electrical engineering from the Indian Institute
of Technology, Madras, India.
Presently, Deshpande is the chairman, president & CEO of Sycamore Networks,
Inc. and chairman, Cimaron Communications Corp.
His previous article in siliconindia was "Acquisitions: Strategy & Timing",
October 1997.
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