Vincent Wright

Terry Matthews stays ahead of technology curve

By Vincent Wright

Few individuals can offer a more credible discourse on broadband Internet opportunities than Terry Matthews — Canada’s wealthiest and most tenacious information technology (IT) entrepreneur. So it’s little wonder that a capacity crowd was on hand to hear the founder of Mitel Corp and Newbridge Networks Corp deliver the opening keynote at the recent Smart City Summit in Ottawa.

Matthews didn’t disappoint, offering a fresh perspective of the current industry doldrums and a spirited vision of the seemingly boundless business potential emerging from broadband Internet Protocol-based infrastructure.

Matthews’ understanding of technology and market dynamics in the computing/communications space is legendary. His first venture, Mitel Corp, exploited advances in microprocessor technology to trail-blaze new opportunities in digital voice and data switching for enterprises. After stewarding Mitel to stellar success — its stock soared from $3 to $600 at one point — Matthews created Newbridge, a market leader in ATM (asynchronous transfer mode) switching.

That Newbridge rose to prominence and became a market darling like Mitel is a tribute to Matthews’ sense of timing. He astutely identified ATM as a cornerstone protocol for broadband packet communications long before the Web triggered an explosion in packet data traffic on both public and private networks.

Matthews has amassed a large fortune from the infrastructure side of the business, but that’s not where he’s investing his time these days. His third major venture, March Networks Corp, is pioneering innovative services and applications enabled by the ongoing rollout of broadband IP infrastructure.

BROADBAND TECHNOLOGY ADVANCEMENT DISRUPTIVE

In IT there’s always a considerable technology interval between advances in hardware platforms (infrastructure) and the design of applications and services that exploit those advances. The computing world captures this rate of advance in Moore’s Law, where the performance of microchips doubles roughly every 18 months.

While that may sound like a hectic rate of change, consider the far more disruptive advances in telecommunications technologies. Mind-numbing progress in such areas as optical dense wavelength division multiplexing (DWDM) and digital subscriber line (DSL) technologies has dramatically increased capacity at the core and edge of networks. In the last decade, the transmission capacity of a single optical fibre has mushroomed more than 100-fold, while the introduction of DSL technology boosted Internet access speeds by a factor of 20 or more. By contrast, the pre-cursors to DSL, dial-up analog modems, effectively advanced along the same curve as Moore’s Law.

The dizzying pace of improvement in broadband technologies did bring instant prosperity to the innovative equipment vendors. But it was short-lived. Among the many reasons for the ensuing industry meltdown: the prosperity enjoyed by the vendors has yet to be shared by their customers, particularly service providers who are saddled both with excessive debt loads and network capacity.

The current plight of network service providers is partly because of the yawning technology gap between advances in broadband infrastructure and new applications and services optimized for those developments. Plainly the latter have not kept pace.

Unfortunately, in a rather unimaginative bid to recoup their infrastructure investments, service providers are now levying new bandwidth toll charges on heavy broadband end-users. This ill-advised measure will arguably retard the widespread uptake of bandwidth-intensive applications and services.

From Matthews’ remarks, it’s clear that operators will drive value out of their networks not from incremental bandwidth charges on end-users, but from a bevy of new broadband IP applications and services. He served up two terrific broadband service cases that could re-define both network economics, and the business models of entire industries.

The first involves the colossal $3-trillion US retail industry, which produces head-scratching results based on razor-thin margins. Specifically, write-downs from so-called shrinkage (mainly theft) weigh in at about $35 billion annually or almost double the $20 billion eked out in profits.

While retailers invest heavily in deterring front-door theft, Matthews points out that a majority of shrinkage involves insiders using the rear entrance. With the application of broadband IP-enabled video surveillance services (possibly combined with cheap, application-specific radio chips in merchandise), it’s conceivable US retailers could reverse the numbers on shrinkage and profits, while yielding enormous wealth for shareholders.

The retail sector is just one of several that March Networks is pursuing vigorously with its suite of broadband IP interactive video offerings. It also sees enormous potential in health care, distance education, mass transit, and public security markets, to name a few.

The other specific opportunity highlighted by Matthews involves the provision of virtual telephony services to business professionals based in a geographically remote and economically disadvantaged location like Newfoundland. In this instance, broadband IP infrastructure allows the service provider to offer the Newfoundland business a virtual presence in major customer centres like New York, Toronto and Los Angeles.

This is achieved by provisioning virtual circuits (telephone numbers), at a modest incremental monthly charge for each city. Clients in the major urban centers are then afforded the convenience and savings of dialing locally to reach the Newfoundland business.

Using this solution, Matthews says a business in Newfoundland can suddenly seize its cost-of-living advantages to compete favorably against professional service organizations operating in high-salary, high-rent territories. In network parlance, this is referred to as The Death of Distance — a phenomenon that’s bound to have profound implications for economic development strategists.

At minimum, federal policy makers will have to examine how broadband IP infrastructure levels the playing field, possibly even giving a new edge to businesses that were once dependent on regional disparity hand-outs. But that subject is sufficiently loaded to merit separate attention in a future column.

Vincent Wright (vincent.wright@sympatico.ca) is an Ottawa-based freelance writer, photographer and editorial consultant. He is the founding editor of RE$EARCH MONEY.