Category Archives: economics

Carriers need to stop selling dumb pipes

I was not happy with my article Carrier Billing and Micropayments, when I first published it over a year ago. I did not feel that the ideas I was trying to communicate were distilled into a coherent formulation. What follows here is a second attempt at trying to convince Communications Service Providers (CSPs) to stop selling dumb pipes.


Most CSPs are old incumbent carriers with large loyal customer bases, established business models, and products that are substantially unchanged for decades. These enterprises are risk-averse. There is little tolerance for changes that would be disruptive to how business is run.

CSPs are in the business of selling dumb pipes (e.g., Internet access, mobile phones). The dumb pipe business is experiencing decreasing revenue per bit. CSPs know that this trend of diminishing profitability is unhealthy, and they are highly motivated to expand into new products (e.g., video).

Since the rise of the Internet, CSPs have seen Over The Top (OTT) services (Internet platformed services) thrive. OTT providers have even invaded the CSP’s spaces. While CSPs expanded into television and video services, OTT video services like Netflix and Hulu caused many customers to terminate their traditional television services. Customers prefer unbundled video streaming. This is especially true now that Disney Plus, ESPN+, HBO Max, and other premium video packages have become available à la carte (no longer exclusively bundled with television service). Unbundling of video services is once again relegating CSPs to selling dumb pipes, which undermines their efforts to expand revenues up the value chain.

CSPs have stodgy business models, because they are afraid of competition further eating into their revenue. CSPs suffer from their inability to formulate new product strategies to better monetize 5G investments. Technical features like network slicing, low latency, higher reliability, low power, high bandwidth, expanded radio spectrum offer possibilities for innovative applications, but carriers have struggled to translate such potential into desirable products beyond the standard offerings for the already saturated market for mobile phone service with mobile data.

From Tom Nolle:

Other articles:

Beyond 5G mobile and fixed wireless features, CSPs also have ambitions of expanding revenues through Edge Computing and “carrier cloud”. CSPs view the construction of their own cloud infrastructure in their own data centers as a core competency that is strategically important to the operation of the Network Functions that provide their communications services over their own network infrastructure.

Again, from Tom Nolle:

CSPs have ambitions to offer products to their customers based on carrier cloud, but they suffer from competition from hyperscalers (AWS, Microsoft Azure, Google Cloud Platform, Oracle, IBM). They aim to leverage their own data centers to provide cloud services for Edge Computing at the provider edge, believing that low latency in the last mile to the customer will offer performance advantages to certain types of services. Unfortunately, there is no evidence that such an advantage exists for CSPs. Performance sensitive components would likely need to be deployed at the customer edge in close proximity to the customer’s devices (such as for near real-time control of industrial processes). For all other types of services, it is difficult to see how regional CSPs can compete on price, scale, and reach against hyperscalers, who have global reach and performance characteristics that are not materially disadvantageous for those use cases. If customers need the performance, they will need computing at the customer edge. Otherwise, when their requirements are less stringent, public cloud infrastructure from hyperscalers is sufficient and economically advantageous.

CSPs must become more open to transforming their business models to find better revenue opportunities. They should look to Apple’s market success as one example of how to think differently. Apple forged a lucrative business model based on their iPhone and iOS ecosystem by taking a 30% cut of third party revenues earned by distributing applications through the Apple App Store. Because the potential for applications and in-app purchases is unbounded, the opportunities are enormous for Apple to earn revenues based on the innovations and work of innumerable third-parties using Apple’s platform. This is proven out by Apple’s incredible financial performance since launching this ecosystem.

CSPs should look to where their own businesses have strengths and advantages. CSPs have a large and established customer base, who entrusts the carrier to take automatic payments every month. That kind of trust relationship and reliable revenue stream is precious. Carriers have not learned to monetize that relationship with OTT service partners or extend such relationships to third parties, as Apple does. One of the biggest impediments to online businesses converting sales for digital subscriptions is the resistance among customers to trust the business enough to create an account and authorize their payment card for automatic recurring payments. That lack of trust is an enormous barrier for most businesses. CSPs can leverage their advantage in Carrier billing to enable micropayments and easier monetization of third party services through the carrier’s infrastructure, billing, and payment platforms. This would enable CSPs to apply Apple’s business model to charge third party services a percentage of subscription fees by owning the customer relationship and the monetization of those third party services.

Let’s explore a concrete scenario to illustrate this point. As a customer of online digital services, each of us has routinely been the victim of multiple unscrupulous vendors. One crooked technique these vendors employ is to be unresponsive to termination requests for subscriptions that have recurring monthly payments automatically charged to a payment card. Sometimes such paid subscriptions are opted in by misleading a customer to try a free introductory offer. Often, intervention from the bank or payment card company is required as a remedy. These kinds of costly and upsetting incidents ruin it for all online digital services, because customers become wary of authorizing payments for any business whose reputation is unknown. Every time a customer shares their payment card information with another vendor, it is a calculated risk that the vendor could be unscrupulous or that the payment card information can be stolen by a data breach (hacking). After being burned, most people would be extremely hesitant to subscribe to a dozen low cost ($0.99 per month) content providers (i.e., magazines, journals, newspapers, etc.), each taking payments separately.

However, for a customer already being charged $200 per month by a CSP for their family’s multiple mobile phone and data services, adding an extra twelve $0.99 charges to their bill (an increase of less than 6%) with the peace of mind knowing that the carrier’s billing dispute and adjustment processes are reputable, friendly, and reliable is a comfortable commitment to enroll in. Now, imagine every product company taking advantage of this easy entry into the market for digital subscriptions, where they would otherwise have found the barrier to entry too daunting. You will see connected running shoes, connected tennis rackets, connected exercise equipment, connected vehicle dash cameras, connected home security cameras, connected home appliances, connected irrigation systems, connected pool circulation systems, connected everything become viable market opportunities for the smallest (and most innovative and entrepreneurial) of vendors. If CSPs bundled monetization with access to their 5G capabilities and their Edge Computing resources for a cut of the third party service’s revenues, that arrangement becomes even more attractive to innovative and entrepreneurial startups who may build the next killer app that no CSP could dream of themselves—and that would be impossible to nurture into existence through partnerships.

For CSPs who envision that the Internet of Things (IoT) will provide new revenue streams in high volumes, they must realize that for things to be connected to the Internet in an economical way, the digital services associated with those things must be monetizable easily and with low barrier to entry. For there to be sufficient uptake, not only do ordinary physical things in everyone’s every day lives need to be connected, but it must be inexpensive and convenient. Technical capabilities, convenience, and low cost come about by leveraging the CSP’s infrastructure, services, monetization platform, and established relationship with the customer base.

As a stodgy incumbent, a CSP is resistant to revamping how they do business. Their belief in their products is entrenched. They believe their own role in the market is entrenched. Incumbency and entrenchment are impediments to transforming their business. So long as CSPs cling to the belief that they must defend their declining revenue-per-bit dumb pipe business against OTT services, CSPs will not be motivated to engage in transformation. They need to understand that their advantage is not in dumb pipes. Their advantage is in owning strong customer relationships that can be monetized on behalf of third party services that are unbounded in potential revenue opportunities. Digital services want to receive payments from subscribers, and CSPs can broker this through their own reputable, ethical, and trust-worthy billing and payments platform.

CSPs must move away from primarily selling dumb pipes. They should re-orient the business to enable an ecosystem that uses the CSP’s infrastructure and platform to sell digital services from all vendors to the installed base of loyal customers. This will open up unbounded opportunities for passive income as all the risk to develop innovative new products based on OTT services is borne by third party digital service providers, while the CSP reaps the rewards of their use of the CSP’s ecosystem.

Hydrogen storage – mitigating unreliability


Sabine Hossenfelder
produced an excellent video about renewable energy storage to mitigate the unreliability of sun and wind. I would like to focus on the hydrogen storage segment of this.

Hydrogen storage being cheap should be explored more. The biggest problem with hydrogen is the danger of storing it as pressurized gas, which requires significant volume and strong materials. The hazard to be mitigated is fire that causes a powerful explosion of expanding gas under high pressure.

The solution to hydrogen storage is metal hydride, which would provide higher density storage than even pressurized gas. Another benefit of metal hydrides in the form of powder or tiny beads is that they are stable at atmospheric temperatures and pressures, they are easily transportable, they are easily stored in small tanks of vehicles, and safe even if the tank is damaged by vehicular collision. Therefore, it is foreseeable that metal hydrides (hydrogen fueled internal combustion engine) would be a viable alternative to gasoline and diesel fueled ICEs in today’s vehicles, especially given that the exhaust from combusting hydrogen is water vapor.

The next problem to solve would be to develop a metal hydride ecosystem, so that the life cycle of “charging” them with hydrogen to fill a vehicle, and then returning spent fuel to the fueling station to “recharge” is as convenient as gasoline/diesel filling stations. We can imagine this being solvable, because it is analogous to refining petroleum and delivering refined fuel to the fueling stations, except with the added return path of the spent fuel back to the refinery (hydrogen production facility, where solar/wind/nuclear power is converted to H) to “recharge”.

I’m a proponent of thorium molten salt reactors (MSR), such as LFTR, for producing electricity. Combining modern (passively safe) and reliable nuclear power generation with hydrogen production (using electrical power to split water molecules) and storing hydrogen in a metal hydride seems to me to be a good long-term solution to replacing gasoline and diesel fuels for transportation.

Digital Economy of Social Cohesion

This Web2 era of the Internet has culminated in the concentration of economic power in a few of the largest corporations, a phenomenon that is termed Big Tech. Facebook (Meta), Amazon, Apple, Netflix, Google (Alphabet) are known as FAANG, the dominant Big Tech players. Centralization of control and concentration of power go hand in hand. This control is being used for social engineering, which is divisive, and it is destroying social cohesion.

Web2 is described by Britannica as:

the post-dotcom bubble World Wide Web with its emphasis on social networking, content generated by users, and cloud computing from that which came before.

https://www.britannica.com/topic/Web-20

Digital Economy

The digital economy that has emerged from Web2 is based on either extracting fees from users, as Netflix does with subscriptions and Amazon does with Prime, extracting profits from selling goods as Amazon and Apple do, or selling ads as Facebook and Google do. In each case, the business model relies on positioning the Big Tech company as the dominant supplier in the supply chain.

If you produce movies, you have to go through Netflix to reach your audience. Producers of goods have to go through Amazon to sell to your customers. If you produce iPhone apps, you have to go through Apple’s App Store to offer apps to users. If you want to advertise, you have to go through Facebook and Google to reach your audience. In every case, Big Tech is an intermediary that gets rich as the middleman.

Crypto Payments

One feature of Web3 is the incorporation of digital currencies (crypto). This would disintermediate payments by potentially eliminating banks, credit card companies, and payment processors. The payer and the payee would transfer funds directly with a transaction on a blockchain, which itself has no controlling entity and is therefore decentralized (assuming we are talking about Bitcoin, not some shitcoin). Financial transactions paid in crypto require no middlemen. Digital transactions have concentrated power into Big Tech because integration with the fiat financial system is expensive and subject to onerous regulation.

Integrating a crypto payment protocol natively into the Web is a game changer. Not only would it begin to decouple commerce from the fiat financial system, it should also begin to alter the relationship that users have with service providers and each other. Fiat payment processors impose an asymmetric relationship between participants: merchant and consumer. Crypto eliminates that asymmetry by enabling anyone to send funds to anyone with an address who can receive them.

Monetizing with ads destroys Social Cohesion

Google and Facebook have thrived on advertising dollars because of the asymmetrical relationship imposed by the fiat payment system. The Social Dilemma is a Netflix documentary that explains how the ad revenue model provides social media companies perverse incentives to design systems that encourage harmful behavior among the user base. Engagement becomes divisive. Information bubbles form. Users become addicted to dopamine hits. All to lure more eye balls and clicks so that advertisers can be charged for more impressions and conversions. Users hate seeing ads, but it is the price they pay to receive free services, as their engagement is monetized. The users become the product that is sold to advertisers.

Monetizing without ads brings Social Cohesion

How does eliminating fiat asymmetry fix this? Users on social media are content creators. Their opinions are an organic source of reviews, endorsements, and complaints. Every day the most compelling content goes viral because the audience is won over and engages enthusiastically.

What if a decentralized social media platform, instead of directing advertising dollars to Big Tech, rewarded users for content creation and promotion?

Users could be paid to post quality content with their compensation being proportional to the positive engagement they receive from others. This could be achieved through tips from the audience and from promotion fees charged for boosting content. The key is rewarding users for positive contributions. This institutes an incentive structure that increases personal fulfillment and social cohesion. This is what we want to enable with Web3.

Risk-Reward of Entrepreneurship

Entrepreneurship is characterized by willingness to take on higher-than-normal risk in pursuit of outsized reward. To achieve outsized rewards, one must be willing to accept higher risks, because risk and reward are proportional. Success comes from skilled assessment of what risks are worth taking for the rewards that can be earned with respect to capital accumulation (growing the business), production capacity, revenues, profits, market share, innovation (bringing superior products and services to the market), and customer satisfaction (making a positive difference to society).

Start-ups pursuing highly uncertain goals on the frontier of human innovation are at the extreme end of the risk-reward spectrum. Near-certain failure is assumed by outsiders. Most people believe the pursuit to be impossible. Only the entrepreneur has the vision and courage that are uniquely exceptional to overcome the status quo. The culture of a start-up is defiant, contrarian, and non-conformist.

A start-up’s market is initially non-existent because demand follows supply. Supply is zero until the product is produced and its value can be demonstrated to consumers. People could not have imagined the product until the invention brought it into reality. Invention creates a market, where none existed before. Before the automobile was invented, the market for transportation could only imagine a stronger, faster horse. Once an automobile could be supplied, consumers demanded it.

Contrast a start-up with an established corporation. An established corporation has mature processes, regimented procedures, and formalized governance. Standards, guidelines, and best practices are enforced through reviews and approvals for compliance. The intent is to reduce and mitigate risks: financial risk, schedule risk, technical risk, security risk, and market risk. Knowing what has proven to work, it is imperative to institutionalize delivering quality reliably and consistently to engender trust with customers and shareholders. The culture of an incumbent is compliant, conformist, and standard-bearing.

Entrepreneurship often involves recognizing that what has worked for the incumbents can be revolutionized. Processes can be more efficient. Labor can be automated. Products can be better designed or entirely obsoleted by the next generation of technology. Business models including the relationship with customers can be changed (i.e., a perpetual license can be replaced by a subscription). The goal is to win sales from customers by having a competitive advantage. Entrepreneurs seek to disrupt the market for existing incumbents.

Incumbents are intent on protecting their market position. Risk is ever-present that a competitor may win out. New up-starts entering the market are disruptive to the market. There is the risk that an established business can be made obsolete. Obsolescence is almost inevitable, as we are continually advancing to improve quality of life. Danger exists for incumbents who stubbornly cling to their established ways, eschewing novel innovations that are causing the industry to evolve. Incumbents may even resort to erecting barriers to entry through lobbying and regulatory capture. But the relentless march of progress never stops.

There is an uncomfortable tension between maturity (protecting what is proven to work) and novelty (inventing better ways of working). Culturally, it is very difficult for an incumbent to build disruptive technology that threatens its own business, even though it knows this kind of disruption is necessary to make a better future. This clash in cultures is usually overcome by entrepreneurs building start-ups, which are unencumbered by the status quo. The freedom to explore disruptive innovations allows a start-up to break all the old rules and ignore every self-imposed constraint that would hold back an incumbent from going against its established know-how. An incumbent’s financial strength allows it to forego risky experimentation, which is prone to failure, and watch the landscape for successful start-ups that can be acquired before they grow to become a competitive threat. In so doing, an incumbent gets the best of both worlds. It can protect its market position while also benefiting from risky bets taken by entrepreneurs that prove successful.

When an incumbent acquires a start-up to absorb successful innovations the clash in cultures becomes apparent. There is a desire to incorporate the smaller start-up into the larger incumbent’s organizations, and subject them to mature policies, processes, and procedures. Often, what is discarded are what made it possible for the start-up to be entrepreneurially successful: the freedom to be agile, rule-breaking, disruptive, and anti-establishment. The incumbent usually incorporates innovative technology but resists incorporating innovative culture and spirit, especially entrepreneurial risk-taking.

DDT – a childhood story

Here is my childhood story about dichlorodiphenyltrichloroethane (DDT).

I grew up on a 30 acre vegetable farm north of Toronto. When I was a toddler, my parents would leave me to play by myself as they and my older sisters worked the fields. I’d climb on the mountain of stacked bags of fertilizer and DDT.

My family would fill burlap sacks full of DDT and walk among the vegetable fields, shaking the powder into a fog. Womp! Womp! Womp! I don’t remember if they bothered to wear respirators.

One day, my mom returned to the DDT mountain to find me digging into a bag with my hands elbow deep. I had smeared the white powder all over my face. I told her I was wearing it as makeup. She tells everyone that is why I grew up to be healthy and strong.

The moral of the story is: DDT was so safe, farmers used it without any protection and children played among it without being harmed. After DDT was banned, we switched to toxic chemicals like Malathion, Parathion, Captan, Diazinon, and others.

Unlike DDT which harmed no one and nothing, after spraying these potent chemicals, we would return the next day to find a field sometimes littered with dead birds. No one sprays these without wearing respirators. Deadly stuff.

Wealth versus Quality of Life

Conflating “wealth” with “quality of life”—in criticism of wealth inequality—is a fatal error. It is important to recognize that wealth in the form of capital accumulation (savings that are re-invested into factors of production toward increasing capacity for supplying goods and services into the future) speaks to supply-side capacity. The abundance created by this productive capacity is what provides for quality of life. On the demand side, quality of life comes from consumers with incomes that have purchasing power to acquire those goods and services. The greater the abundance of supply, the greater the purchasing power that consumers can wield (as expenses on the income statement or outflows on the cash flow statement) WITHOUT wealth (assets and equity on the balance sheet) playing any role for consumers. The role of wealth is to associate ownership for management responsibility over factors of production to create and maintain supply. The role of income is to have purchasing power to enable quality of life for consumers. Savings (retained earnings that are re-invested) is how consumers cross over to participate in wealth toward the management of supply.

Economics of Human Valuation

These are my evolving thoughts about human valuation. These thoughts extend from currency of goodwill.

The currency of life is life-energy. When we give things of value to someone to improve their well-being, whether it is material or intangible, we transfer life-energy from ourselves to the recipient. The esteem that we hold for others is counted in life-energy credits and debts registered in our personal accounting system. For strangers who we hold at arm’s length there is a direct conversion of life-energy into monetary units when we conduct transactions. Even then, the quality of such transactions is accounted for with non-monetary life-energy to account for goodwill that is earned or extinguished.

Gigify – independent contractors

Is there an opportunity to extend the gig economy as a business model to revolutionize every employer by converting employees into independent contractors?

We went through a period of vertical integration, where businesses bought up the partners in their supply chain to offer greater efficiency and reliable delivery. We also saw a lot of innovation toward disintermediation, cutting out the middleman. Look at Amazon as an exemplar.

This creates industry giants that are too big to resist political cronyism. That is, they win by buying legislation and regulations that hurt their competition, especially small start-ups who can’t afford compliance or who don’t want to operate like status quo incumbents. However, this also makes these giants easy targets for exploitation, as politicians are just as likely to sell out to powerful voting blocks, such as to push for labor rules or minimum wage raises or health insurance benefits.

What we should learn from Uber, AirBnB, and other gig economy digital services is that the cloud service component of their business model would be the perfect counter move to thwart regulatory enslavement schemes. The actual service providers (car drivers, property lessors, etc.) operate as independent businesses, and they don’t operate as employees. In fact, they are customers of the digital service.

We can extend this business model to its extreme. Imagine a digital service for human resource management, which provides an intermediation service between any corporation to workers who operate as independent contractors. The entire concept of employees disappears, as the HRM service provides administrative and labor procurement functions to the purchaser of labor, while simultaneously providing the administrative and labor supply functions that enable the suppliers of labor to operate as independent corporations.

Whereas the voluntary employer-employee relationship has been susceptible to regulatory interference due to the historical power of labor unions, the integrity of private contracts is sacrosanct, and will be very difficult for legislators and regulators to impair, as it will be vigorously defended and upheld in the courts.

currency of goodwill

Success and failure in life and our relationships—personal and professional—relies in large part on goodwill. Goodwill is measurable. We maintain an account for every interpersonal relationship. We trade in goodwill. It has a currency.

People wonder what makes them liked or respected or appreciated. We hold others in esteem in proportion to the amount of goodwill they’ve accumulated in their account. If someone has been kind and thoughtful in the past, their account carries a higher balance. If someone has done many favors and has called in very few of them, they have earned a wealth of goodwill.