Fractals of Change

Imbedded Social Networking

The Facebook/MySpace model is wrong for most groups, we all agreed; it's inside out. We is VC and blogger Fred Wilson, FeedBlitz CEO Phil Hollows, Return Path CEO Matt Blumberg, and me. The venue is a panel at a Return Path sponsored event at the Museum of Natural History in NYC.

Phil Hollows took our conclusion to heart. He went home and changed the FeedBlitz interaction with readers so that interaction occurs inside the context of the publisher's site rather than on the FeedBlitz site. FeedBlitz (which I'm an investor in) turns blogs and online newsletters into double opt-in email and tweets and other things; the email gets through spam filters. FeedBlitz is part of how publishers communicate with readers so it make sense that it appear on the publisher's site rather than lead readers away. Here's what Phil wrote on his blog:

"One of the challenges of using third party services on your site is that when a visitor needs to have a meaningful interaction with that service, they're transported away from your site and onto that service's site. Often the point of adding a third party service, widget or script is to add value to your own offering, but all too often the first thing these services want to do is take those visitors (and their advertising revenue potential) and park those visitors where the plug-in vendor's value is increased, not yours. Great for them, but for you? Not so much…

"So I'm delighted to announce an API-free embedded email subscription form that allows you to keep your subscribers on your site while they go through the initial subscription forms…"

Granted that we want the users of our service or the readers of our blog to form a community which interacts around the service or the content of the blog. We want and they demand that their interaction be horizontal as well as vertical – with each other as well as with the service provider or the author. In fact customer and prospect events in the real world. like the Return Path one we were speaking at, have long provided a forum for such interaction. But, in the online world, we send our customers to Facebook or MySpace to interact around OUR service; we send them away from our website; we fragment them according to what social network they happen to belong to. That's nuts! The fact that companies DO send their customers off to Facebook is evidence of how important the social networking function is – and of the fact that there is no good alternative.

Many large sites do support their own bulletin boards and chat services; this is particularly true where tech support is involved. My prediction is that these capabilities will end up imbedded in medium and small sites, even blogs, and that these services will usually be provided via third parties like FeedBlitz who understand that their brand is NOT the one that comes first for your users. Social networking will be in the context of sites and services, not the other way around.

Of course I have to take my own advice so I implemented FeedBlitz' new capability on Fractals of Change – it took about five minutes. When people click on the "subscribe me!" button at the top of the left sidebar of my site, they get the FeedBlitz signup form between MY sidebars -see below or click here for an example.

No More Landlines – Comm Forecast #1

By the end of President Obama's first term, there won't be any more copper landlines left in the country. One of the challenges facing the Federal Communications Commission and the new administration is how to deal with the fallout from the end of this venerable technology. It's gonna get ugly for some people – people who can't afford to do without communication – unless we're proactive about this problem.

Here's what's happening as you probably know. Young people don't bother with landlines (unless they live beyond cell coverage); they just use their mobile phones or Skype for voice communication. The slightly older set are buying cable's bundle of entertainment, Internet access, and VoIP. They cancel their landlines. People who have broadband access don't need the extra line they used to rent for their dial-up Internet access.

Verizon simply sold all of its copper plant in the three northern New England States to FairPoint. Verizon hadn't been investing in this plant and didn't want to put any more money in going forward. FairPoint, like Verizon and at&t, is losing access lines. In its latest financial results, it reported that access line equivalents are down 9.2% over the past year; total revenue is down as well.

In prime markets Verizon is replacing its copper infrastructure with fiber – one customer at a time; first are the most valuable customers but Verizon will move steadily down-market with its FiOS offer. FairPoint is making an impressive effort to add broadband access to areas where Verizon had not invested enough to make DSL work. FairPoint has also shown commendable willingness to move beyond traditional copper and use wireless to reach customers out of range of DSL. To compete with Cable's triple play, FairPoint has a loose bundle with DirecTV.

So look through the data points above to the trends. Revenue from POTS (Plain Old Telephone Service) is simply disappearing. The copper network is generating increasing revenue from DSL BUT cable appears to be winning the bandwidth war for Internet access and snaring the voice customers as well. Barring a technical breakthrough in the use of the copper infrastructure (one should NEVER bar a technical breakthrough), there are going to be less and less copper access lines in use. In the long term, this isn't a problem because there are better ways to communicate than over fixed copper wire. But we live now, not in the long term.

There are several public policy problems stemming from the decline of the copper network:

• At some point the carriers starting with some of the medium sized ones like FairPoint aren't going to be able to afford to maintain these networks with too few users. Network maintenance costs don't go down nearly as fast as the number of lines since you can't abandon any trunks as long as there are any customers attached to them. You still have to fix the lines when a tree falls on them even if most of the copper pairs in them are not in use. That's a big deal.
• Revenue for the Universal Service Fund is still predicated on the good old days when everyone used a landline. Cellular customers get a break. VoIP is a grey area. The USF will run out of money at a time when it may be getting more expensive to provide basic service to people in rural areas. The small rural carriers survive because of subsidies from both the USF and termination charges (which disappear when people don't use their landline phones).
• The USF mainly funds POTS. If POTS is kaput, there's nothing to subsidize.

All of these problems can be solved IFF they're recognized in time and if there's the political will-power to overcome the interests of those who have a stake in prolonging the declining status quo and postponing the future. For example, small rural telcos like the subsidies they get today and are not in as much immediate danger as their less-subsidized mid-sized brethren; they have substantial political clout with state and federal regulators. The duopoly of one large telco and one large cableco serving each area has resulted in some competition but not enough to stop Americans from having less bandwidth available at a higher price than most other developed countries. The duopoly has lobbyists to put it mildly.

The solution – at a high level – is breathtakingly simple. By the end of Obama's first term everyone in the US who has phone service today needs to have both an inexpensive mobile phone and broadband access (in some cases that'll be through the same device). The USF needs to shift its mission from subsidizing POTS to subsidizing connectivity. USF subsidies should go to consumers who are unable to pay for basic connectivity; not to telecommunications providers (rich people with homes in rural areas don't need an indirect subsidy; poor consumers should be able to choose which service provider to give their subsidy to). The revenue source for the USF either needs to move to the general tax base (good policy but bad politics) or at least be broadly-based across telecommunications services. There will need to be public investment in telecom infrastructure in rural areas but that may well be fundable by revenue bonds that get repaid from use rather than taxes; that's what we're planning in Vermont.

Do all that and the telecommunications future'll be bright. The cost of providing telecommunications is gonna come down very fast. More on that in an upcoming post.

DISQUS for discussions

Lately the comments and replies on Fractals of Change have gotten a lot more intense and interesting, maybe because these are interesting times.

Typepad comment handling is pretty primitive so I've switched to DISQUS starting with this post. DISQUS supports threaded comments, has a more powerful profile system for commenters across blogs which use DISQUS, lets you (and me) get email notification of replies to comments and even lets us reply to comments with comments by reply email. Should be neat; let me know what you think.

For testing purposes, I'll be making the first comment on this post.

Full disclosure: I'm an indirect investor in DISQUS through Union Square Ventures.

Yes We Can

In a comment on yesterday's post recommending that the US government as buyer of last resort order up a new fleet of non-gasoline cars for itself and partly prepay to finance the retooling, martin writes "If all manufacturers were allowed bid for this tender, then the US auto industry is unlikely to win."

Steve says "…the US lacks enough seasoned engineers who can build cars."

Dave comments "Why saddle the US government with inferior American cars? They should be buying Japanese or European. I don't think it's a good idea to keep the US auto industry alive."

Given all the whining from Detroit, it's easy to understand the pessimism. But the US car industry is much more than just the rusted giants of Michigan. Cars made by American workers in America and sold under Japanese and German nameplates are as good as any in the world. These plants are efficient; sometimes their product are even exported from the US. These mostly non-union workers are productive. These are American car makers regardless of brand.

Even the US-branded manufacturers have improved quality and efficiency. Ford and GM trucks are as good as any made anywhere and are in use around the world. Sure, it was dumb to make just trucks – especially toy trucks for urban cowboys; but, despite an outraged editorial in the NY Times criticizing Ford for selling enough of its new F-150 to recall a thousand furloughed workers, trucks are needed and Ford ought to make what it excels at. Maybe its next specialty should be hybrid trucks with torque. Of course if it wants to be more than a niche player, it'll have to learn how to make sellable cars again as well.

Point is that we can rise to a challenge to do something. That's why I recommended that the government order itself a new fleet of plug in hybrids, hybrids, and natural gas vehicles to be delivered over the next four years rather than just pouring cash into companies whose products don't currently have buyers.

Some commenters point out that it takes more than three years just to plan a new car and retool the factories. They're certainly right that's how long it USUALLY takes. But these aren't usual times. Once the US entered World War II, we retooled our civilian manufacturing to war material in just over a year (the first rifle I had in the National Guard was made by IBM). Idle factories can be retooled much more quickly than productive ones. Many machine tools and robots can simply be reprogrammed for a new task.

If we have bailout after bailout, we'll all sit on the curb with our begging cups; the ambitious'll hire lobbyists to beg for them. IFF we have a huge challenge, we will succeed.

Yes we can.

The original post is here.

A related post suggesting the government put money in the bottom of the car market by buying and junking cars over 10 years is here.

Saving US Auto Manufacturing

If people don't buy cars, there is no amount of bailout that will save the millions of US jobs in and related to car manufacturing. If they're not making cars, the manufacturers won't recall workers or order from their suppliers. It's as simple as that.

But there's a pretty simple solution as well. The US government should order a complete replacement for its vehicle fleet to be delivered over the next four years. The new vehicles must be either plugin electric hybrid, pure electric, or possibly natural gas. Obviously retooling both at the manufacturers and suppliers is required to deliver this order so the government should be willing to prepay a significant part of it as it does for new weapons systems. That gets money into the system fast and creates/saves jobs almost immediately. It lets the suppliers retool as well as the final assemblers.

Ideally all auto companies ought to be able to bid. Maybe we only offer prepayment when there is a certain percentage American content although I hate be even that protectionist. Certainly the companies with Japanese names that build cars using American labor in the US ought to be on an equal footing with Detroit. American jobs are American jobs whether unionized or not.

Some infrastructure money needs to go into recharging stations. Good project to be doing as well. Also the electric grid needs work.

The objective is not to assure that no auto company goes bankrupt; the objective IS to keep Americans working on making America a better place. The manufacturers and their suppliers that win the bids to supply the US government with a green, fuel-efficient fleet, will then be well-positioned and retooled so that they can sell these products to the rest of us and the rest of the world once we start buying cars again.

If we simply shovel money into the weakest companies like Chrysler and GM, we'll have to also bail out relatively strong Ford to keep it from being disadvantaged. If we subsidize our car industry, the rest of the world will respond with competitive subsidies. The net effect will be something less than zero, especially if no one is buying cars. But, if the rest of the governments emulate us and order new green fleets for themselves, the world'll be a better place.

Yes We Can is a debate over whether Americans can build cars to meet this goal is here.

A related post suggesting the government put money in the bottom of the car market by buying and junking cars over 10 years is here.

 

 

The Importance of the FCC

My friend Om Malik, dean of the telecom bloggers and author of Broadbandits: Inside the $750 Billion Telecom Heist, posted on the importance of the Federal Communications Commission Chair appointment Obama will make as President:

"The decision as to who will be appointed FCC Chair is a critical one, for in coming years the country faces some major issues that will need to be addressed head on — not from a corporate, but from a citizen perspective, including Network Neutrality, the availability of broadband, telecom competition and privacy….

"…President-elect Obama should look outside the beltway and find someone who truly represents the taxpayers.

"Tom Evslin, who is a retired telecom executive, is the kind of person I would expect to be in the FCC. He knows the machinations of the big companies and at the same time is an Internet liberal who can keep broadband providers and their anti-consumer tricks under check."

Needless to say I'm flattered although neither a likely choice (that's an understatement) nor a candidate. However, Om is dead on about the importance of this appointment. Decisions made by the five member FCC commission have had and will have an enormous effect not only on the tech sector but on the entire US and even the global economy.

Under Chairman Reed Hundt the FCC maintained a policy of benign neutrality and non-regulation towards the infant consumer Internet. They resisted congressional pressure to allow local telcos to throttle dialup Internet access with excessive fees. The access business grew and flourished and the WorldWideWeb and email changed all of our lives – usually for the better. US businesses had a headstart in this environment and benefitted from the growth of the Internet worldwide; for years almost all international Internet traffic was routed thorough the US.

Under Chairman Bill Kennard, the FCC encouraged the growth of VoIP and again had to resist congressional attempts, especially from Senator Stevens, to protect the profits of the telcos. I had a good view and some input into this discussion as chair of the policy committee of the VON (Voice on the Net) coalition. The FCC's good example was followed worldwide, especially in developing countries. The price of most international calls has gone down more than 90% as a result. China and India probably benefitted the most from affordable communication but America's leadership aided by the FCC created an opportunity for American companies including ITXC which Mary and I founded.

Chairman Michael Powell pushed hard for the principles of net neutrality. However, Powell had a hard time getting a majority of his fellow commissioners to go along with most of his initiatives. The commission at full strength consists of three members of the party which controls the White House and two from the other party. Although they are presidential appointees, they do NOT serve at the pleasure of the President and tend to be quite independent.

The current Chair Kevin Martin has been relatively unapproachable from a high tech point of view. Under him the commission has approved mega-mergers in telecom without (IMHO) adequate safeguards against monopoly behavior. However, the decision last week to free up the TV white spaces for open unlicensed access is an enormous achievement which will prove of huge benefit to the US economy and all of us who use the Internet (more here).

The most important task immediate facing the next Chair will be to assure that telcos and the broadcasters do not manage to undo this decision in Congress or in the courts. Speedy procedures will need to be established for testing new radios and other devices invented to use these white spaces. More work is needed to safely increase the power limits allowed to devices in this part of the spectrum.

Om is right; this is a very, very important decision and a fulcrum for change we can believe in.

 

 

Maybe We Don’t Need So Much Credit

A friend of ours has started a "new economy" business; she makes delicious Vermont brownies and sells them online at vermontbrowniecompany.com.

Lots of brownies made with good Vermont ingredients are rolling out of South Hero to the brownie-starved world. The bad economy doesn't seem to have hurt demand. Equally important, the poor credit environment isn't likely to stifle Vermont Brownie Company's growth. There's an important lesson here for entrepreneurs and for those who shouldn't be trying to rebuild the twentieth century's banking system.

When you order from Vermont Brownie Company (or Amazon.com, for that matter), you give your credit card. New economy companies DO depend on the fact that people have credit or debit cards. When the founders of Vermont Brownie Company go their company kitchen to make brownies, they're not guessing what the demand is and building an inventory that has to be financed. They already know how many orders they've got and for what varieties; they know what fresh ingredients they need (so can buy fresh); they know how much to bake of each (so can ship fresh); and they don't need to finance their receivables: you already paid.

Sure, someday they'll invest in a bigger kitchen and/or shipping facility. They won't have to buy a bigger server for orders, though; they use Yahoo's shopping cart. And they won't have to worry about financing huge inventories of product that may go out of style or be stale. If they decide to pay per click to advertise, they'll know quickly whether their ad cost is higher than the net return – and cash from orders'll pay for the ads. Won't need bank debt for that, either.

The need for capital hasn't disappeared from the economy, of course all us capitalists know that; but a surprising percentage of new companies can start on a small amount of invested equity and lots of hard work and can grow on cash flow generated from operations. Information flow and just-in-time manufacturing can reduce the need for financing directly. Information-based products like software and search, of course, have low cash needs so that's why companies like Microsoft and Google flourish atop mountains of cash rather than flounder in seas of debt. But even very tangible - and tasty – products like brownies can use a virtual store and preordering to reduce if not eliminate the need for debt to fund growth.

Debt financing and outside equity are going to be hard to get for a while. If you're starting a new business, it's worth seeing if you can build a plan whose growth is cash-flow funded.

The White Space Opportunity - Priceless

"Priceless" is not an overstatement of the value of the radio spectrum opened for free, unlicensed use by the Federal Communications Commission order on TV white spaces. Literally, this spectrum is priceless because no one has to buy a license to use it – just like the spectrum we all use for WiFi today. Figuratively, this spectrum is priceless because it's impossible to calculate the innovation which will result from making the spectrum available WITHOUT specifying either the technology to use it (other than non-interference with licensed use and power limitations) or the applications which can be built here. Voice? Data? Entertainment? Power management? Who knows? Stuff we never even though of; you can count on that.

Priceless or not, some numbers help with appreciating the size of the opportunity.

In the recent auction of comparable spectrum for LICENSED use, Verizon paid over $4.7 billion dollars for exclusive rights to 22Mhz nationwide. This is roughly four television channels – these channels are 6Mhz each. The total TV space consists of almost 50 channels – just under 300Mhz altogether. In rural areas where there are few-over-the-air TV stations, most of that will now be available for unlicensed use! The chart below from dailywireless.org shows some examples:

The 39 channels (234Mhz) available in Burlington, Vermont COULD provide mobile Internet access to everybody in and around the city at speeds better than 10Mbps (with the usual caveat that not everybody uses all of the service all the time) and that access could include all the talking and texting and picture sharing these people now do on their cell phones. It is highly likely that such services will be offered using this spectrum both by local entrepreneurs and national networks. Since the service providers don't have to pay for this spectrum and since they will be competing with each other, it is likely that the services will be very cheap not only compared to mobile data and voice today but also to the current price of cable and DSL access. See why I'm excited?

Even if the spectrum is free, radios aren't. Cellphones have radios in them, obviously; So do WiFi cards and WiFi transmitters and Bluetooth earbuds. Experience shows us that the price of radios serving huge markets in UNLICENSED spectrum quickly falls. Think how cheap WiFi and especially Bluetooth devices are; they operate in tiny relatively undesirable scraps of spectrum compared to the about-to-be-free white spaces. In an excellent comment filed with the FCC by a number of organizations including The Consumer Federation of America and Common Cause, the chart below shows how innovation has flourished since frequencies have been opened up for unlicensed use:

Note the flat line of devices being invented to use the licensed frequencies vs. the explosion of devices including WiFi, Bluetooth, and many other technologies we now take for granted in the unlicensed space.

The innovation leads not only to new devices but also very low prices and brand new services and products like WiFi hotspots and Bluetooth cars.

The need for over-the-air broadband and expanded cell service is greatest in rural areas where there also happens to be the greatest amount of unused former TV spectrum. But there is a significant amount of white space available in every market including major cities – note the 22 channels in LA. That's important because it means that devices and services designed for the white spaces will have a national market which includes urban areas.

If Horace Greeley were alive today, he'd say "Go unlicensed, young people, go unlicensed." The opportunity is priceless.

Election Congratulations

Barack Obama ran two back-to-back sensational campaigns. Although I didn't vote for him, I'd be very happy to be proven wrong. We need a successful President. He has many attributes like intelligence, eloquence, and calm which could be ingredients for that success; he inspires enthusiasm. He has a majority which makes very clear whom Americans intended to elect. He does face tough times but there have been worse. Anyway, we're all in this together so congratulations and good luck to President-elect Obama.

Also congratulations to Vermont's Republican Governor Jim Douglas who has apparently gotten well over the required 50% of the vote in this bluest of states despite running against both a Democrat and a surprisingly strong independent. Vermont's electoral votes were the first three awarded to Obama by CNN's computers; but independent Vermonters rewarded Douglas' calm and achievements despite the nationally sullied Republican brand.

FCC Vote Results – We The People Won

The Federal Communications Commission has just voted to open up the so called TV Whitespaces for UNLICENSED use (FCC press release here). This is incredibly good news for rural America in particular but actually for all of America. It's not as important as the election the rest of us in the US voted in today – but this action is a very, very big deal.

Just a few of the benefits:

• Within a year there could be new, cheap radios and commercial services that make mobile broadband available with greater bandwidth than cable offers today AND at lower prices.
• Mobile phones on these frequencies will be much cheaper to use AND will have much better data capability than they have today.
• Since the US is the first country to make so much desirable spectrum available for open unlicensed use, the door is open for a wave of innovation here and the invention of products and services which will eventually be used around the world.
• Much of the concerns many of us have had about tollgates on the Internet and an end to open interconnection will evaporate since the barrier to providing Internet access will be much lower and the power of the existing cable-telco duopoly diluted.

This is very, very good spectrum. That's why it's been used for TV. It goes through walls and leaves; it goes long distances.

Unfortunately, those opposed to opening up this spectrum – established broadcasters who fear the competition that a much more powerful Internet will bring and telcos who would like to preserve their domination of Internet access and mobile service - have threatened legal action to slow this innovation and competitive threat.

Making sure we all get the benefits of this FCC decision will be an early task for the new administration. It won't be an easy one but it's important and it's a real test of willingness to stand up to special interests who want to monopolize public assets like the airwaves.

A note of caution: the actual FCC ruling is not posted anywhere I can find it; I just managed to catch the vote at the end of the webcast of the FCC meeting. There could be gotchas in there but I know enough to be reasonably confident that this decision is the second most momentous thing that will happen today.

Special thanks to all of you who e-filed in support of this action.

Why I’m Voting for McCain

My vote doesn't count, of course; Vermont's three electoral votes will go to Obama. Even so, it isn't an easy decision: Obama has some real positives, McCain his share of negatives.

Deciding Factors for McCain

Foreign Policy/use of force. McCain was right about the surge at a time when all the polls would have told him to go the opposite way so he gets extra credit for not being political on this. I agree with Joe Biden that Obama is likely to be tested more than McCain – especially by Putin who I fear greatly. Obama's faith in negotiations as a way to end Iran's nuclear program is touching but not convincing.

Globalization. It's real and it's here. McCain is a free-trader even in states like Ohio and Pennsylvania which have seen jobs move offshore. Obama's talked about forcibly renegotiating NAFTA.

Education. I don't think either candidate knows how to reform our appalling public education system. But I think Obama's allegiance to and debt to the teachers' union will make it impossible for him to implement any meaningful reform.

Energy. McCain's been clear that nuclear energy, offshore drilling, and coal are part of America becoming energy independent. Obama's not clearly for any of the above which means continued dependence on imported oil for the foreseeable future.

Obama Positives

He's articulate! It would be great to have a President who can speak English as well as he does; we're going to need a lot of convincing to make some of the hard choices ahead of us. Elocution IS part of leadership.

Race. It's not just that Obama is partly black; it's that he's set an example of going beyond the grievance and entitlement issues which have helped polarize us. Maybe, if he is elected, we can stop using the Nazi racial definition that anyone with any black blood is "black" and only those with purely white blood are "white".

Manner. Obama has a nice calm manner, a good thing in a leader. He was excellent on the subject of Palin's daughter's pregnancy.

His campaign. From primary to general election, he's done an excellent job putting together his campaign and choosing the people to run it. That's a big job and he did it superbly. Some of these skills are directly applicable to the President's job.

Excitement. He's bought people into the process who were hostile or apathetic before.

McCain Negatives

Economics. Other than support for free trade, he's made even less sense on the current economic "crisis" than Obama. I'd give Obama a zero and McCain minus twenty on the market meltdown and proper remedies. I easily could have changed my vote had one of them stood out on this issue.

McCain's proposal for a federal tax holiday on gas tax. This was pretty dumb. Obama didn't pander on this one.

He's a Republican. So am I much of the time but I'm not proud of the incompetence of the administration I voted for twice. All else being equal, this would be time for a change.

Lack of executive experience. There's a reason why we don't usually elect senators as President.

Choice of Palin. I'm not as negative on this as many of my friends; she's inexperienced - except when you compare her to Obama. She did fight the Republican establishment in Alaska. Religious fundamentalism scares me (so maybe I'm an East Coast liberal after all). I'd hoped that McCain's primary win would greatly diminish the influence of the religious right on the Republican party so I'm not wild about the comfort this choice gave them. Most importantly, though, McCain seemed to lose control of the message in his campaign once he chose Palin and that's his responsibility.

His campaign. I don't think McCain has made nearly as strong a case for electing him as he could have or should have. The intra-campaign sniping about Palin is appalling. Obviously a campaign is a test and I don't give him a good grade on this.

Obama Negatives

See above on foreign affairs, globalization, education and energy.

Reverend Wright and Bill Ayers. Everyone has some bad associates somewhere but he's been given too much of a hall pass on these two; they're each despicable.

Campaign finance flip-flop. He really did agree to be part of the public financing system and changed his mind when he saw how much money he could raise. Another hall pass.

Lack of a legislative record in either Illinois or Washington.

The possibility of either party having both a super-majority in Congress and the Presidency is frightening

 

    

The Glass Is Half Full

Many of the basic problems in the American economy are rapidly being addressed – it's the "rapidly" part that's the problem.

A year ago we had the following economic problems:

• The savings rate was too low
• Credit card usage was too high
• Energy prices were staring to soar
• We imported too much oil
• We bought and drove too many gas guzzlers too far
• Housing prices were too high
• People were getting housing loans they'd never be able to repay
• The dollar was very weak
• There were signs of inflation
• Jobs were being created overseas (and perhaps lost here)

So this week we got the good news that savings as a percentage of personal disposable income ROSE to 1.3% in September from .8% in August, a more than 50% increase! The .5 percentage point increase in savings was funded by a .2% INCREASE in personal income for the month AND a .3% DECREASE in spending. Americans took all the increase in income, matched it with a decrease in spending, and salted it away. The consequence – GDP (Gross Domestic Product) is down .3% for the latest quarter since we bought less stuff. The pain is today but there is a real promise from gain in the future from that additional savings (doesn't that help the banks, BTW?)

Credit card solicitation is down and banks are reducing some lines of credit. Those who complained about the avalanche of indiscriminate credit offers of prior years should be glad about this. Even those with good credit are using it less – just ask American Express. But less credit does mean less spending.

The price of crude oil is down 60% from its high; gasoline is down nearly 40%; home heating this winter may be cheaper than last if the weather cooperates. Hardly anything to complain about there – although it does reduce some of the pressure for fuel economy and alternative energy.

Not only is the price of the oil we import down; the actual amount imported is down as well. That's a lot of money that stays home; that's a lot of money that doesn't go to unfriendly places. Some of the leaders of unfriendly places are unhappy about that – Ahmajinadad and Chavez, for example. Too bad.

So far, despite the drop in the price of gasoline, we're still driving less and looking for more fuel efficient cars to do our driving in. That's tough on gas-guzzler makers and certainly on workers in the auto industry. It's also a fleet-replacement opportunity as well as a reason why a lot of retooling'll happen.

Housing is getting downright reasonable. Congresspeople demanded that Fannie Mae and Freddie Mac loosen credit standards because houses were too expensive for people to afford if traditional credit measures were used. Of course the unwise credit not only put people in houses they couldn't pay for and prompted leveraged housing speculation, it also helped drive the cost of housing up even further. The volume of house sales is now increasing despite belatedly tightened lending standards – the buyers are super-qualified and are getting good value; the backlog of unsold housing is just beginning to shrink. But this correction has hit the balance sheet of many Americans – especially hard hit are those that withdrew the gain in value of their houses by taking out second mortgages and spending the proceeds. The gain is gone and the debt isn't.

Funny thing happened in this financial crisis which has been labeled as "made in America" and taken as an indication of America's fall from economic power: much of the world suddenly wanted to hold dollars. The dollar has strengthened so much as a consequence that the US and other countries recently intervened AGAINST it. Much of the rush to guarantee bank deposits in the rest of the world was from fear that capital would flee to the US despite an only limited guarantee of deposits here.

A stronger dollar means less inflation. So does the economic slowdown – especially the reduction in the velocity of money (see this post). This morning the New York Times finally got around to realizing that deflation is now the economic threat of the moment.

Since a lot of what we buy comes from overseas and the US has become much more a services economy than it was, the bite of job loss when we cut back spending is also globalized. We still need plumbers and doctors (but not as many bankers); but we're not buying as much of what China makes. Those layoffs don't happen here.

So why all the happy talk from me? There certainly is plenty of pain in what's happening economically. Real people are losing real jobs. People who'd hoped to retire soon have seen their savings evaporate. Deflation brings more than a cure for inflation; it also brings the threat of depression. Huge segments of our financial industry have been partially nationalized; we'll pay for that for a long time to come.

But we need perspective. This correction from excess has been violent and in many ways harmful but it HAS cured many of the excesses; the goal shouldn't be to reestablish them. We don't want housing prices to boom out of reach again; we don't want oil prices to go up or credit to be extended promiscuously; we don't want a banking economy based on the third derivative of valueless debt. We need to be wary of those crying "crisis" because they have a solution to sell. We've already gone too far in pouring aid in at the top of the financial system hoping (to put a good light on it) that it'll trickle down.

We will need to cushion some of the pain at the bottom of the economic heap; there'll be more need for unemployment insurance before there's less. We can't afford to let starved states cut back on infrastructure projects both for the sake of the infrastructure and for the sake of the economy. But we also want the excesses that have been corrected stay corrected – at least until the next bubble.

FCC Extends Comment Deadline on White Space Issue

UPDATE: It happened. The FCC voted to open up the whitespaces for UNLICENSED USE (full post here).

The FCC extended the deadline until this Friday, Oct. 31, at 5:30 PM ET for comments on the proposal to open up so called TV white spaces for UNLICENSED use; the old deadline was Tuesday; so, if you missed it, you still have time.

Despite efforts by opponents to get the issue dropped from the agenda (delay with intent to kill; a post-election FCC might start all over), the issue IS on the agenda for the 11:00 AM meeting on November 4^th which the FCC published last night. The meeting itself will be broadcast live at http://www.fcc.gov/realaudio.

Unlicensed access to this valuable spectrum can help the US regain the lead in Internet innovation, strengthen all American businesses, help American students, and go a long way to solving the problem of rural access to the Internet as well as vastly improving urban access. High bandwidth at low prices is not good news either to existing TV broadcasters (who are already worried about content competition from the Internet) nor to existing duopoly providers of expensive slow access. The lobbying against this proposal is fierce but public input appears to be making a difference.

You can sign (or modify) an online petition provided by Google here or e-comment directly with the FCC at http://fjallfoss.fcc.gov/prod/ecfs/upload_v2.cgi – docket 04-186. Remember, the deadline in now Friday at 5:30 PM!

More detail:

The Other Vote on November 4th

Act Now for Better Internet Access

Gush Up vs. Trickle Down

We shouldn't try a trickle-down approach to "saving" the auto industry and especially the auto finance companies; instead, if aid is needed at all, it should be shoveled in at the bottom of the economy from which it is sure to gush up (see a sample plan below).

The New York Times has done a great job of revealing that banks are using their bailout funds not to make more loans but to buy out their competitors. Now Cerberus, the private "capital management" company which owns most of Chrysler and a majority interest in GMAC is seeking federal aid for a plan to bail out its badly timed investments in the auto industry. Cerberus and GM have been fairly frank that the aid is needed to finance massive layoffs so that combination of Chrysler and General Motors can save cash. The question is why would we want to use taxpayer money to do that?

There is no promise that more money will mean more loans to car buyers. There is no promise that a taxpayer bailout will result in cars Americans want to buy even if they can get loans. There is also no recognition that "foreign" car makers are building cars in America with American labor that Americans want to buy. Do we really want to endanger the American jobs at Toyota in order to finance layoffs at GM and Chrysler?

Trickle-down aid to an economy doesn't work because 1) a trickle is too slow to aid an economy which has seized up; 2) the money tends to stay at the top – eg. be used for buyouts and/or executive salaries rather than flowing out into the broad economy where it's needed.

A Gush Up Proposal

Suppose that, instead of bailing out Cerberus and GM, we use our bailout funds to buy any and all cars and light trucks over ten years old BY THE POUND. Prices should be set so they are higher than the small amounts these cars fetch on the resale market today. All such purchased cars will be scrapped and recycled; in fact the program should be run through the junk dealers – they have much less overhead than banks. To avoid buying already scrapped vehicles, only those cars and trucks which have been registered for the last twelve months should be eligible.

The nice thing about putting money into the bottom of the economy is that it's sure to gush up. The owners of ten year old cars aren't going to stuff the money in their mattresses or finance neighborhood buyouts.

A few will be able to get by with one less car and switch to mass transit and use the money for other necessities. That's all goodness. Most will buy another not-quite-so-used car; there's a very good chance the newer car will use less fuel than the old one, especially since that's what people know they want and because cars get inefficient as they get older; also we're paying more for heavier cars so we're getting them off the road. That's a bonus.

The people who sell the not-so-used-cars to the people who scrapped their junkers will now have more money to spend on a new car. This is true whether the used cars pass through dealer lots or not. The dealers, who are in bad shape, will benefit from a firming of used car prices. Also, the more you get for a tradin, the less financing you need for your next purchase.

Money put in at the top tends to stay at the top; money put in at the bottom flows through the whole economy. The gush-up proposal will put money into the hands of the consumers most likely to spend it instead of the bankers most likely to hoard it. Gush up will also reduce the average size and age of vehicles in the American fleet and further reduce our gas consumption. Let's do something like that if we need more bailouts.

White Space Momentum

Many of you are leaving this blog by clicking a link to either the online petition which urges the FCC to free the TV white spaces for open unlicensed use or by going directly to the FCC e-comment page (docket 04-186). Can't see whether you actually leave a comment or what you say, of course, but assume many of you are filing and are supportive. Thank you very much; it matters a lot to the economy as a whole (see here) and to rural areas in particular (see here).

Critical to momentum are the other blogs and news sites that are also actively featuring the story. I'm sure there are many more that I don't know about. Because of the crosslinks, my post and the blogs linking to it were on the front page of Techmeme over most of the weekend. The post was also stumbled upon, which drove yet more traffic through the post and to the petition. Currently the post is the most active article listed in the Internet Marketing section of BusinessWeek's Business Exchange.

Blogs (Thanks, fellow bloggers).

Fred Wilson's A VC Open Up The TV White Spaces

Brad Feld's Feld Thoughts Encourage The FCC To Improve the Internet

The Jeff Pulver Blog Act NOW for Better Internet Access. Support Technology Innovation in America.

Vermont Tiger Free The White Space

Vermont News Sites

The Burlington Free Press Internet to replace unused TV channels?

The Rutland Herald FCC decision could help Vt.

Seven Days staff blog Blurt Will the FCC Help Vermonters Access Broadband?

Re-posts

xchange

CircleID

Momentum is great but this is no time for complacency. Lobbyists from the National Association of Broadcasters and the Telecom powers that be are working hard to delay with intent to kill. It takes lots of comments to outweigh them, The deadline for comments to the FCC is tomorrow, Tuesday, October 28!

If you haven't already done so, you can help by either e-signing an online petition (provided by Google but you can change the words) or by using the FCC's e-filing system here - be sure to enter docket number 04-186 if you do. It's actually a simple form. There's no need to say much; just let the FCC know you're in favor of a favorable vote on unlicensed use of TV white spaces and that the vote should happen as scheduled on November 4^.. The deadline for comment has just been extended to Friday, Oct. 31, 5:30PM ET.

The Other Vote on November 4th

UPDATE: It happened. The FCC voted to open up the whitespaces for UNLICENSED USE (full post here).

The vote that Federal Communications Commissioners are planning for November 4 is not as important as the voting we'll do on that day, but it does matter a lot to the future of the United States. Unless the forces opposed to progress manage to postpone FCC action (which they are trying very hard to do), the FCC could decide to set the stage for another generation of innovative products with which the US will strengthen its competitive position in global markets AND to provide long term help to the whole American economy, which might well be more important than all the short-term band aids being applied in the current crisis.

There is an easy way for you to influence the FCC and it matters so please read on.

This magic bullet which the FCC might decide to fire is regulation which will make currently unused radio frequencies known as TV white space available for open and unlicensed use. As I posted Saturday, this action would be a huge boon to rural America which has lots of white space and too little high speed Internet and mobile phone access. But the advantage to the whole country of opening up this spectrum for innovation dwarfs the substantial benefit to us country folk.

Right now almost all radio spectrum is allocated to specific uses AND specific licensees. Each radio and television station, for example, has a slice of spectrum. Various marine and aviation functions have assigned uses; some spectrum is reserved for mobile phone use and has been auctioned off to carriers. The result of all this earmarking of spectrum is that, at any given time, very little spectrum is actually in use for any purpose and we have a spectrum shortage. However, when the frequency pie was originally sliced up, this allocation was the only method known for keeping users from interfering with each other.

But that's when radios were dumb and computers hadn't yet been invented.

Thanks to the foresight of some FCC staffers, a couple of slices of spectrum – little undesirable scraps, really, that no one else wanted – were set aside for UNLICENSED use. Anyone could build a radio to use this spectrum for any legal purpose so long as the radio was certified to follow certain rules including restrictions on signal strength which gave other players a chance to use the space as well. Owners of radios which use this unlicensed spectrum don't require a license.

You indubitably own several radios which operate in unlicensed spectrum. The WiFi hub in your house is one; the WiFi card in your PC is another; the Bluetooth headset you use with your mobile phone; the Bluetooth connection in your car; even Bluetooth and WiFi in your mobile phone all use unlicensed spectrum. Somewhat to the astonishment of traditional radio engineers, all this unlicensed use of spectrum works very, very well with no formal traffic cops. The little computers in the little radios figure out how to navigate by listening (I'm oversimplifying somewhat) and they recover gracefully when they do bump into each other – come to think of it, that's something like how the Internet works.

Anyway, it turns out that unlicensed spectrum gets filled much more efficiently than licensed spectrum AND that the most innovative recent radio products like WiFi and Bluetooth are all squeezed into these scraps of unlicensed spectrum which they have to share with microwaves and garage door openers. Also turns out that consumers often don't have to pay for using this unlicensed spectrum once they buy the proper radios; you don't pay to use WiFi in your home or Bluetooth in your car. The radios are cheap because they have a mass market. In other cases there are commercial services, like WiFi hotspots, which can be delivered efficiently to a transient audience because people have WiFi radios and because the spectrum is available to use.

Now back to the TV white space. It is very good spectrum; that's why TV stations uses part of the range that it covers. It goes through walls and most trees. There's a huge amount of it available AND CURRENTLY UNUSED. If we got a lot of innovation from just a little unlicensed spectrum, it's reasonable to assume that we'll get a lot more innovation if there's a lot more spectrum available. We could easily get mobile Internet access with much higher bandwidth than cable currently delivers at a much lower cost and with full mobile availability (Google claims gigabyte speeds are easily possible) . Who knows what exciting applications would be built on top of that? I don't. That's what innovation is all about. We could also get much better mobile phone coverage at much lower prices – very important as the functions of phones take on more and more computer functions.

We could get much more entertainment from many more sources over unlicensed spectrum than we do over the proprietary spectrum allocated to TV stations – do you think that may be why the National Association of Broadcasters is so adamantly against the use of the so-called "TV white spaces"?

OK. On to the future of the country and our economy. The US used to dominate Internet innovation because widespread consumer use of the Internet began here. The newest equipment was developed (but not usually built) here; the newest services were developed AND hosted here; at one point most international Internet traffic passed through the US. None of this is true anymore. We lag much of the developed and some of the developing world in broadband penetration. We pay more for less bandwidth than many of our peers. Innovation happens where the early-adopter markets are. Much innovation which requires broad availability of reasonably priced very fast access is happening in Japan and Korea where that access is much more available than it is here.

If we are the first country to free a substantial portion of spectrum for innovation, we will have a huge head start in developing equipment and services which use that spectrum. The world WILL move to largely unlicensed spectrum (says I). We have a chance to lead and all the opportunities that leadership entails; or we can keep our spectrum locked up to protect broadcasters against competition and watch China or India take the lead and the benefits of leadership.

It's not only our tech industry that will benefit if the FCC votes the right way on November 4^th. All of our industry will be more competitive if we have better access to information and to each other. We can't afford NOT to have the world's best communication infrastructure. We once did; we can again. We can't afford to have our kids or us lifelong learner adults disadvantaged in access to information. We are now disadvantaged compared to many countries; the disadvantage is growing. Communication infrastructure CAN become America's competitive edge – if the FCC acts to make it happen.

The immediate push by the NAB is to postpone the vote of the FCC on the grounds that not enough time has been allowed to study the issue. In fact the docket has been opened since 2004. This has been going on longer than the current Presidential campaign; we're ready to vote for President and the FCC has enough information to make a decision on white spaces. Delay means that FCC Chair Kevin Martin, who is the main proponent of opening up the white spaces, will be gone. As the NAB well knows, a new Chair and new FCC commissioners will take a long time to familiarize themselves with this tough issue. It's not something that's come up in the presidential campaign (unfortunately) do no quick action'll come from the top.

We could easily lose a year or so by delaying this vote at the FCC. That's plenty of time to lose any chance of taking leadership in this new technology.

You can help by either e-signing an online petition (provided by Google but you can change the words) or by using the FCC's e-filing system here - be sure to enter docket number 04-186 if you do. It's actually a simple form. There's no need to say much; just let the FCC know you're in favor of a favorable vote on unlicensed use of TV white spaces and that the vote should happen as scheduled on November 4^..

Please do act quickly. The deadline for public comment is TOMORROW, Tuesday, October 28 Extended to Friday, Oct. 31, 5:30PM ET!

More on unlicensed spectrum from this blog:

Act Now for Better Internet Access

Vermont Files in Support of Using White Space for Mobile Broadband Access

Internet 2.0 is Open Spectrum

Backstory of Open Spectrum Epiphany

Spectrum Serendipity

Google's Gigabit Gambit