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Editor's Note: This speech opened the Leapfrog Technologies Trade Show sponsored by the State of New Mexico Economic Development Department in May 2000. Later, the same speech was presented before the members of the New Mexico Public Regulation Commission (PRC) on June 19, 2000. Subsequently, after changes in state personnel, the Leapfrog Technologies concept was allowed to wither on the vine. The show was not repeated the following year and the situation has not materially changed in the intervening seven years. The majority of the Infomesa companies that were emerging in 2000 have, as predicted, failed to realize the economic development potential the state had dreamed of, either moving elsewhere or shutting their doors entirely, as one of the most prominent Infomesa firms, the BIOS Group (which had employed well over 100 people in Santa Fe at its height), did in late 2002.
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Leapfrog Technologies

Welcome to Leapfrog Technologies, we are glad you are here.

My name is Peter Baston. I have been in business and innovative product development for complex technology for 20 years. Simply, I bring Logic through Vision and Order from Chaos.

It is my job to look at current business status, detect trends and customer needs, and stargaze into the future: six months, two years, five years, 25 years. I then prepare and test products that fit the directional profile our company intends to take.

Today, that direction has centered very firmly on the Internet. The Internet is not just an Information Technology component or different data transmission medium, but a totally new template for business practice. Note that I said, “business practice.” The business rules stay the same: “Create capital and contain overhead,” no matter what the line of business.

One thing I found early on in my career is that the more quickly you can get ideas into the real world, the better you can measure how they will really react. Not to discount proof of concept testing and lab research and development, but the real world is where the “the rubber really hits the road.”

Next, a question and don’t worry, I will answer it for you. Why are you here? You are here because of a major issue that threatens our very existence: connectivity. connectivity to what??? To the Internet backbone! All the technology and ideas that you see here today reflect different ways to make that last mile or last jump onto the Information Highway.

What if the interstate highway system had been built with limited access ramps and the people in Santa Fe had to drive to El Paso to get onto I-25? Think that’s funny? Now consider the number of carriers that back-haul data to Denver and Dallas from Albuquerque and Santa Fe to reach major backbone connections.

Connectivity is not something that has just been invented by the Internet. It is the basic human interaction that you use with friends, family, co-workers, and customers. It is the lifeblood of your company and without it you do not exist.

Why hasn’t this already been figured out and taken care of by the infrastructure providers AT&T/US West, even Qwest etc? Bell Lab’s report about the coming digital revolution was widely circulated and ignored by all the telephone companies. The lab’s findings: replace analog voice with digital and satisfy the upcoming needs of 1 megabit to the home and 10 megabit per business with eventual video demand. “Scrap the old copper system and invest in fiber” was the research lab war cry. That was pre-Internet. It was ignored! That is why a construction company laid the first major fiber lines: Level 3 invested in an infrastructure of fiber with no on-ramps, a point-to-point, long haul connection like a pipeline.

We need to get connected to that pipeline.

The next component that you add to make connectivity work is trust.

Those of you who stopped at McDonalds this morning trusted that you could get breakfast including coffee for about $4. That’s how McDonalds makes money: anticipating customers’ needs and meeting them. What would you do if one morning the same McDonalds offered you a single French fry for $10 and when you complained they haggled the price down to $7.50? I know this sounds silly but bear with me. You would think that they had gone nuts! And you would be right. Trust would have broken down and you would go elsewhere for your breakfast.

This is what has happened in the connectivity market. The basic infrastructure vendors, whom you trusted to anticipate your most basic business need (connectivity), are now in haggle mode. They are focused on how many French fries you want instead of looking for the right price and quality of your breakfast. This is what US West and their partner in crime, AT&T, are doing with connectivity.

One thing I hear all the time is “How much connectivity do you really need?” I call this “the French fry question.” 1 megabit (1 fry)? 10 megabit (fries)? How much are you prepared to pay? Or even worse with DSL/ISDN, “How much of a French fry do you want?” People keep trying to set a ceiling on an unknown need and then work backwards. If you stick a “this is a large box of French fries” label on one French fry, what do you have? Still one French fry! If you stick a Ferrari label on a tortoise you do not get a faster, or more valuable, tortoise.

Like fossils in history, US West and AT&T do not seem to comprehend that with IP and the Internet the terms “local” and “long distance” no longer exist. To the web, the Paseo de Peralta is the same as Peking, the Plaza the same as Paris.

Remember, I said at the beginning that the business rules about capital and overhead control don’t change. When we get to the business practices that support the business rules, then we see change everywhere. One misconception about rule priorities today is that the IT plan controls the business plan. It should never do this; the business plan should always control the IT plan. Remember that when you look at proposed changes in how your companies function.

In business operation and practices, you see, change is constant, especially with connectivity. As you conduct business using 56k modems, a specific set of actions is dictated. As you move up the connectivity pipe to on-line, all-the-time 1 megabit, 50 megabit, 500 megabit and even 5,000 megabit, each incremental increase opens the door to myriad possible changes to your entire business practice. Once you have true outside connectivity, your in-house Ethernet LAN can reach out to envelop, enfold, and improve every single facet of how you connect. Connectivity impacts to whom you can connect and what types of data can be exchanged (think: basic video, parametric modeling). True connectivity at speeds equivalent to in-house network speeds mean whole networks acting in unity. No longer are your business opportunities restricted to fortress compression and expansion, CPU control and share mentality: the whole extended system is engaged at whatever speed is required.

The state of New Mexico is about to lose a billion dollars worth of potential business with the superb technologies being developed by the companies in the Santa Fe Infomesa. All these companies will leave when they realize that not only the existing city connectivity ring, but even the entire statewide backbone, is not capable of supporting their near-time basic needs, let alone the total future requirements. Why? Absolute un-preparedness by US West/Qwest/AT&T.

Do you think that US West has even visited with these companies or tried to do any technical due diligence to really determine needs? No, because they frankly don’t want to hear the answers. That attitude is unfortunately prevalent in their business dealings with all users in New Mexico. The telecoms say again that we have no concept of what we need or want and the information is too complex for anyone to figure out. This is plain smoke and mirrors. Let’s right now calculate the entire high speed bandwidth demand for New Mexico.

  1. Homes want video on demand.  So, calculate the number of NM homes X 35 meg (that’s megaBYTE, not megaBIT) per second (streaming video speed).
  2. Business will need approximately 300 percent more than homes. That’s 100 meg per second X the number of New Mexico businesses.
  3. Government and research labs and are ultra high speed users that require 1 gig per second. Multiply the number X 1 gig.

All these speeds are basic inside buildings, so why not between buildings? Therefore the infrastructure demand map of NM is a representation of the above calculations and where the different categories of users are. Simple! But apparently the major incumbent telecom and consultants want excess millions of dollars to work this out.

As bottlenecks are blown out of the system, opportunity increases accordingly. One of the biggest problems at present exists at the outer edges of the Internet backbone. Contractors such as Level 3 are building miles of fiber backbone, but unless end users can get fast connections to this backbone, it is wasted. Again, the entire issue that we are facing today is, “How do we connect local networks to the Internet Backbone at basic high speed (10 to 100 meg and up)?”

Infrastructure incumbents want to protect their existing business revenue streams by protecting the existing model. They can do this by using the following methods: deploy sophisticated switching devices like SONET/ATM over obsolete copper or hybrid systems; control access from the last mile local loop to the backbone; control pricing and availability of service. These have no relationship to the customers’ needs.

I grew up in Southern Africa. One thing hunters learn very quickly is that if you shoot at a moving target, you have to aim at where the game going, not where it is. Otherwise, you have a really poor hunt and really mad relatives waiting to be fed. Most of you can remember when 10 megabyte hard drives and 1 megabyte of memory provided considerable boasting rights to your computer’s power and status. Despite all expectations by vendors to the contrary, most people blew right past this barrier with very little effort.

As with the humble 10 meg disk, 10 meg RAM computer, so will connectivity practices and business innovation fill bandwidth faster than it can be provided. Every company should run scenarios of “what if this connectivity was available? How would it change our customer interaction process?” If you don’t do it, you can believe that your competition is doing it. Today your business is where your server is and where that server can reach, not where your physical presence is.

Leapfrog Technology is about circumventing obstructions that the present infrastructure connectivity suppliers have created as a deliberate business revenue practice. Everyone has a different viewpoint on the rights and wrongs of these comments, but let me try and illustrate what I mean with a story. I was recently in Vienna, Austria — not exactly known as a hotbed for Internet and technology connectivity innovation. I got into discussions with some telecom engineers from one of the largest German telecom suppliers. Their comments rocked me back on me heels.

For those of you who do not know, DT, or Deutsche Tel, tried to purchase US West. In that endeavor they would have ended up with Qwest. My illustrations to these guys centered on the difference in viewpoint about what the basic level of service demand should be for domestic and commercial usage. The point I was making was that our infrastructure suppliers seem bent on disagreeing with today’s business and commercial estimates at every level. They have adopted the attitude that their entire direction and business policy is based on providing as little service as possible for as much money as possible. It has nothing whatsoever to do with customer survival needs and the trust monopoly mandate they were given to provide these services.

If you mention 30 megabit (not even megabyte) per second to a US West/AT&T representative, he counters with “Yea, but you really only need 128k DSL/ISDN whatever.” If you say 1 gigabit per second, the answer is usually great laughter and “Geez! But you really only need T3 or 45 megabit per second. And, you cannot really afford that anyway. Ha! Ha!” The incumbent telecoms do not even acknowledge that the conversation should be taking place in bytes per second, not bits! As the Deutsche Tel engineers pointed out, everything in our computers today is measured in bytes; only the telecoms measure in bits. When they say a T3 is “45 MEG per second,” the hearer unconsciously equates this to the same scale he uses on a daily basis to measure, for example, file size or storage capacity. In fact, the pipeline is only one-eighth the size the hearer is envisioning! The situation has become so bad that some companies are even banding together to build their own systems: desktop to desktop, city to city, state to state, even country to country.

To my amazement the DT engineers responded this way: “Yes, of course our management is well aware of this. We have targeted two basic types of tier service levels for states such as New Mexico, Colorado and Utah, to be deployed within 12-18 months. We would offer a myriad of compensatory services including wireless, satellite, laser optical, pure fiber and hybrid fiber-coax. Whatever it takes.” Their ultimate goal strategy: 50 megabyte per second for domestic use at 100 marks per month ($50 US) and from .5 to 1 gigabyte for 2000 marks (or $1,000 US) for commercial use, or roughly $1 for 1 megabyte. They went on to say: “We believe the primary source of connectivity should be practically given away. We see the major revenue source in the data and services, not the pipe. The more people we can attract to the pipe, the better the services and revenue sources we can create to keep people using our pipe. We know what the basic speed rules are: HDTV - 20 megabyte; streaming video - 35 megabyte; industrial strength modeling such as parametric - 100 to 500 megabyte. We also know that megabyte Ethernet and similar installations cost the same as gigabyte, and soon terabyte. So, why not install the fastest?”

Did everyone hear that? What a difference in attitude! They have a deployment business plan to support the price and the services. The Deutsche Tel tribe will be eating well tonight!

They continued: “We view our entry into the United States market as a giant test case for our product development innovation and business endeavors in Eastern Europe and Asia. We cannot innovate in Western Europe at the pace we want to. In Eastern Europe, the political and economic situation is still uncertain. We have to look for other markets to do this. The US is a prime target. We want to be the Southwest Airlines of the connectivity industry.”

This state will regret that this merger/takeover did not happen.

Compensatory technologies: I like that phrase. Use whatever technology to achieve the connectivity goals of the master business plan. A typical goal model for the downtown core in a city such as Santa Fe is to look at the real needs in this way:

  1. Illustrate basic domestic goals of 30-50 megabytes per second for domestic connection and 100 to 500 megabytes per second for business.
  2. Implement a roll out plan using all the compensatory technologies to make it happen. No hiding behind tariff and FCC rules to jack up pricing for a single French fry. Sites such as the Santa Fe Institute, that need flexible, high bandwidth would be encouraged financially to act as hubs that could leapfrog connections as the major tentacles roll out.

US West has never attempted to do anything like this.

The Deutsche Tel engineers had more to say:

“One of the major bottlenecks that we see is the transfer protocol problem that happens when the photon signal is transferred to the electron-dominated switches both on the backbone of the network and in the LAN/WAN. Once we have throughput for the photon right into the Ethernet network over the backbone, very low cost Terabit per second transmissions will be the norm.

It is our belief that these problems, together with very bad exterior network access, gives all infrastructure suppliers a very brief year or two at the most to get their business operations into sync with customer needs. When throughput photon signals happen, the providers who have not moved their operational sights accordingly will be obsolete. This includes major telecom, hardware and software vendors. Your carriers, US West, the Baby Bells, and their still acting parent, AT&T, have no concept about real service demand and real high speed 50 megabyte/gigabyte requirements. Their entire business model is based on protecting an obsolete infrastructure, like modern day highwaymen.

Your companies need to be planning and installing multi-terabyte city rings with petabyte capacity backbones — even to cities with 40,000 to 100,000 populations, not trying to make small megabit connections fit on silly, old-fashioned, infrastructure. At present they (the telephone companies) don’t believe the Tidal Wave bandwidth demand exists. When it happens they will be overwhelmed. When the wave hits, they will make this stupid cry, “But the rules did not let us compete properly!” Competing is one thing, but this is a life or death business scenario.”

They also added another interesting point:

“It is simply not good enough to lay all these networks in place without an equal effort to encourage, train, and develop the business and people-services who will use these systems. We also see that as a part of our product mix.”

Encourage use at low entry thresholds: a sort of electronic economic development  — what a novel idea!

I will close this way. Some time ago, in the fledgling US, there was a man by the name of Patrick Henry. He made a speech known to all Americans that contained the words: “Give me liberty or give me death!” With permission, if Patrick were alive today, in this state, in our business, he would use slightly different words: “Give me real connectivity or we will give you death!” (metaphorically speaking, US West / Qwest / WorldCom / ATT carrier companies et al., of course).

Thank you for allowing me to present today; have a great show.