Wednesday, March 17, 2010

Hot Spots and High-Speed Internet

In a fitting irony, the announcement of the new high-speed Internet strategy came at a time when my own Internet connection was down for more than 12 hours, the result of a cable failure. On the surface, high-speed Internet seems like a safer strategy than the status quo. It will not cost a fortune to build, and it will cost less to maintain then the traditional telephone network that it will eventually replace. But it will involve some adjustments that are hard to predict.

One effect that is easy to predict is the importance of hot spots — areas at least the size of a building where Internet access is provided over radio waves, popularly known as wi-fi. The cost of operating a hot spot is already small in comparison to the historical costs of telecommunications. With widespread high-speed Internet access, along with improvements in security software, this cost will fall. There will be hot spots everywhere.

The obvious next step, though, is much harder to predict. The question is this: to what extent could hot spots replace cellular service?

If this question seems a bit far-fetched, consider that this is already happening. My own cellular phone automatically switches between cellular service and wi-fi when it can. It connects me to only about 20 “known” hot spots, and it doesn’t do switch over for voice service, but these are the result of network design decisions, not fundamental limitations.

My guess is that hot spots could replace more than two thirds of cellular service. The frantic construction going on in the cellular business right now could turn out to be the same kind of big mistake that the oceanic fiber-optic cables were in 1998. Enough ocean-floor capacity was put in place in across the Atlantic Ocean that North America could have outsourced all of its computer operations to Ireland. Someday there may be a need for all that capacity, but the haste with which it was put in place, and the indifference of the world after it was brought online, nearly bankrupted the telephone industry, and the excess capacity led to market prices far lower than the industry had envisioned. There is a risk that a similar mistake could be made at this point as the telephone industry tries to stay two steps ahead of the demand for cellular capacity.