After Domestic Spying Revelations, Do You Trust the Government?

Defenders of the “PRISM” spying program claim it has helped authorities avoid at least one terror attack in 2009 aimed at the New York subway system.

But British and American legal documents from 2010 and 2011 contradict that claim. And that gets to the heart of the matter with the numerous examples of government spying that have broken in recent days: trust.

The heart of the issue is not that some amount of intelligence gathering is necessary, or that companies ranging from Verizon to Google to banks and credit card processors have much choice but to comply with lawful orders to hand over data, at times.

The issue is that the apparently far-ranging scope of such intelligence gathering now is so broad, so unfocused, with no assurances that the data on lawful U.S. resident and citizen activities could not be misused.

That is why the Internal Revenue Service targeting targeting of persons and groups for political reasons is so damaging. It destroys confidence in the actual impartial operation of administrative parts of the government.

But that IRS scandal happens at a time when the National Security Agency has probed phone records from the Associated Press, likewise gathered records of reporter James Rosen on apparently false pretenses, and gathered millions of call records from Verizon Wireless, AT&T, Sprint and probably other firms as well, without warrants and in a broad way, necessarily obtaining and storing records on millions of innocent U.S. residents.

NSA also apparently has been collecting data from a number of Internet app providers, including Google, Microsoft, Yahoo, Facebook, PalTalk, AOL, Skype, YouTube and Apple.

So the real issue now is not whether there are some instances where intelligence has to happen. The real issue is that so broad and possibly illegal have been the intrusions that people now are right to mistrust the federal government to behave in a responsible way with programs most would say are sometimes needed to prevent terrorist acts.

The issue isn’t that Internet application providers, phone companies and others have to comply with information requests. The problem is that nobody anymore can be sure the data will be used in a careful or even lawful way.

And the problem now is growing doubt about whether the federal government can be trusted to act lawfully. That is a huge issue.

So Now We Can Guess What New NSA Data Warehouse is For!

If you were wondering why the National Security Administration is building a huge new data center in Utah, now you know. It likely will house millions and millions of records of phone calls, credit card transactions, web searches and emails.

The NSA is building a million square-foot data mining complex in Bluffdale, Utah.

But given the fact the NSA already reportedly intercepts 1.7 billion American electronic records and communications a day, it makes sense that they would need to expand operations beyond its headquarters at Fort Meade, Maryland.

SoftBank Talks to Deutsche Telekom about T-Mobile USA

It would be logical for Dish Network to turn to a deal with T-Mobile USA if its attempt to invest in Sprint were to fail.                                                                                Net Subscriber Additions                                                                                                                                                         


Now it seems a game of musical chairs could start, as SoftBank talks to Deutsche Telekom and a deal to buy T-Mobile USA, in case the SoftBank deal to buy Sprint were to fail.

Either way, it would seem, both Sprint and T-Mobile USA are likely to find themselves poised for potentially new strategies for attacking the U.S. mobile market. 

Whichever asset winds up affiliated with Dish Network will likely, over time, become a relatively specialized "mobile video" service, in terms of market positioning.

That doesn't mean its devices will fail to operate as phones, text messaging platforms or Internet access devices. But the positioning likely will be video entertainment centric. 

Whichever asset winds up affiliated with SoftBank likely will be "mobile Internet centric." Precisly what that might mean is not yet clear, but if SoftBank attacks the way it did in Japan, among the issues is how much average revenue per user the SoftBank-lead firm is willing to lose. 

In the meantime, while the instability continues, no matter what Sprint or T-Mobile USA says about its service, strategy and priorities, those all could change dramatically, and relatively soon. 

Google Denies "Back Door" Access to its Servers

Google CEO Larry Page and Chief Legal Officer David Drummond insist that Google has not "joined any program that would give the U.S. government—or any other government—direct access to our servers."

The U.S. government does not have direct access or a “back door” to the information stored in our data centers, Google says. Page also claims Google "had not heard of a program called PRISM until yesterday."

Google does say it provides user data to governments "only in accordance with the law." Some might say that is likely accurate, but also not completely "true," either. 

Michael Arrington suggests a way Google could be parsing words carefully, but also not completely denying that intelligence agencies can get the access reports claim. For one thing, entities supplying such data are compelled by law to deny they are doing so. 

Nor would NSA or other agencies need access to Google's servers. Backup copies would do. 

Internet Access in Very-Rural Areas is a Problem; High-Speed Access is a Big Problem

Lower-speed Internet access is a problem, but not as big a problem as higher speed service in the United States, a study suggests. 

Any experienced network engineer or architect would agree. At any higher speed, providing service in very-rural areas will be a big challenge.

But as access speeds climb, the gap between urban and suburban areas, and very-rural areas, grows fast.

At the moment, about 66 percent of U.S. residents living in very-rural areas have access to Internet access at speeds of at least 3 Mbps, compared to 99 percent of residents of residents of bigger cities and the suburbs of those cities.

About 53 percent of residents living in very-rural areas can buy access of at least 10 Mbps, compared to 98 percent of residents of bigger cities, and 98 percent of suburban residents living around those cities.

About 14 percent of residents in very-rural areas can buy service at 50 Mbps. About 67 percent of residents of suburban areas surrounding larger cities can buy 50 Mbps service, while 63 percent of residents in central areas of bigger cities can buy 50 Mbps service.

The gap is wider at 100 Mbps, where 38 Mbps of residents of suburban areas can buy such service, while 28 percent of residents in central city cores can buy 100 Mbps service. In very-rural areas, just about three percent of residents can buy 100 Mbps service.

About 23 percent of rural residents are able to buy Internet access at speeds of 50 Mbps or greater, while 63 percent of urban residents can do so, study by the National Telecommunications and Information Administration.

If adoption of 50 Mbps is not at 23 percent in rural areas, and 63 percent in urban areas, it probably means consumers have concluded the existing price-value relationships for slower-speed services are adequate.

One might therefore argue that producing inducements for further upgrades will require some tweaking of the price-value relationship. Since most expect there will be a continuing logic to “higher prices for higher speeds,” absolute price will be the biggest potential game changer, though price per megabit might indirectly be a driver of upgrades.

Likewise, some 38 percent of households in suburbs, 28 percent in the central areas of bigger cities and 31 percent of households in “exurbs” already can buy service at 100 Mbps.

What seems indisputable is that average purchased speeds will continue to increase, as speeds have tended to grow 10 times every five years.

Google Wallet is Failing

Google Wallet, it is probably fair to say, has failed to get traction. The Starbucks app, in contrast, or PayPal's payment platform, continue to stand out as successful mobile payment platforms.

Starbucks has about 10 million users of its mobile payment app. 

In fact, some would say Starbucks dominates mobile payments. 

PayPal expects to process $20 billion worth of transaction value in 2013. 

The fact that some big initiatives, sponsored by big companies, do not get traction is to be expected. We remain at a very-early stage of the evolving mobile payments business. 

In all cases, the solution has to solve a significant problem, in a way that provides more value to users. In the U.S. market, that is a challenge, as few consumers probably would claim the "payment process is broken." 

In the absence of a clearly broken process, any new way of doing things has to create and deliver high amounts of new value, to overcome adoption hurdles. 

Can Anybody Catch Verizon Wireless and AT&T Mobility?

Attackers in the U.S. mobile market have to be optimistic when facing AT&T Mobility and Verizon Wireless, because a rational observer might have a hard time figuring out precisely how any of the smaller providers realistically can overtake the leaders.

AT&T expects postpaid wireless net adds of approximately 500,000 when second quarter 2013 data are reported. AT&T also says  Inc. it has seen “strong” customer additions in the second quarter for U-verse broadband and TV subscribers, year over year.

AT&T also expects second-quarter mobile EBITDA margins to be comparable to the first-quarter. AT&T continues to expect revenue growth of about two percent for the quarter, but profit margins are expected to be down, year over year.

In its first quarter of 2013, Verizon Wireless saw an 8.6 percent year-over-year increase in both service revenues and retail service revenues, with 32.9 percent operating income margin and 50.4 percent segment EBITDA margin on service revenues (non-GAAP), both record highs.

Verizon Wireless added 677,000 retail postpaid net additions, up 35 percent year over year.

Those sorts of figures also point to reasons why it will remain difficult for T-Mobile USA, Sprint or Dish Network to reshape market shares in the U.S. mobile market. The two largest service providers simply continue to take more market share from the smaller providers.

Market share matters. As a rule, market share and profit margin  are related. So as AT&T and Verizon Wireless take more share, their profit margins should grow. In fact, theory would suggest that AT&T and Verizon Wireless, based on their current market shares, should earn profits at twice the rate of the smaller carriers.

T-Mobile USA operating margin was about 25 percent in the fourth quarter of 2012. Verizon Wireless reported first quarter 2013 EBITDA, equivalent to  “operating margin,” of 50 percent on service revenues.

Conversely, it will become harder for Sprint and T-Mobile USA to maintain their own margins if AT&T and Verizon Wireless continue to take more market share.

And new entrants such as Dish Network will start from zero, with no chance of profits for some time.

You might say that is the reason some attackers do not aim to overtake the leaders in an existing market. They want to remake the market, as Skype has done in international long distance. Instead of leading the existing market, the strategy is to essentially destroy the existing market, creating a new market with vastly different revenue and operating cost requirements.

Security Agencies Collecting Credit Card, Internet App and Phone Data from AT&T, Sprint, Verizon, Google, Apple, Microsoft, Yahoo, Facebook, AOL, Skype and YouTube

The U.S. National Security Agency has been collecting millions of customer records from Verizon, AT&T and Sprint, as part of a effort ostensibly for protection from terrorists.

But civil libertarians might now see a dramatic danger that collateral information also is being collected, and could be used in other ways by a growing “administrative state” than now has become a “spying state.” 

Federal agencies also have been collecting emails and Web search data from nine Internet app providers as well. 

Under the Foreign Intelligence Surveillance Act (FISA), the U.S. intelligence community has add access to the servers of nine Internet companies, including Microsoft, Yahoo, Google, Facebook, PalTalk, AOL, Skype, YouTube and Apple.


Data about credit-card transactions also has been collected, and the current extent of continuing operations is unknown, the Wall Street Journal now reports.

Officials claim the program is “targeted” at terrorism suspects. 

But that isn’t the problem. The problem is that data on all sorts of U.S. citizens and residents also is collected, and apparently is retained. 

That means we have to “trust” agencies not to misuse that information. 

"Everyone should just calm down and understand this isn't anything that is brand new,'' said Senate Majority Leader (D., Nev.)


Maybe it isn't citizens who should "calm down."

Security Agencies Collecting Credit Card, Internet App and Phone Data from AT&T, Sprint, Verizon, Google, Apple, Microsoft, Yahoo, Facebook, AOL, Skype and YouTube

The U.S. National Security Agency has been collecting millions of customer records from Verizon, AT&T and Sprint, as part of a data mining effort ostensibly for protection from terrorists.

But civil libertarians might now see a dramatic danger that collateral information also is being collected, and could be used in other ways by a growing “administrative state” than now has become a “spying state.”

Federal agencies also have been collecting emails and Web search data from nine Internet app providers as well.

Under the Foreign Intelligence Surveillance Act (FISA), the U.S. intelligence community has add access to the servers of nine Internet companies, including Microsoft, Yahoo, Google, Facebook, PalTalk, AOL, Skype, YouTube and Apple.

Data about credit-card transactions also has been collected, and the current extent of continuing operations is unknown, WSJ.com now reports.

Officials claim the program is “targeted” at terrorism suspects. But that isn’t the problem. The problem is that data on all sorts of U.S. citizens and residents also is collected, and apparently is retained.

That means we have to “trust” agencies not to misuse that information.

"Everyone should just calm down and understand this isn't anything that is brand new,'' said Senate Majority Leader Harry Reid (D., Nev.)


Maybe it isn't citizens who should "calm down."

Over 5 Months, 10% to 20% of Major ISP Customers Upgraded to a Faster Tier of Service

Based on the latest study of major U.S. ISPs studied by the Federal Communications, one might say that about 10 percent to 20 percent of major ISP customers upgraded their connections to a faster speed tier over the five months since the last study.

That is likely a combination of ISPs upgrading speeds and moving customers to the higher tiers, as well as some consumers choosing to buy a faster grade of service.

U.S. Access Market Faces a Qualitative Change

Quantitative changes sometimes lead to qualitative changes, as when higher Internet access speeds allow viable video streaming services or other cloud services to exist, or when computing costs drop multiple orders of magnitude, while performance increases by orders of magnitude.

The latest Federal Communications Commission report on U.S. Internet access performance also suggests the impact much higher bandwidths will have on the access market. 

One might argue that when speeds grow from 1 Mbps to 5 Mbps, or 5 Mbps to 10 Mbps, or 10 Mbps to 15 Mbps, the possibilities for business models get better in a sort of linear fashion. That might not be true as speeds grow to hundreds of megabits per second up to 1 Gbps.

At least in terms of market structure, some contestants, including satellite and fixed broadband providers, will be rendered mostly irrelevant, most places, when the market expectation is that hundreds of megabits per second, up to 1 Gbps, is the norm, or at least the marketplace reference.

In short, structural changes, not simply quantitative changes in typical access speeds, are going to reshape the fortunes of various market contestants over the next decade or so.

Consider only what already is the case for data consumption by users on different networks. Fiber to home network and cable network consumption levels over a month’s time are nearly identical, with the 50th percentile of users consuming about 40 Gb per account.

Consumers on digital subscriber line networks consume just half that amount at the 50th percentile: 20 Gb.

But notice the outlyer: satellite customers consume about a gigabyte, on a level with data consumption of smart phone owners.

So here’s the clear implication: as networks get faster, users consume more data. One should expect, over time, that users on networks featuring 100 Mbps to 1 Gbps are going to consume even more data than fiber to home and cable network customers already do.

There is no comparable technological fix for satellite networks, even though higher-capacity satellites are being launched.

"Interactive TV" Turns Out to be "the Internet"

Television interests have been trying to create “interactive TV” for decades, in the belief that such interactive features and personalization would create huge new advertising and marketing revenue streams.

But the future often unfolds in ways not anticipated. As it turns out, for interactive TV as for many other businesses, the Internet is creating precisely the business value once envisioned for another way of doing things.

These days, most consumers watch television while also using a smart phone or tablet. There is “interaction” all right, but not directly with the TV, as once was envisioned for “interactive” TV.

People are interacting with friends and augmenting TV experiences, but using the Internet and Web apps, not applications embedded into the content.

According to Business Intelligence, 85 percent of smart phone users do something related to TV they are watching, at least once a month.

More than 60 percent report doing so on a weekly basis and 39 percent say they do so daily.

But we often are surprised in the technology and communications business. Virtually nobody expected that people throughout the developing world would so rapidly adopt voice and text communications using mobile networks and devices.

The rapid acceptance of touch-based tablets came only after more than a decade of failed attempts to create a tablet device market. And most probably are surprised at how fast tablets are displacing PCs in everyday use, in many regions.

Few might have expected so rapid a change in broadband access markets since the advent of Google Fiber, even though 1-Gbps access networks were in operation before Google Fiber launched.

The point is that unexpected, destabilizing change is not unusual in the communications or computing businesses, nor does the future unfold in the linear way we sometimes expect or prefer.

New Low Cost iPhone in Colors?

Remember the iMac? Maybe Apple's new lower-cost iPhones will take their cue from the iMac. 

The lower cost iPhone might then have something going for it other than lower retail price. 

The iMac, some might recall, was the machine that many believe saved Apple at a time when its future was quite cloudy. 

Some might see the analogy to Apple's current situation, in some ways. 

Recall what Steve Jobs said of the iMac, at the time: "The back of this thing looks better than the front of the other guys'."

Aside from the birth of the "i," the iMac probably represented the  first of Apple's recent industrial design innovations. 

D-Day

On June 6, 1944, perhaps the most-important and singular D-Day ever to occur, 160,000 Allied troops landed along a 50-mile stretch of heavily-fortified French coastline to fight Nazi Germany on the beaches of Normandy, France.

More than 9,000 Allied soldiers were killed or wounded on the day some would say World War II in Europe turned in a decisive direction. Some 150,000 died in the western European theater alone, by the end of World War II.

"Unintentional" Market Disruption Now a Growing Possibility?

Market disruption arguably is a very different thing than “competition in a market.” The former often leads to radical reshaping of markets, typically “destroying” much of the former total addressable market revenue.

“Normal” market competition typically puts pressure on retail prices, and causes more market segmentation,  but is relatively incremental in its impact.

Even when the strategic approach is “same service, lower price,” most efforts at competition simply aim for taking some share away from existing providers.

Incumbents may not like competition, but market share shifts, margin pressure and other changes do not necessarily cause the overall market size to shrink.

On the other hand, deliberately disruptive assaults often have an indirect aim of literally destroying a market. The new issue is whether, in a world increasingly based on Internet forms of competition, unintentional market destruction can result, even when a competitor would rather “only” take some market share.

You might argue is more rational for an attacking firm to take the “same service, lower price” approach because that might stimulate overall market growth, even as it creates an opportunity for the new entrant to take market share from incumbents.

That was the tack taken by virtually all U.S. competitive local exchange carriers and is typical of U.S. cable operator assaults on the small business Internet access and voice markets.

Apple is unusual in that regard. It attacked legacy markets by providing a “better experience at a higher price.” That is relatively rare in communications markets, but well understood in many other markets such as automobiles and luxury goods of all sorts.

Still, the more common approach in the communications market is the strategy of “take market share by offering equivalent value at lower prices.”

Some assaults are deliberately disruptive, such as Skype’s attack on long distance calling, collaborative approaches to building networks such as Fon, Republic Wireless or FreedomPop approaches to the mobile business, Some might say SoftBank’s approach in the Japanese mobile market was intentionally disruptive in this sense.

Perhaps the new issue is whether disruption can occur even when market participants “only” want to protect or gain market share. One thinks of the U.S. long distance market, for example. It arguably never was MCI’s strategy to destroy long distance profits to the point where long distance ceased to be an independent product category.

But that is what happened.

More recently, Internet-based attackers have been more willing to radically disrupt pricing in markets, because radically-lower capital, marketing or operating costs make such assaults possible.

Perhaps the new issue is unexpected disruption of markets, when that was not intended.

It probably is true that most of the time, new entrants are viewed as representing only one more source of incremental competition, since the initial value proposition is quite limited, compared to that offered by the market leaders.

Of course, as now is well understood, attackers tend over time to add features and capabilities that make additional market segments take notice. Eventually there can be nearly head to head competition offered by the attacker, across market segments and price ranges.

The perhaps new angle is whether more markets are susceptible to unintentional disruption. SoftBank, for example, might originally only thought it could succeed in taking market share from other incumbents.

But one might wonder whether market disruption now is happening, whatever SoftBank originally thought it could achieve.