what?

Huawei, Rep. Wolf and George Clooney

2012-04-29T17:25:00.002-04:00

Representative Wolf (R-VA) has some strong concerns about China, many of which may well have merit. Sadly, Rep. Wolf's expressions of concern about China, however well-justified, sacrifice credibility when he kowtows to industry friends who seemingly seek to leverage the Congressman's China concerns to preclude competition and innovation in the U.S. information and communications technology industry.

Recently, as reported by The National Journal (link) and others, Rep. Wolf wrote to a Managing Partner at a D.C. law firm calling on that Partner to drop representation of China-based multinational Huawei, my employer (Please note that the comments in this blog are my personal reflections).

Rep. Wolf's letter rehashes oft-cited, never-substantiated disinformation about Huawei, including purported ties to the Chinese Government, as justification for his request of the law firm. He further cites as some sort of factual basis for his opinion an April 6, 2012 Wall Street Journal article that quoted Cisco CEO John Chambers saying that Huawei is Cisco's "toughest rival" and that Huawei doesn't always "play by the rules."

Among multiple ironies associated with Rep. Wolf's seeming support for Cisco's commercial de-positioning campaign, is the fact that Cisco conducts significant research and development, codes software, builds products and invests billions of dollars annually in China, Chinese-based innovation, and Chinese education and jobs.

There has never been a shred of proof of Huawei having any undue connection to the Chinese Government. Notably, Huawei, which bears some responsibility for having allowed disinformation to fester for the better part of a decade, has since its February 2011 "Open Letter" (link) continually and proactively communicated detailed facts about the company, and has consistently been met with nothing more than unsubstantiated politically- or competitively-inspired myth and innuendo.

But this isn't Rep. Wolf's first run at the company. On March 19, 2012, Wolf made remarks for the Congressional Record (link), yet again undermining his concerns about China-based cyber activities by purporting links between Huawei and the Chinese Government (citing numerous never-substantiated sources, U.S. Government and otherwise), and almost amusingly warning that "U.S. network carriers should not be selling Huawei devices...but if they do, they have an obligation to inform their customers of these threats." Given that virtually every mobile device (and computer, for that matter) is made in China, the carriers are going to have to cede a lot of display space to Rep. Wolf's proposed warning brochures...

Wolf's letter also quotes U.S. Secretary of Commerce John Bryson making fuzzy observations about Huawei, including the quizzical statement: "It appears that Huawei has capabilities that we may not fully detect to divert information." Sadly, Rep. Wolf's letter is too brief to include yet more "fun with facts" from his exchange with the Secretary that took place during a March 20, 2012 Commerce-State-Justice Appropriations Subcommittee meeting. So, it seems only fair that we review some highlights (errors are not mine, they come verbatim from the transcript), with comments. I'll ignore all of the tired references to Huawei's "close connections" to Chinese intelligence, given that they are backed with zero substance and fly in the face of well-publicized facts:

WOLF: "...The Wall Street Journal reported that quote, 'Huawei's network business has stride at the expense of struggling Western network companies such as Alcatel, Lucent Company and the Korea's Siemens networks.' The bottom line is that these subsidies are costing American jobs and distorting the global market."

Comment: Ok, this one is easy enough... Yes, competition can have an impact on incumbents. But, the incumbents referenced - based in France and Finland/Germany and both with significant operations in China - have been cutting American jobs and investments in the U.S. for years now while Huawei has been adding thousands of jobs, investing hundreds of millions of dollars in U.S. innovation, and procuring billions of dollars worth of goods and services from U.S. based technology companies.

WOLF: "The Chinese government has Catholic bishops on house arrest. The Chinese government's connection to Huawei, the People's Liberation Army, has Protestant pastors -- house Protestant pastors in jail... They have a 2010 Nobel Prize winner, Xiabo in jail. They were not allowed to go to Oslo to pick up the award nor would they let his wife go. Based on the policies of the Chinese government and the People's Liberation Army in connection to Huawei too, we have to keep in mind all the time."

Comment: Huh?

WOLF: "We cannot disregard the fundamental connection that Huawei's doing and that they're connected within the Chinese government and the activities of the Chinese government and lastly, there was a lot of news last week when George Clooney who was (inaudible) went to Sudan. I was in Southern Sudan, in that refugee camp in (Nuba). The Chinese, the People's Liberation Army, connected to Huawei, are putting Chinese rockets that go 100 kilometers that are killing people..."

Comment: WTF?

WOLF: "...I saw that the president met with George Clooney, so there's no breakdown. I think it's important that the White House understand the whole Huawei connection so that this company doesn't hire Washington lawyers and lobbyists and people plugged in to begin to approach the White House to bypass the good work that you're going to be doing with regard to Huawei and go around you by going into the White House because as you can remind the White House, when the president met with George Clooney and that's on this issue. That has connectivity to the whole Huawei issue."

Comment: I am speechless...

To the extent that Rep. Wolf's credibility may have been undermined by his curtsy to Cisco, it seems utterly blown away by the flights of fancy featured in his remarks on the record above. Indeed, one really has to wonder what Secretary Bryson and anyone else in the room must have been thinking as the words spewed forth...

Fairly addressing the "Huawei Challenge"

2012-04-03T09:50:00.005-04:00

Huawei Technologies is a world leading information and communications technology solutions provider. Huawei's solutions have been deployed in over 140 countries, by over 500 operators, and are currently connecting around one-third of the world's population to telecommunications and broadband services.

Yet, for purported "national security" reasons, Huawei has been precluded by certain governments in certain instances from competing for certain projects or making select acquisitions, as most-recently highlighted in the context of the Australian National Broadband Network (NBN) roll-out, but more notably in a string of incidents in the U.S. dating back to 2008.

Barring Huawei from projects means less competition, less industry-wide innovation, less choice for telecommunications operators, more expensive networks, and pricier broadband services for consumers.

At the heart of the so-called national security concerns is the fact that Huawei is based in China.

Swirling around this fundamental fact - for the better part of the last decade - have been numerous universally-unsubstantiated allegations, innuendo, myth and untruths about Huawei, often as not encouraged by Huawei's global competitors.

But, the only demonstrable fact - for whatever political or other reasons of some concern - is that Huawei is based in China.

So what about the competition?

Due to the global market-based realities that have evolved over the last 10-15 years, Ericsson, Alcatel-Lucent, Nokia-Siemens, Motorola, Cisco and virtually all other major ICT venders are also heavily investing, conducting research and development, coding software, manufacturing product and supporting tens of thousands of jobs in China.

What is it about Huawei that makes it different? Just the Chinese heritage? After all, no other concern has ever been validated. Ever. Indeed, if all such concerns remain unsubstantiated, then governments are seemingly driving less competition, less innovation, less choice, more expensive networks, and pricier broadband services for their citizens.

That said, given the history (if nothing's been proven over the last ten years it's unlikely to happen now), let's assume that the decade of myth and innuendo will remain nothing more than that and turn our attention to more fully addressing the "Chinese product" concern.

Governments - politicians, policy-makers, regulators, legislators - that are contemplating mechanisms to block so-called Chinese companies from their ICT sectors (or elements thereof) should at the very least conduct such contemplation in the context of a full and public review and understanding of all of the facts and their implications.

How might we achieve this? Simple. If "Chinese product" are a concern, then every ICT vender should publicly disclose and detail and answer questions related to their global operations, worldwide supply chains, operations in China, as well as (while we're at it) their security practices and disciplines.

Notably, half of this information is on the public record (if seemingly unnoticed). Why would anyone object?

Bottom line: National security concerns are real - for any country. Telecommunications network and critical infrastructure protection are vital national and international challenges, as is protecting sensitive government and commercial information. True, honest and effective solutions to meeting these challenges will only be realized with all of the facts on the table.

The facts are that all of these companies are global, rely on the same global supply chains, and the same global ICT supplier and partner ecosystems - they share the same potential vulnerabilities. This is undeniable.

Once the facts are understood, once it is acknowledged that every ICT vender is a globalized company, including with significant R&D, coding and production in China (and in the U.S., for those who might harbor such concerns), then the conversation about "national" security concerns can turn in a more rational, fact-based, global solution-oriented direction.

Why would anyone object?

Full disclosure (in case you hadn't gathered): I work for Huawei.

MAD About Cyber-Security

2012-03-28T16:19:00.003-04:00

While the decades of the Cold War were witness to various and sundry proxy fights in discrete, far-flung battlefields, as well as rare moments of frightening brinksmanship, the relationship between the U.S and the Soviet Union was largely governed by the very real-world military doctrine of mutually assured destruction (MAD). Simply put, given the massive nuclear arsenals on both sides, it would have been, well, mad, to contemplate mutual annihilation - neither side had any rational incentive to initiate a full-scale conflict because retaliation would ensure that victory was utterly unachievable.

Key to the tacit superpower “agreement” was the need to ensure that the precarious balance not be upended, for instance, by the spread of the technology capable of enabling unstable powers to enter the game. With NATO and the Soviets and Satellites in an effective stand-off (excepting “controllable” proxy spats), the imperative was to manage proliferation, hence the 1970 Non-Proliferation Treaty (NPT). While history has demonstrated that the NPT was only marginally effective, it complemented MAD in precluding escalation to any world-devastating conflict.

Flash forward to today’s era of cyber-insecurity. While the landscape is not as well-defined as during the black and white, us-vs.-them Cold War days (State and non-State sponsored cyber activity is common worldwide), the two biggest actors, the U.S. and China, are caught up in a maddening (as it were) dance. While various States and non-States – Russia, Israel, Anonymous, WikiLeaks (to name a few) - are wielding their cyber-tools with only sporadic and superficial notice, the U.S. and China are ratcheting up their bilateral cyber-tension, in terms of both action and rhetoric.

Not a day goes by that we don’t read of Chinese cyber-incursions into U.S. networks. Not a week passes that we don’t hear one or another strident Government Agency or Congressional voice decrying Chinese theft of secrets and threats to U.S. critical infrastructure. Presumably, the Chinese have the same concerns about American activity inside their cyber-borders and networks – they are perhaps just less publicly vocal on the topic. In Washington, however, cyber has become the scare de jour.

What’s lost in the fear-mongering hullaballoo is the fact that both sides are mutually vulnerable, to each other, and to other actors in what is essentially a borderless cyber-world. National governments and globalized industry struggle – in frustrating fits and starts - to define best practices to secure supply chains and to develop technologies and tools to monitor and analyze digital traffic to detect, quarantine and quash the potentially nefarious. Flash back to the early Cold War: Would the signatories to the NPT have even had a treaty to sign in the absence of Superpower MADness?

Fragmented (national) solutions to cyber-threats will not effectively address what is intrinsically a global phenomenon. Indeed, beyond being ineffective in managing cyber-threats, such initiatives will ultimately result in further fragmentation and disruption – in terms of global information and communications technology (ICT) supply chains, digital commerce, and, ultimately, innovation and economic recovery and growth.

The facts are – as anyone engaged in any intellectually honest discussion must acknowledge – that effective solutions to cyber-security concerns must be universal because cyber-vulnerabilities are shared across the entire ICT industry and every country because the ICT industry – ALL players – is transnational. But, until and unless the U.S. and China come to some accord in terms of acceptable ("controllable") cyber behavior, a fact-based, rational and effective solution to our cyber-worries may well remain elusive. MADdening isn’t it?

It’s time to borrow from the past, and not in terms of Cold War, knee-jerk, “they’re all evil” sentiments, but, rather, in terms of settling into a MAD-like Nash Equilibrium. The U.S. and China must agree to certain behaviors, and then project adherence to those behaviors via some latter-day NPT-like global cyber regime. (Please don’t read that wrong – it’s obviously too late to stop proliferation of tools of digital mischief, if it was ever possible. And, just as the criminalization of hacking is a pipe dream - which even if achieved would fall flat in terms of enforcement - so too are UN cyber-inspectors).

Bottom line: All of today's inflammatory cyber-rhetoric and cyber-political flailing about is serving no-one’s true cyber-interests. Globalization is real. The ICT industry is global. Our digital economies are increasingly interdependent. Cyber-threats do not respect - or even recognize - national borders (e.g. Stuxnet did some collateral damage outside Iran). Today's superpowers must acknowledge that their bilateral (and mutual multilateral) tension and conflict are not going away and, as such, should at the very least strive to manage common vulnerabilities in such a manner that both sides can continue to maintain their respective national AND economic securities, to their mutual benefit.

Just sayin'...

China, Russia Propose UN Cyber-Code

2011-09-20T17:04:00.008-04:00

Concerns related to network- and cyber-security, which have increased rather dramatically in recent years, are reaching an all-new crescendo. Notwithstanding the sometimes-strident nationalist rhetoric of one or another country, what is missing from cyberspace are Geneva Convention-like international rules to standardize (and/or "govern") cyber-behavior.

And, lo (and behold), just over a week ago, on September the 12th, China, Russia, Tajikistan, and Uzbekistan asked the UN Secretary-General to circulate a proposed voluntary International Code of Conduct for Information Security at the 66th session of the General Assembly (taking place this week in NYC), and further called on UN member countries to consider the document as a framework around which to reach a near-term consensus on international norms and rules standardizing national behavior related to information, cyberspace and network security.

Bravo!

...Wait. China, Russia? Really? Aren't these the cyber-bad guys? Or, are they just the ones that get caught more often than others, or, could it be that they're just more regularly on the receiving end of Western-based media attention than other cyber-perps?...

...Ok, ok, leaving that cynical tidbit-for-thought aside for the nonce, what does the proposed Code suggest?

Well, as should be expected of any formal intergovernmental document, the preamble is chock full of "recalling," "reaffirming" and "recognizing" to set the stage for the actual proposals, but it's worthwhile to take note of some (not all) of the lofty and unobjectionable objectives outlined in the lead up to the actual (remarkably brief) proposed code. To wit:

- Recognizing the need to prevent the potential use of information and communication technologies (ICTs) for purposes that are inconsistent with the objectives of maintaining international stability and security, and may adversely affect the integrity of the infrastructure within States, to the detriment of their security...

- Highlighting the importance of the security, continuity and stability of the Internet, and the need to protect the Internet and other ICT networks from threats and vulnerabilities, and reaffirming the need for a common understanding of the issues of Internet security and for further cooperation at national and international level...

- Recognizing that confidence and security in the use of information and communications technologies are among the main pillars of the information society, and that a robust global culture of cyber-security needs to be encouraged, promoted, developed and vigorously implemented...

Good stuff. Good framework. What about the key elements of the proposed Code?

Well, each State voluntarily subscribing to the Code would pledge, among other things not related directly to network/cyber-security:

- Not to use ICTs including networks to carry out hostile activities or acts of aggression and pose threats to international peace and security;

- Not to proliferate information weapons and related technologies;

- To endeavor to ensure the supply chain security of ICT products and services, prevent other states from using their resources, critical infrastructures, core technologies and other advantages, to undermine the right of the countries...or to threaten other countries' political, economic and social security.

- To lead all elements of society, including its information and communication private sectors, to understand their roles and responsibilities with regard to information security, in order to facilitate the creation of a culture of information security and the protection of critical information infrastructures.

Again, good stuff. Cyber-motherhood and broadband apple pie, as it were...

Hey, I'm the first to admit that rhetoric is little more than nothing in the absence of action and accountability, but that's no reason to look a rhetorical gift horse in the mouth. It is in all of our best interests and the interest of global commerce and security - physical and digital - to address the proliferation of cyber-threats. Any UN member country that rejects or ignores either the call for action or the proposed Code should at the very least be challenged to deliver an alternative.

This should be interesting to watch...

Meanwhile, in other news, Network World reported yesterday on an interview/Q&A with former cyber-security czar Richard Clarke. Clarke, who served in the State Department under Reagan, as chair of the Counter-terrorism Security Group and member of the National Security Council under Bush I, as National Coordinator for Security, Infrastructure Protection, and Counter-terrorism (the chief counter-terrorism adviser on the National Security Council) under Clinton, and Special Advisor to the President on Cyber-security under Bush II, had some interesting answers to some probing questions, including:

If you had the influence, what would you change to improve U.S. cybersecurity?

"...In a regulated industry -- finance, power and telecommunications -- I'd require all the software be vetted for all kinds of mistakes."

When the question of supply-chain security comes up, and with so much manufacturing coming from China, do you think there's reason to be concerned about security of products made in foreign countries where sometimes there are political tensions?

"My attitude is whether it comes from New York state or Shanghai, it probably has the same risk in software. There are people in the U.S. who can be bribed, too."

I think that pretty much sums it up folks: cyber-security is a global issue demanding global solutions - solutions that are agnostic to infrastructure provider and/or geography...

Stay tuned.

** cross-posted to Facebook from www.mbplrcbd.blogspot.com **

Cyber Security: A Fact-Based Primer

2011-07-24T13:30:00.003-04:00

While the mainstream dialogue related to “cyber-security” most often focuses on issues related to consumer privacy and identity theft, the more cloistered industry and government debate circulates around espionage and so-called cyber-war. The concerns are legit, but the debate is all-too-often hijacked by political or competitive agendas, undermining progress towards true solutions.

So let’s try and dissect this - what are we talking about when we’re debating non-consumer-oriented cyber security concerns? While there are multiple and competing definitions of cyber security, most would all include at least the following: Network exploitation or attack, including espionage and/or the disruption of networks via software in or for or otherwise through the manufacture of network equipment, including via hardwired backdoors in chipsets, routers or other physical parts of the network.

In terms of potential “cyber weapons,” they might include: Unauthorized access to systems (hacking), viruses, worms, trojans, denial-of-service, distributed denial of service (including using botnets), root-kits and, of course, social engineering. Such tools can be used to compromise confidentiality or otherwise facilitate identity theft, web-defacement, extortion, system hijacking and/or service blockading. Key to note, cyber weapons can be used individually, in combination, and – generally most concerning - blended with conventional kinetic/physical weapons as force multipliers.

Who’s in the game? Pretty much everyone, ranging from the Russians to the Israelis, but the big dogs would be the U.S. and China, both of which have been quite public in communicating their cyber capabilities and intent. Indeed, reported instances of China-based cyber-incursions are significant. A couple of well-publicized examples:

Titan Rain (Government espionage) was a series of coordinated attacks with reported Chinese origin on U.S. Government, defense industrial base and R&D institutions, originally identified in 2003. Among other targets, hackers reportedly gained access to: U.S. Army Information Systems Engineering Command; Defense Information Systems Agency; U.S. Army Space and Strategic Defense Center; NASA; and Sandia Labs.

Night Dragon (industrial espionage), according to a February 2011 report from McAfee, was a coordinated series of cyber attacks which began in November 2009, aimed at global oil, energy, and petrochemical companies to harvest sensitive information on industrial operations in Kazakhstan, Taiwan, Greece, and the U.S. McAfee identified the tools, techniques, and network activities used in these attacks as originating in China.

But China is not alone in terms of being perceived (if not absolutely proven) to be engaged in strategic cyber warfare activities. Other examples, specifically geared to more concerning disruptive activities, include:

Estonia: In April and May of 2007, Estonia experienced a heavy barrage of coordinated cyber attacks against information networks, Government services and news portals. The attacks, which followed a decision to relocate a Soviet-era grave marker, were primarily in the form of distributed denial of services (DDOS), including the remarkably coordinated use of sophisticated botnets. The Russian Government was suspected but has not been proven to be responsible. While there were no long-term consequences from the attacks, short-term impact in terms of unavailability of online services were significant, particularly in a market where 98% of banking transactions take place online.

Georgia: In the weeks leading up to a Russian physical invasion of Georgia in 2008, Georgian communications, Government and financial networks came under significant cyber attack. While the immediate and most public perception of the assault was related to the defacement of Government sites, more impactful was the repeat of a strategic and coordinated DDOS attack which, as a force multiplier, disrupted communications and online activity impairing critical Government and citizen communications before and during the physical attack. While the cyber-attacks are widely believed to have originated in Russia, no Government involvement has been proven.

Iran: Stuxnet, a MS Windows computer worm, was discovered in July and 2010. Designed to target Siemens Supervisory Control and Data Acquisition (SCADA) systems, Stuxnet is the first discovered malware that spies on and subverts industrial systems . It is widely acknowledged that Stuxnet was targeted to disrupt the uranium enrichment infrastructure in Iran, with the U.S. and Israel most regularly referenced as the likely perpetrators, although without any proof having emerged. Notably, computers across the globe have been infected – an early example of cyber collateral damage.

These instances notwithstanding, in the U.S. the spotlight remains fixed on China, and U.S. authorities, politicians, pundits and media, perceiving China through the prism of the all-powerful State-controlled past – which is no longer a universal reality – regularly hand-wring about the potential for independent Chinese companies to do the Government’s bidding.

There are certainly some legitimate concerns to be had, but the legitimacy gets all too easily and quickly lost in fear- or politics- or commercially-competitive-based spin. After all, who’s to say what passes for a “Chinese” company today? If one were to be even marginally intellectually honest, and acknowledging for the sake of argument that the Chinese Government is just as committed to cyber tactics as is the U.S., wouldn’t one acknowledge that any company with a presence in China is vulnerable to Chinese Government manipulation, however well-hidden that might be?

Let’s consider this from the perspective of the information communications technology industry, one which has become utterly globalized, resulting in virtually every major ICT company having significant research and development, production and software coding capabilities in China. Why? Well, among other things, comparatively speaking, China possesses rich resources in available talent and low labor costs. Indeed, in 2010, China's college graduates reached 6.31 million, while in the U.S., the figure was 1.65 million. And, the average salary for an engineer in China remains below $10,000 a year, with the average disposable income per capita resting below $3,000, while in the U.S., it’s around $50,000 (and engineers command salaries many multiples of their Chinese counterparts). All of these – and other- advantages have attracted global ICT companies to move manufacturing bases and significant R&D functions to China.

So what does this mean in practice, in terms of major ICT players that supply the guts and intelligence to cyber-threatened global networks?

Ericsson: Ericsson opened its first office in China in 1985 and as of 2009 had 7,900 employees in China, 27 offices and 10 joint ventures. Ericsson’s second largest global supply hub is in Nanjing, China, producing wireless network equipment - over 50% for export. And, Ericsson has over 1700 R&D personnel in China and an annual R&D investment in excess of $155 million, developing as many as 100-150 products each year for Ericsson’s global markets (indeed, Ericsson’s first “3G” (WCDMA) base station was developed by Ericsson’s China R&D shipped to Europe in 2004). And, finally, Ericsson has a strong China-based service Organization featuring 36 customer network support centers and 5,000 local engineers.

Alcatel-Lucent: Shanghai Bell Telephone Equipment Manufacture dates back to 1983 (pre-Lucent AT&T) and, after uniting with Alcatel’s China-based operations following the Alcatel-Lucent merger in 2006, was ultimately renamed Shanghai Bell Co, Ltd in 2009. Shanghai Bell, employing approximately 10,000, is a 50-50 joint venture between Alcatel-Lucent and China’s State-owned Assets Supervision and Administration Commission of the State Council. Shanghai Bell hosts several China-based global R&D centers employing over 6,000 people, has full access to Alcatel-Lucent’s global technology resource pool and develops technologies that serve all of China and over 50 countries worldwide. And, Shanghai Bell’s two Chinese manufacturing bases generate products for fixed-network, mobile, optical, and multi-media with annual production values of approximately $2.48 billion.

Cisco: Since its entry into China in 1994 and the 1998 establishment of Cisco Systems (China) Network Technologies Co. Ltd., Cisco has promoted the development of Chinese innovation and the Chinese ICT industry. In1998, the Cisco Network Technology College project officially entered China establishing over 220 Cisco Network Technology Colleges that teach comprehensive courses on the latest network technology. In 2005, the Cisco China R&D Center was launched in Shanghai, accompanied by promises to further invest $37.7 million to co-construct 35 model software colleges along with China Ministry of Education. And, in 2007, Cisco announced investments and joint ventures in China totaling $16 billion, committed to expand its Networking Academies to 500 to train an additional 100,000, and to double its manufacturing in China (a production value of as high as $14 billion).

Intellectual honesty would demand an acknowledgment that to the extent that cyber security concerns are real (and they are), then they apply to all of these global companies with operations spread across the globe, including in China. And yet, in the U.S., the focus – for political and competitive reasons – circles around global players with a Chinese heritage, like Huawei, the second largest telecommunications equipment provider on the planet.

Why? Well, Huawei is based in China and the U.S. and Chinese Governments are engaged in competition on multiple fronts, from politics to economics, and beyond. And, well, like the U.S. Government, the Chinese Government has been vocal about its cyber-intent and, certainly more public than any American activities, China-based cyber-incursions into foreign networks are well- and regularly-reported. So, with all of that in mind, ill-founded beliefs that Huawei is somehow state-influenced contribute to ill-founded fears that Huawei might facilitate Chinese Government-endorsed espionage or disruption.

Without getting into the silliness of such concerns in the context of a global leader with a presence in 140+ markets and far more sales outside China than within, intellectual honesty would still demand that any true solution to cyber security concerns would demand agnosticism. Consider:

The quality and integrity of Huawei solutions have been audited and passed the security requirements of 45 of the world’s top 50 global operators and no company or government has found Huawei solutions to vary from international standards in any manner material to security. These are facts. And, given that Huawei’s solutions are built to the same global standards as those of competitors, all of which manufacture product and code software in China and all of which share common potential vulnerabilities in component and code origin, manufacturing, logistics, distribution, installation and support, it is intellectually honest to say that Huawei’s solutions are no less secure than the equipment its ICT peers.

So where does this leave us? Well, if we take a fact-based, intellectually honest and politics-free approach, we should all agree that legislation, regulation or policy intended to address cyber-security concerns based on a company's country of headquarters is akin to throwing a mosquito net over a reservoir to prevent an outbreak of cholera…

…Not only is the prophylactic mis-used (mosquito nets are of course meant to manage the spread of pest-borne malaria), but such measures do nothing to address the true issues of plumbing, sanitation and water supply.

The facts are that true, rational and effective solutions to cyber-security concerns will only emerge from an industry-led, non-politicized, pragmatic process that acknowledges the common vulnerabilities of all ICT companies and addresses the challenges in a manner agnostic to nationality.

Later...

Calling Foul On Exim's Huawei FUD

2011-06-16T17:43:00.002-04:00

In a speech at the Center for American Progress in Washington, D.C. on June 15, 2011 (yesterday), Fred Hochberg, the Chairman and President of the Export-Import Bank of the United States, detailed "How the U.S. Can Lead the World in Exports: Retooling Our Export Finance Strategy for the 21st Century." Among other things, Hochberg bemoans "the proliferation of state-directed capital into the global marketplace" as disadvantaging U.S. firms. To the extent that such concerns are fact-based, they are legitimate. However, the legitimacy of Hochberg's arguments is effectively gutted by his willy-nilly parroting of what would seem to be competitor-inspired talking points.

Hochberg's speech (full text linked here), makes a number of factually false references to global telecom giant Huawei (recall, I work there).

Per Hochberg: "...One of the central reasons the company’s growth has been so dramatic – is that it’s backed by a $30 billion credit line from the Chinese Development Bank. This backing allows Huawei to significantly reduce its cost of capital and to offer financing to their buyers at rates and terms that are better than their competitors. This financing model not only affects the bottom line of companies trying to compete, but it also affects the bottom line of our economy – particularly as exports play an increasingly important role in our economic recovery and job creation. The reality is opaque state-directed capital allows foreign governments to target their financing at specific sectors and companies, while aggressively grabbing market share in an attempt to dominate a market."

All of that would be disturbing, if it were true. But it's not. And it is increasingly disturbing to hear U.S. government voices repeating statements that are patently false, and known to be so.

The facts:

The China Develop Bank (CDB) and Huawei have signed Memoranda of Understanding (MOUs) under which the CDB has indicated its willingness to make available export credits to potential Huawei customers. Such MOUs, which serve as marketing vehicles for the CDB to gain overseas business, are not the same as Lines of Credit because there are no funds actually committed by the CDB. One such MOU was signed in 2004 referencing $10 billion in credits with a five year validity period. A second MOU was signed in 2009 referencing $30 billion, also with a five year validity period. Since 2005, 35 Huawei customer projects have tapped the CDB export credits, with the aggregate amount of financing agreed to totalling $4.25bn, but with only $2.99bn having actually been extended to Huawei customers - at going market rates and according to open market-based practices. Huawei’s global sales over the same period exceeded $110 billion. Clearly, Huawei's growth is not driven by CDB or other "state-directed" support.

So, while we're at it, let's consider some additional facts. How does Huawei finance itself? Well, in terms of external financing,mainly through loans from commercial banks. Since 2000, with the growth in international markets and in order to prevent systemic risks, Huawei has adopted a diversification strategy in terms of financing resources, types and terms. Huawei now collaborates with 28 banks: 10 China-based and 18 non-China-based banks (Note: Huawei is now one of the top 50 global platinum customers of HSBC Bank, Citibank and Standard Chartered Bank). In total, these commercial banks have granted $25 billion in credit facilities to Huawei, at going market rates and terms, in compliance with the credit policies of each commercial bank, and in accord with relevant national and international laws and regulations. To date, Huawei has utilized $3.58 billion of the $25 billion, over 50% drawn from non-China-based banks.

Facts. They can be fun. Indeed, let me repeat one more set (verbatim from my June 5, 2011 post - linked here):

In his speech at the Center for American Progress, before blasting Huawei, Hochberg poses a number of rhetorical questions about America's long-term economic growth, quality of life and competitiveness. Perhaps Hochberg and others that view companies like Huawei through the complex geo-political prism of the U.S.-China relationship should jettison the politics and actually consider the answers to those very questions that he poses. Consider, for instance, the significant contributions Huawei makes to American innovation and livelihoods. In order to fuel Huawei’s global supply chain, in 2010 alone Huawei purchased more than $6.1 billion from major U.S. technology companies, indirectly sustaining over 30,000 U.S. jobs in addition to the 1,100 U.S.-based workers Huawei employs directly. Beyond that, each year, Huawei invests about 20% of its North American revenues into local R&D, totaling $135 million in 2010 alone. Yet further, Huawei is committed to university partnerships to foster the next generation of American telecommunications experts, investing more than $10 million in 2010 to support programs at Georgia Tech, Harvard, MIT, Stanford, UC Berkeley, UC Irvine, UCLA, UC San Diego, UT Austin, UT Dallas, Washington University and Yale University.

Food for thought...

Whither Nokia...

2011-06-08T18:18:00.004-04:00

Since departing Nokia two years ago, I've posted to this blog a number of times on the company, at first reiterating thoughts related to what seemed (to me, at least) strategic mis-direction, later recalling key missteps and suggesting course-corrections, yet later wondering about potential Hail Mary solutions, and now, well, just wondering...

Nokia's share of the value-oriented smartphone market has plummeted from 49% prior to the 2007 introduction of the iPhone to 25% in the first quarter of 2011, with no bottom in near-term sight. Nokia's revenue and net income have declined by 10% and 39%, annually, on average, since 2008, and Nokia's market cap now rests somewhere around $23 billion - a gonad-shriveling fall from the peak of around $145 billion in late 2007. And, this year alone, Nokia's share price has dropped a whopping 35% - 19% in the last five days following the announcement of surprisingly "okay" first quarter results accompanied by very, very gloomy forward-looking guidance.

Damn.

On the upside, Nokia remains an Interbrand "Top 10 Global Brand" (#8 in 2010 - although this is an iffy measurement of Nokia's brand "value," which is generally acknowledged to have collapsed over the last three years)) and is still the world's largest mobile phone manufacturer, selling as many as a million entry-level and feature (non-smart) phones a day. But, alas, even the slim margins on such volume-oriented product are increasingly at risk as a host of lower-cost rivals powered by disruptive enablers like Mediatek are eating away at Nokia's last bastion.

Damn (again).

It makes you realize that the Nokia fealty to Redmond pledged in February really is a make-or-break play.

I wonder, however, if we'll even get to see if it might work, as rumors of takeover abound. Last week, Microsoft was rumored to be contemplating a $19 billion buyout - both parties denied the possibility. Huawei, HTC and ZTE were mentioned as other possible suitors - none deigned to comment on market rumor or speculation. This week, Samsung has been suggested as yet another potential contender (doubtful, but, then again, snapping up the newly WP7-committed Nokia could address Samsung's historical hiccups related to Windows Mobile and could make them a leader in two of the three dominant mobile OS's). And, of course, Google has also been referenced as potential buyer (other than to derail Microsoft's near-term plans, I have a hard time imagining why Google would consider this. Maybe three years ago. But not today - they've got a healthy stable of venders building to Android, they don't need to own one).

All interesting possibilities, some more likely than others, but, long story short, I don't see any of this happening until Nokia does some serious housecleaning and experiences some additional and significant pain that no suitor would likely be willing to stomach. For instance, if Nokia were to bail on NSN, lay off a few more thousand employees and offload the low-end and feature phone business and related assets, the resulting newly-fit and trim Nokia "smartphone" business (incorporating the in-retrospect-remarkably-overpriced Navteq assets) with a market cap around $10 billion (and retaining a significant portion of today's $8-9 billion in cash) could be an attractive purchase.

Just wondering...

At the heart of FUD is fear - enough already!

2011-06-05T19:33:00.003-04:00

Last week, The Economist featured an article about global technology leader Huawei - The long march of the invisible Mr. Ren (linked). All-in-all, it wasn't an imbalanced piece. It did, however, inspire some thoughtful clarifications, as follow (full disclosure, again, I work for Huawei):

Ours is truly a globalized economy and Huawei is the proof.

Born in the free-market Special Economic Zone of Shenzhen, Huawei epitomizes the Chinese version of the American dream: A start-up made big, owned by its employees, exploding across the global stage to lead markets and technological innovation. Indeed, Huawei, which blends its Chinese roots and local innovative and work-force advantages with the skills of the best-and-brightest recruited locally in markets worldwide, should be celebrated as a poster child for the global digital economy. And yet, as The Economist reports, there are indeed a handful of politicians in Washington who might well instead describe the company as somehow sinister and subsidized and linked to hostile forces. All of which is hogwash.

That Mr. Ren, Huawei’s Founder and President, does not have a history of doing media interviews is hardly grounds for suspicion, other than perhaps that he’s developed a pretty solid understanding of how the media works when it comes to Huawei. Nor is his over-a-quarter-century-old military service relevant in any way to his 20-plus year leadership of Huawei, or even unusual in the company of his global corporate peers. Indeed, if Mr. Ren weren’t Chinese – if Huawei did not have a Chinese heritage – we’d all likely have been spared years of undue media- and government-inspired Huawei-related FUD, particularly in the U.S. But, Huawei cannot change its roots in China any more than it can resolve the tensions between the U.S. and Chinese Governments which seem to be holding hostage Huawei’s further success in the U.S. marketplace.
To the extent that Huawei’s February 2011 Open Letter may not have offered sufficient fact-based clarification, particularly in the area of financing as indicated by The Economist, consider the following:

Huawei's financing – which is regularly mis-referenced as related to some sort of preferential government treatment - is mainly in the form of loans from commercial banks to meet Huawei’s capital structure and business planning requirements. Huawei’s approach is one of diversification: Huawei collaborates with 28 banks: 10 China-based, 18 non-China-based. In total, these banks have granted $25 billion in credit facilities to Huawei according to going market rates and practices. Huawei has utilized $3.58 billion of those credits, $1.88 billion from non-China-based banks, $1.70 billion from China-based banks.

Also regularly mis-understood are so-called “China Development Bank (CDB) lines of credit to Huawei.” The facts are that the CDB and Huawei have signed MOUs under which the CDB has indicated a willingness to provide export credits to potential Huawei customers. These MOUs are not lines of credit because the funds are not actually committed. Indeed, while one five-year MOU was signed in 2004 referencing $10 billion, and another in 2009 referencing $30 billion, since 2005 a total of only 35 projects have tapped the CDB export credits and only $2.99 billion have actually been extended to Huawei customers. Meanwhile, Huawei’s global sales over the same period exceeded $110 billion.

These are facts. So too are the significant contributions Huawei makes to American innovation and livelihoods. For example, in order to fuel Huawei’s global supply chain, in 2010 alone Huawei purchased more than $6.1 billion from major U.S. technology companies, indirectly sustaining over 30,000 U.S. jobs in addition to the 1,100 U.S.-based workers Huawei employs directly. Beyond that, each year, Huawei invests about 20% of its North American revenues into local R&D, totaling $135 million in 2010 alone. Yet further, Huawei is committed to university partnerships to foster the next generation of American telecommunications experts, investing more than $10 million in 2010 to support programs at Georgia Tech, Harvard, MIT, Stanford, UC Berkeley, UC Irvine, UCLA, UC San Diego, UT Austin, UT Dallas, Washington University and Yale University.

Huawei is no more mysterious than Mr. Ren is "invisible." Perhaps it is time to focus on the facts. In which spirit, I would add one more: In a market where an effective infrastructure vender duopoly exists, where there is no competitive incentive for the duopolists to innovate or rationalize their pricing, using non-commercial geo-politically-inspired shadowy “national security” excuses to lock out an innovative global technology leader with a history of competitive market-based pricing does a remarkable disservice to capital-sensitive local telecommunications carriers and each-and-every individual American consumer who very much wants to benefit from the affordable ubiquitous broadband services he/she deserves and has been promised.

You got some other "facts?" Then put up, or shut up. Enough already.

Patents, Perceptions and Paranoia

2011-04-29T16:53:00.004-04:00

Interesting news this week in the ever-expanding arena of intellectual property rights lawsuits: China-based Huawei sued China-based ZTE for patent and trademark infringements. The quick takeaways are a) Companies with a Chinese heritage like Huawei have become world-class technology and IPR leaders and b) contrary to sadly-lingering dated beliefs, such companies solidly appreciate the value of IPR’s, respecting those of others, and fighting to protect their own.

The less obvious takeaway is what would seem to be the demonstration that the hysterical advocates that persist in driving the yet-more-unfortunate and slanderously-perpetuated misperception that Huawei is somehow controlled by the Chinese Government are, at best, on crack.

Think about it: ZTE, by its own admission, is somewhere between 15-20% owned by organs of the Chinese Government. Huawei, privately held by its employees, is regularly and wrongly reputed to also be under some or another nefarious Red thumb. So… for those that purport to subscribe to this latter belief (and I say “purport” because I’m pretty sure that anyone with half a mind knows that it’s all bullsh*t, but some folk nevertheless maintain the charade in order to drive parochial xenophobic or anti-competitive agendas), Huawei suing ZTE would amount to the Chinese government suing itself. Really?

…but wait, having spent the better part of the last year learning how the average paranoid half-a-mind functions, could it all be a ploy, a marvelously Machiavellian machination?

I bet they’ll be thinking something like this: In an elaborate multi-decade plan, the Chinese Government manipulated Huawei’s R&D to ensure that Huawei would over the years invest in and develop and patent specific technologies after which the nefarious Reds arranged for ZTE to pirate the same technologies in order to set up a scenario years later in which Huawei would sue ZTE with the real goal having all the while been for Huawei to prove it is in fact not controlled by the Chinese government.

Yeah, right, and the White House faked Obama’s birth certificate (incidentally, that last comment was “not intended to be a factual statement”).

Whatever… At the end of the day, notwithstanding a decade of blended accidental and contrived misperceptions related to Huawei, the truth will ultimately out, and the truth is that Huawei defines the essence of tomorrow’s successful companies – a multinational technology leader strategically leveraging markets and minds across the planet to most efficiently deliver the highest quality technology, solutions and services.

The E’s New C's, by HCA (1837) – Recast (2011)

2011-04-11T21:18:00.005-04:00

There once (still) lived a lawmaker who was so bent on bashing certain foreign-based telecommunications companies and forwarding select special interests that he devoted countless taxpayer-funded hours to pursuing his agenda by spreading ill-founded rumors and falsehoods. He did not, seemingly, care for his constituents, who would benefit from a more competitive telecommunications marketplace, and, it seemed, sticking to the facts did not interest him; the only thing, in fact, he obsessed on was issuing multiple mis-informed missives to random Cabinet offices unfairly attacking said companies. He had a bit of myth or innuendo for every hour of the day, and for every letter he sent; and as one would say of a king “He is in his cabinet,” so one could say of him, “He is writing hate mail.”

The great city where he resided was very partisan; every day many lobbyists from both sides of the aisle circulated the Halls of Parliament. One day, a number of mysterious characters called on the lawmaker; calling themselves secret-keepers, they made people believe that they had information that could prove all of the as-yet-unfounded myths and rumors to be true. Their stories and facts, they said, were not only exceptionally damning, but they were of such a level of classification as to be un-disclosable, and, further, would only be doubted by any man who was unfit for his office or unpardonably stupid.

“Those must be wonderful secrets,” thought the lawmaker. “If I were to repeat such rumors and innuendo, I should be able to not only maintain my bashing, but also find out which Parliamentarians are unfit for their places, and to distinguish the clever from the stupid. I must have access to these secrets without delay.” And, so, he bestowed monstrous credibility to the secret-keepers, in exchange for which they committed to set to work without any loss of time. The secret-keepers donned their sunglasses and sped off in black Suburbans and otherwise pretended to be very hard at work, but they did nothing whatsoever related to fact-checking their intelligence.

Not long later, the lawmaker thought: “I should very much like to know how they are getting on with the secrets.” But he felt rather uneasy when he remembered that he who might doubt the secrets was not fit for his office. Personally, he was of the opinion that he had nothing to fear, yet he thought it advisable to send somebody else first to see how matters stood. Everybody in the city knew how remarkable the secrets were, and all were anxious to see how stupid their neighbors were.

“I shall send my Staff Director,” thought the lawmaker. “He can judge best the nature of these secrets, for he is intelligent, and nobody understands his office better than he.”

The Staff Director went to meet with the secret-keepers and, after a lengthy briefing, thought “Heaven preserve us! There’s nothing substantive behind any of these secrets, other than that they are defined as ‘secret’ and cannot be disclosed.” But he said nothing. The secret-keepers asked again and again: “Is it not frightening? Are you not concerned? Our country is threatened, is it not?” The Staff Director tried his best to see reason or rationality behind the swirling innuendo, but could not do so. “Oh dear,” he thought, “can I be so stupid? I should never have thought so, and nobody must know it! Is it possible that I am not fit for my office? No, no, I cannot say that I doubt the secrets.”

“Have you got nothing to say?” asked a secret-keeper, while he pretended yet again to be busily fact-checking.

“Oh, yes, your secrets are very enlightening,” replied the Staff Director, looking through his glasses. “Our country is in danger! I shall tell the lawmaker that these matters are not to be doubted.” The secret-keepers then leaped back into their ebony Suburbans and, Bluetooth encumbered, tore away, saying nothing to the no-ones over their empty lines, ever preserving their pretense as protectors of truths.

Soon afterwards the emperor sent another Staff Member to the secret-keepers to see how they were getting on, and to learn if they had concocted any new and fabulous secrets. Like the Staff Director before him, this staffer too tried and tried to elicit some fact-based justification behind the litany of “secrets” presented by the keepers. “I am not stupid,” thought the man, “but these secrets seem nothing but myth and innuendo. I must not let anyone know my thoughts.” So he praised the secrets, and the keepers themselves for the integrity of their fact-checking and their high levels of clearance. He returned to the lawmaker and reinforced the inviolability of the keepers’ product.

Everybody in the whole town talked about the worrisome secrets, even the media, which, while perhaps skeptical, were as often as not driven more by recounting a steamy story than investigating the facts. At last the lawmaker himself decided to visit the secret-keepers to sample their wares firsthand. With a number of staff in tow, including the two who had already been there, he called on the clever keepers, who tirelessly plied wireless keyboards and mobile phones, which may or may not have had any connectivity. Upon hearing a freshly-concocted batch of innuendo, the two staffers who had been there before said: “Are these not magnificent secrets?” “How inflammatory! How damning!.”

“What is this?” thought the lawmaker, “Statements of so-called fact with no substantive backing beyond ‘it’s classified.’ This is terrible! Am I stupid? Am I unfit to be a lawmaker? That would indeed be the most dreadful thing that could happen to me. I cannot voice my thoughts.” So, instead, he said: “Really,” turning to the keepers, “your secrets have our most gracious approval;” and, nodding contentedly, he silently pondered the empty rumors, for he simply could not say what he was thinking aloud. All of his staffers similarly mulled quietly, and, although they too - if intellectually honest - were skeptical, like the lawmaker, they nodded their communal consent. And all advised him to add references to the secrets to his next missive.

A few days later, with staffers and other lawmakers atwitter (in every sense), and the media poised over their figurative pens, the lawmaker issued yet another roundhouse letter, chock full of glorious secret-keeper myth and misinformation. “Are we not frightened?” postured the lawmaker. “What horrific threats,” he scare-mongered. His comments were echoed, hollowly, by a lawmaker or two, and his letter, handily leaked to key media, drew the requisite headlines. In short, there was great and political harrumphing and marvelous media hype.

“But there’s nothing to it,” said a lone but brave blogger. “It’s just a bunch of protectionist, xenophobic crap with no basis in fact.” “Good heavens! Listen to the voice of an uncompromised and honest observer,” posted an anonymous commenter. And another posted the same, and another, and yet another. And they asked for facts, for truth. And they objected to misinformation, intended or otherwise. And this made a deep impression upon the lawmaker, for it seemed to him, at last, that they were right; but, he thought to himself, “Now I must bear up to the end.” And he continued to sling mud, cushioned by loyal staff, and an ever-dwindling handful of lawmaker colleagues.

Disinformation 101: Hua Mei (not Huawei) and Iraq

2011-02-13T11:57:00.008-05:00

Long-lingering innuendo suggesting that Huawei supplied fiber optic equipment supporting Saddam Hussein’s Iraqi Air Defense Communications Network appears misleading, whether or not intentionally.

Over the last eight months, an August 18, 2010 letter from eight Republican Senators to Obama Administration Cabinet officials (link to the letter),referencing the purported sale by Huawei of advanced fiber optics equipment used to support Saddam Hussein’s Iraqi Air Defense Communications Network, has driven countless media reports on the same topic. The August 18 letter contained the following hearsay “The Iraq Survey Group reported that Huawei sold communications technology to Saddam Hussein' s regime in possible violation of UN. Sanctions…Some reports indicate that this communications technology included fiber optic equipment used in Saddam Hussein' s air defense network, which routinely fired on US. military aircraft.” (Two subsequent Congressional letters have made similar, if less detailed, references)

The August 18 Senators’ letter did not footnote the “Iraq Survey Group” report, but it did footnote a March 19, 2001 Asian Wall Street Journal article (link to mirror) reporting “U.S. intelligence sources confirm…that Huawei Technologies, one of China's leading makers of communication networks, has helped Iraq outfit its air defenses with fiber optic equipment.”

According to multiple online references, the Iraqi (purportedly NATO code-named "Tiger Song") fiber-optic air defense system may in fact have incorporated American-made technology that evaded export controls administered by the then-Clinton Administration Commerce Department. Specifically, a U.S.-China joint venture called "Hua Mei" is said to have facilitated the sale of advanced, secure AT&T (pre-Lucent) fiber-optic communication systems for "civilian use" inside China.

The U.S. side of the joint venture is reported to have included two American companies: SCM and Brooks Telecommunications International Inc.

The Chinese side of the Hua Mei venture was reportedly run by a newly-formed firm, "Galaxy New Technology," run by a PLA Lt General who was married to the then-head of the PLA military research bureau (COSTIND – the Commission on Science and Industry for National Defense).

It is rumored that the PLA’s Electronics Bureau subsequently modified the American fiber-optics communication system, changing it into a secure air-defense/missile command system, and then exporting the newly modified system to Iraq.

Suggestions that certain Department of Defense entities (specifically the Defense Technology Security Association – DTSA) may have objected to the technology transfer to Hua Mei were addressed in a DoD letter responding to then-Chairman of the House of Representatives Committee on National Security Floyd Spence, who was one of those expressing the concerns (link to DoD correspondence with Chairman Floyd as reportedly obtained via a Freedom of Information Act request – page down from the initial link). In short, the DoD response to Representative Floyd communicated that there was no DTSA or other objection or, for that matter, any DoD review of the transaction due to coincidental 1994 amendments to U.S. Export Control rules which allowed for a new classification (GLX) for exports to civilian entities, beyond DoD’s purview. The DoD letter to Chairman Floyd specifically denied any knowledge of COSTIND or other PLA involvement in Hua Mei.

Further, again at the request of Chairman Spence, the U.S. Government Accounting Office (GAO) undertook a 1996 review “to determine (1) the civil and military applications of the exported telecommunications equipment, its availability, and the importance of these applications to China's military and (2) the process and rationale for liberalizing the export of telecommunications equipment, such as the ATM and SDH equipment shipped to Hua Mei.”

Among other things, the GAO’s resulting report (link to the full GAO Report) commented that while “U.S. company and government officials stated that Hua Mei was a civil end user,” the GAO found that, in fact, “Hua Mei, while a commercial enterprise, has as its principal Chinese partner, a company controlled by the Chinese military... Several members of the Hua Mei board of directors are military officers or have direct ties to the Chinese military. Such a high degree of involvement in Hua Mei could indicate a strong military interest in this company.” The GAO also noted that “The equipment was exported to Hua Mei without Commerce review, even though the company was partially controlled by several high-level members of the Chinese military.” In other words, commodity classification GLX should not have been applied had the facts been properly communicated.

Yet further, in 1997, Congressman Henry Hyde wrote Attorney General Reno a letter outlining his concerns about Galaxy New Technology (link to the Hyde letter). According to Congressman Hyde's letter to Reno, "In 1994, sophisticated telecommunications technology was transferred to a U.S.-Chinese joint venture called HUA MEI, in which the Chinese partner is an entity controlled by the Chinese military. This particular transfer included fiber-optic communications equipment which is used for high-speed, secure communications over long distances. Also included in the package was advanced encryption software."

Also in 1997, the Director of the Commerce Department’s Office of Strategic Trade and Foreign Policy Controls, responded to a Freedom of Information Act (FOIA) request communicating that the Commerce Department’s Bureau of Export Administration (BXA) had identified seven documents related to Hua Mei in its files (link to letter – scroll down). Commerce released three of the documents, withheld one, and referred to the State and Defense Departments to review and determine whether to disclose the other three documents, which Commerce reported to have originated from those Agencies.

The Hua Mei story went more or less dark after that.

The Huawei misinformation began to emerge a few short years later, such as in the Asian Wall Street Journal article referenced above, as well as other remarkably similar and contemporaneous media accounts, like the March 17, 2001 Washington Post article (link) reporting “Pentagon officials have accused the company [Huawei] of laying optical communications cables between Iraqi antiaircraft batteries, radar stations and command centers, which they say could significantly aid Baghdad’s efforts to shoot down U.S. warplanes patrolling the ‘no fly’ zones over northern and southern Iraq.”

And thus, notwithstanding the contradictory facts openly available on the public record, a myth was born, and has perpetuated since...

Export Financing: Pots and Kettles

2011-02-04T13:43:00.010-05:00

Big hullabaloo out of Europe this week, with a European Commission investigation reportedly finding that China's largest telecommunications equipment makers benefit from "massive" credit lines from state-owned banks. (see WSJ article)

Yawn.

Seems the Europeans are catching up to their American brethren who've been ramping up the crying-foul-rhetoric over such "preferential financing" for better than a year now. Frankly, if you consider the facts, it seems that there really aren't any pots or kettles in this global kitchen of ours that are not decidedly black.

Ah yes, facts...

Let's look at Huawei (full disclosure: I work there). In recent years, and increasingly stridently in 2010, there have been countless media reports and hyperbolic political rants about the $10 billion in "financing" Huawei purportedly received from the China Development Bank (CDB) in 2004. The fact is, Huawei received no such financing. Rather, the CDB essentially created a "buyer export credit" pool that Huawei's customers could borrow from, provided they met the bank's credit assessment, risk profile, etc. From 2004 to 2009, the total credit extended by or for Huawei's customers from the CDB amounted to around $5 billion (and far less was actually drawn), in pretty stark contrast to Huawei's almost $100 billion in sales over the same period. Doesn't seem as if "massive" Chinese Government credit lines had much to do with Huawei's growth, does it?

But hey, while were doing the fact-checking, let's review some of our other kitchenware. According to the U.S. Export Import Bank's website, specifically the "FY 2010 At A Glance" PDF, the Exim Bank supported over 3,500 transactions in support of U.S. export sales last year alone, to the tune of almost $25 billion in loans, guarantees, and export credit insurance. Last year alone. But all in accord with Organization for Economic Cooperation and Development (OECD) rules, right? Well, almost. According to a January 12, 2011 WSJ article, "...in a move crafted with White House involvement, the U.S. export-financing agency agreed for the first time to match China's cheaper financing terms to get the Pakistan government to buy 150 General Electric Co. locomotives." This, per the Journal, required the U.S. to "work with" the OECD to craft a "new loan model" to come up with the financing terms for the $477 million deal, "one of several steps the Obama administration has taken to pursue its goal of doubling U.S. exports over five years."

Don't get me wrong, I'm not criticizing the U.S. Government for trying to help U.S.-based companies compete against Chinese-based or other companies, nor am I defending any country's manipulation of the marketplace or other industrial policy. I'm just highlighting that we should at the very least remain intellectually honest about what's going on in the world. One-sided media reports and xenophobic political rhetoric that serve to fuel protectionist or, worse, nationalistic fervor, are not in our best interest as Americans. What we deserve, instead, is a fact-based and balanced dialogue.

But, wait, what about the Europeans? That's where this latest salvo came from, right?

Ugh... Europe's a lot of geography to cover, with far too many national and regional and pan-regional organizations and governments, etc. to consider, so, since all of this started around the telecommunications equipment industry, let's take a gander at Sweden, home to world-leading telecommunications infrastructure manufacturer Ericsson.

Sweden's EKN, per the website, "has been commissioned by the government to promote Swedish exports and the internationalisation of Swedish companies...by insuring export companies and banks against the risk of non-payment in export transactions...". Risk free. Nice. According to the EKN, the demand for its guarantees increased sharply during 2009, amounting to 80 billion Swedish Krone (roughly $12.5 billion), more than doubling the previous year. And, as of January 2010, the Swedish Parliament approved a doubling of the guarantee limit to 500 billion Swedish Krone (roughly $77.5 billion) - pretty impressive for a country with a mere 9.3 million inhabitants.

It will come as no surprise that, according to the 2008 EKN Annual Report, EKN guarantees backed "several large Ericsson transactions in India, Pakistan and Turkey." Go figure...

Again, I'm not taking sides, or endorsing anyone's policies or practices, I'm just pointing out that, strangely enough (or actually not at all so), the playing field is actually a lot more level than it is often portrayed to be.

So let's get to the real concern: Biased (intentional or not - I'll be gracious on that point) media reporting or government speak that mis-represents or one-sidedly presents the facts in order to push broader protectionist or nationalist agendas on an under-informed public. Indeed, if you follow the logic of some of the suggestions made in Washington and in the media related to certain Chinese telecom companies, you'd have to assume that should the U.S. and Pakistan go to war, GE - beholdened to the U.S. Government to the tune of almost half a billion dollars for the Pakistan train deal - would naturally respond to its government benefactor's military and political agenda and derail all of the Pakistani locomotives...

Silliness. Utterly ridiculous. GE is an independent global company with obligations and responsibilities in all of the markets in which it does business. GE doesn't answer to the U.S. Government any more than any independent Chinese-based or Swedish-based companies answer to their respective governments.

Enough already. Pot, kettle, black, indeed...

A Fable For Our Times...

2010-12-15T19:28:00.002-05:00

In the economically struggling free-market democracy of FUD, the airline industry was comprised of four major commercial carriers. Two of the airlines dominated the industry, carrying almost 80% of passenger traffic. All of the airlines relied heavily on two aircraft manufacturers. While there had been a more competitive vender environment in the past, other companies had either shut down, been acquired, or evolved into more specialized aircraft-related industries.

Enter an up-and-coming overseas aircraft manufacturer called 21st Century - based in the economically thriving country of UhOh - which had developed an alternative approach to building aircraft, with a significantly lower cost structure, and yet more advanced technologies, industry-leading safety solutions, and none of the legacy baggage or overhead the incumbent manufacturers carried. While 21st’s approach to manufacturing planes was new and innovative, it relied for the most part on the same downstream supply chain companies, components and inputs as the other two dominant incumbents.

Needless to say, airlines across the globe welcomed the introduction of competition and innovation in the marketplace and were quick to trial and approve 21st’s planes, anticipating significantly lower capital and operating expenses in the future due to the competitive pricing of the 21st Century's aircraft, a direct result of the company's lower cost structure. The airlines looked forward to the opportunity to translate their savings into enhanced service offerings as well as lower costs to their passengers. Their shareholders in turn anticipated higher returns on their investments. 21st Century quickly experienced great success, selling hundreds of planes to major airlines in multiple markets across the globe.

But, the Government of FUD had a range of geopolitical and trade-related concerns, some quite legitimate, others perhaps less so, with the government of UhOh. In fairness to FUD government officials, UhOh was only just emerging from decades of non-democratic rule, and had only just begun to align itself with global trade rules and free-market norms. But the FUD concerns went far beyond those factors, and were colored by lingering economic malaise in FUD, as well as FUD’s cultural, societal and political struggle to accept, in an era of globalization - in large part spurred by FUD’s shining example - a role on the global political and economic stage as a leading peer among peers, rather than a sole super-powered juggernaut. FUD and UhOh were increasingly at global odds with each other, with tensions rising on multiple fronts. In this context, the Government of FUD began communicating perceptions that 21st Century was somehow connected to and a potential tool of the government of UhOh, which, in truth, was not the case.

Nevertheless, the Government of FUD began questioning 21st Century’s business practices, its financing, and, most importantly, the integrity and safety of 21st’s aircraft. FUD officials went so far as to express concerns that, should tensions between FUD and UhOh worsen, the Government of UhOh might somehow exercise influence over 21st Century to somehow endanger FUD-based airlines or passengers. 21st Century repeatedly attempted to explain to the Government of FUD that its concerns were unfounded, stressing, among other things, that 21st’s planes had been carefully inspected and reviewed and had passed major airline performance and safety requirements in markets all over the world.

Even so, select FUD Government officials persisted in attacking the company, ignoring the fact that the incumbent aircraft manufacturers serving FUD-based airlines were also building their planes in UhOh and, should the FUD concerns be real, those other aircraft would be equally subject to those fears, requiring a cross-industry solution, not singling out a single company. Yet, quite stunningly, and without any due process or other respect for national law or global trade rules, the Government of FUD dictated to a FUD-based 21st Century customer that they could not purchase 21st-Century built aircraft. Needless to say, this action – widely reported in the press – had a chilling effect, at least in the near-term, on other 21st Century business in FUD.

It was not long, however, before the real impact of the unfounded FUD interference in the market-based decision-making process was realized.

The Government of FUD hadn’t thought about the impact of its interference in the market in terms of the thousands of 21st Century employees working in FUD, nor the impact on their FUD families. They hadn’t thought about all of 21st Century’s downstream FUD-based suppliers and the tens of thousands of jobs those companies supported related to 21st Century’s billions of dollars in annual procurement. And they hadn’t thought about the multiple other ripple effects that their market-distorting action would create: Chilled much-needed investment in FUD from other UhOh-based companies, the failure of struggling FUD-based airlines that might otherwise have survived via the CAPEX and OPEX savings related to purchases of 21st Century’s planes, lost investments of shareholders in those failing FUD carriers, and, decreased competition in FUD’s airline industry in general – both in terms of manufacturers and service providers, which, of course, translated to yet poorer services and higher costs for consumers.

A sad, sad state of affairs…

The moral of this story: Governments should not express their economic and/or geopolitical fears and woes by mis-using legitimate and industry-wide concerns about issues like safety and security to veil political gamesmanship and/or good-old-fashioned protectionist and illegitimate manipulation of the market-based decision-making process. In an increasingly and forever-globalized economy, such measures are almost certain to backfire, damaging a country’s own best interests, and those of its innovators, workers, and consumers.

(All countries and companies referenced in this fable are fictitious. Any resemblance to real countries or companies are purely coincidental).

A Manifesto (of Sorts) for a Brave New World...

2010-10-06T20:41:00.002-04:00

This is gonna be a long one...

Setting the Stage

In mere weeks, we will experience an election cycle that may well shift power in the Congress from one partisan group to another. And, the result may well be utter gridlock for the next two years, or more, perpetuating the challenges we face in terms of economic recovery, also threatening global economic growth, cooperation and security.

Why?

Now is the time to rise above partisanship and division. Now is the time to rise above the past. Now is the time to rise above nationalism. Now is the time to recognize and and leverage our role as a global leader – a leader among leaders - and to drive, as a trusted partner, global security and economic growth and development.

The last few years have been trying for Americans. Our financial system has suffered severe disruption, our housing market has yet to recover, health care remains out of reach for millions, unemployment is sky high and, terribly painful to watch, our college graduates are struggling to land their first jobs. Our national confidence is shaken. And hard.

Some Historical Perspective

You know, empires rarely fall, they usually just evolve, over time, into something new, sometimes lesser, sometimes better, richer, fuller.

China’s history of empire dates back millennia. Rome for centuries straddled multiple continents. Britain once famously ruled the waves. The Soviet Union not so long ago dominated an empire from Eastern Europe to the Bering Straits.

Today, China is evolving into a market-based global economic powerhouse, the UK remains a bastion of freedom and democracy. Rome lies at the heart of Italy, itself a member of the broader, united and peaceful European Union. The former Soviet States are a mere two decades into re-establishing themselves, but with positive momentum – and some concern - while Eastern Europe already thrives in free market democracy.

And, here, in the U.S., we are at a crossroads, a dramatic inflection point, a defining moment in time.

Ours is a unique history. We are a young nation, with a relatively short history, at least when viewed from a global perspective. While brief, our history has been at times arduous, at others terribly painful, on some occasions shameful, but most often brave, and full of promise. Ours has indeed been a history defined by a powerful belief in and commitment to what we have perceived to be our manifest destiny.

Over the last century, we have fought two World Wars and have engaged in multiple smaller, but vital, conflicts. We have endured the tension and occasional terror of almost 50 years of Cold War. We have suffered through a Great Depression, and multiple, if less dramatic, but still painful, and recent, recessions. We have survived horrific terrorist attacks on our Homeland.

Yet, through it all, we have prospered, creating entire new and marvelous industries – from aircraft to the Internet. Indeed, in many ways, as a direct result of our initiative, our leadership, our protection, our shining example of free market democracy, the world has matured around us. With obvious exceptions, democracy and free markets are flourishing. Our tide has lifted all boats.

Yet now, again, we are at a crossroads, a dramatic inflection point, a defining moment in time.

When our original thirteen colonies came together, it was no easy feat. There was great distrust among the colonies, distrust that survived the eventual Union, distrust that later fueled a brutal Civil War, distrust that still exists today, to some extent. But, through common cause, we found Union, and through common cause, we have maintained Union.

Our common cause is as strong as ever. But our status on the world stage has changed dramatically over the last two decades as a result of globalization, the spread of democracy, and the development of more and more vibrant economies overseas.

A Brave New World

The geopolitical stage is fundamentally different than it was 25 years ago. While we remain a prominent leader in the world, we are but one leader among others. And, likewise, the global economic ecosystem has fundamentally changed, and not for the short term. It is not just the manufacturing of basic mass-market goods that has spread offshore, but innovation and intellectual capital as well.

And in the midst of all of this, through and beyond our most recent recession, our financial system has suffered severe disruption, our housing market has yet to recover, adequate health care remains out of reach for millions of Americans, our unemployment rate is frighteningly high and, finally, again, terribly painful to watch, our college graduates are struggling to land their first jobs.

And, very worrisome, our culture and society are seemingly evolving from what was an historical tendency to “rally around” common causes to a new-born fear-uncertainly-and-doubt inspired inclination to “rally against” pretty much anything. Sadly, and perhaps ironically, the output of the digital revolution that fueled our growth at the turn of the last Millennium - immediate and ubiquitous digital communications - is now fueling far more radical and irrational emotion than productive and rational discourse. How else, for instance, would a seeming madman in Florida, with a congregation of mere dozens, gain not just White House but worldwide attention to his intent to burn a copy of the Koran?

Let me say it yet again: We are at a crossroads, a dramatic inflection point, a defining moment in time. The world has moved on. It is time to change our worldview.

This will be no easy task.

Putting aside defense-related issues for the moment, in terms of our global economic relations, it is time for us to recall the experience of uniting thirteen colonies - our nation - around common cause. It is time to build or re-build common cause and all-important trust on a global stage - with our competitors and partners alike. Our common global tide will lift all boats. This is our manifest destiny, as redefined by globalization.

Those in the Congress and elsewhere that believe that reviving industrial age, government-inspired market-distorting barriers to trade will benefit American companies, workers and our economy in general are wrong. Such measures, in a tightly interwoven global economy with supply chains spanning borders and oceans and integrated products demanding inputs from markets around the world, will inevitably hurt us more than they help us.

For instance, U.S. companies are prevented from participating in energy sector business in Iran. The intent is laudable – we do not want to see a radical regime further its potential to develop nuclear weapons. By cordoning off our own companies, we leave the doors open for companies based elsewhere to take the business, undermining our intent. So, Congress has crafted legislation to sanction foreign-based companies that engage in Iran’s energy sector – blocking their potential business opportunities in the U.S. if they do business in Iran. As a result, major European energy companies have announced their intent to stay out or get out of Iran. But that still leaves the rest of the planet, including no shortage of Chinese-based energy companies. So, the Congress fires up the rhetoric and the Administration puts the diplomatic screws to China, further exacerbating tensions with that country that range from a growing trade imbalance, China’s currency policy, Chinese intellectual property protection, Internet freedom, cyber-security, Taiwan, Tibet, and so on and so forth. Was this our intent? No. Our intent was to prevent Iran from developing Nuclear weapons. Might we not be better off going back to square one and allow U.S. energy companies to engage in Iran? We’d certainly have better insight into what’s happening, and, well, we’d be supporting American jobs and economic benefit as well.

Similar arguments could be applied to applying countervailing duties on Chinese products to force China to allow its currency to float more freely. Who pays? U.S retailers, consumers, and other companies that rely on Chinese inputs, etc. And should China retaliate in some fashion, throw U.S. exporters into the mix as well.

Please don’t misunderstand me: I am no apologist for Chinese human or intellectual property rights or other violations, nor for corruption or nuclear irresponsibility in Russia, nor for regimes of terror or suppression in countries like Iraq, Iran, Afghanistan, or elsewhere. I’m just highlighting that industrial age tools and, for that matter, Cold War sabre-rattling, are no longer sensible in a globalized economy. We need new tools for a new age. We need to accept a new role in a new age. We need to acknowledge that we have a lot of our own historical baggage, and that we should work with global partners to help them unload theirs, perhaps faster than we did ours.

It is, again, time to adjust our worldview. We may be one of the world’s largest economies, we may well be the world’s largest consumer market, but we are only 4% of the global population. When one looks at the world stage today – from outside the U.S. – one perceives the U.S. as a leader, but not “the” leader. We are one among many.

Let us work as a trusted and equal partner to create models for further cooperation and mutual endeavor. Let us redefine globalization. Let us create opportunity and trust. Let us find common cause. Rather than putting up walls and barriers, let us recognize the realities of globalization and, for instance, create an environment, powered by tax or other incentives, and a workforce that combined are so attractive that we compel offshore multinationals to further invest in America, to create new American jobs, to support new livelihoods. It doesn’t matter where the corporate headquarters is anymore - our combined tides will lift all boats.

Our Challenges at Home

We must prioritize our challenges so that we address those that will best serve our future.

After September 11, the U.S. learned a new phrase, one that had been popular in other English speaking countries for many years: Homeland Security. The popular perception of Homeland Security is the folks working airport security and border patrols. But, of course, it goes well beyond that.

When I think of Homeland Security, however, I think about what sort of job opportunities my kids may have when they enter the workforce. I think about how we might drive true economic renewal. I think about the sacrifices that will be necessary to lay the groundwork for a true and lasting recovery.

The U.S. was once a manufacturing giant, but much of our manufacturing industry has moved offshore, where labor and infrastructure are less expensive. The U.S. was once the leading exporter of many agricultural products, but other countries are now shipping wheat and beef and the like, eclipsing our own exports. The U.S. was the birthplace of the modern “service economy,” but many of those jobs – call centers, etc. – have also moved offshore, for cost and competitiveness reasons. The U.S. delivered the world the Internet, and the world has innovated around it, with research and development also having become a global process.

Are we devoting the appropriate energy and resources to and are we educating and training our children for the job opportunities they can aspire to? Are we managing their expectations appropriately – do we want to risk another alienated generation like the one that grew up during the Internet boom, graduated from college, and waited for six figure jobs to magically materialize while their parents sought the same opportunity? Are we guiding students to leverage their strengths in terms of their ultimate occupation. Have we forgotten the concepts of apprentice, journeyman and master and trades in our headlong rush to extend the high school experience another four years vainly hoping that a degree alone will guarantee wealth and status? Have we forgotten that personal fulfillment and happiness can be achieved without wealth and status?

Our true economic recovery will begin with education. If only we might invest in training and equipping our teachers in the same way we do our soldiers…

We should look to other markets and learn from their success, and restructure our approach to education to mirror those most successful. And let’s do it right. Which means not on the cheap. Now more than ever, we need to invest in our future, in our childrens’ future.

How?

U.S. defense spending accounts for just under one half of the entire world’s defense outlay.

Yes, we must provide for our common defense. Yes, we must be prepared to address true threats to our country, including new and sophisticated cyber threats. And yes, we must be prepared to come to the aid of allies and the severely oppressed. But, in the context of our dire need to recover and renew our economy and the livelihoods of Americans, we must also reconsider our priorities.

Since September 11, 2001, Congress had appropriated more than one trillion dollars for military operations in Afghanistan, Iraq, and elsewhere around the world.

Even some small fraction of those funds could have rehabilitated or built and equipped all new American schools, fielded an army of high-quality and appropriately compensated teachers, and subsidized hundreds of thousands of America’s brightest to attend university without the burden of overwhelming debt upon graduation.

Another small fraction of those funds might have contributed to the build-out of truly ubiquitous broadband – extending the Internet to virtually every American – an infrastructure build-out that would rival that of the national highway system decades ago, and with an impact equally profound in terms of education, training and future innovation.

And, slightly off topic, yet another small portion of those funds could have provided adequate health care for virtually all of America’s uninsured, until such day that we actually deliver on our responsibility to craft a universal health care system that does indeed protect all Americans.

A Fundamental Mindshift

Accepting that our status in the world has changed is a challenge for Americans. Manifest destiny was not just a 19th century policy, it has been an unsung American cultural driver since that time, and through today. It guides how we feel about ourselves as a people, as a nation – a sense of our history, our people, our nation as somehow exceptional.

We are no less exceptional today than we were yesterday or one hundred years ago, or than we will be 100 years from now. America remains a shining beacon and example of hope and aspiration for peoples across the world. But our status has changed, as other countries - complementary and competing global and economic powerhouses - have closed ranks with and around us.

A new day calls for new ways. We are at a crossroads, a dramatic inflection point, a defining moment in time.

Let us meet the challenge. Let us work as a trusted and equal partner on the global stage to create models for further cooperation and mutual endeavor. Let us redefine globalization. Let us create opportunity and trust. Let us find common cause. Let us not miss the opportunity to embrace change and in so doing, recover and renew as a global leader among leaders, with a strong, healthy and resilient homeland...

Stay tuned...

2010-09-13T19:51:00.001-04:00

...'nuff said. For now.

Bill

Online Digital Piracy: Threat and Opportunity

2010-08-15T13:42:00.004-04:00

There’s a stand-up comic who’s routine pokes fun at the sometimes-clever Motion Picture Association of America (MPAA) trailers that run in advance of movies warning against content privacy (and, for what it’s worth, there are countless YouTube videos doing the same in various manners). The stand-up’s routine focuses on a trailer that suggests: “you wouldn’t steal a car, why would you steal a movie?” The stand-up jokes: “Well, if I could select whatever car I wanted off the street, point at it, and after 30 minutes or so it would be mine, and the original owner would also still have a copy, why wouldn’t I?

And everyone laughs, notwithstanding that such a scenario would doom the global auto industry, and, frankly, given the quality, integrity and security of the digital content the stand-up is referencing, if the same were applied to “copies of cars,” our highways and byways would become just a tad more dangerous. After all, who hasn’t heard a “found” tune skip a beat, or stop abruptly, or received a special bonus bit of malware along with the tune that otherwise compromised your computer – imagine the skipped beat or the virus resulted in, oh, I don’t know – no brakes, loose lug nuts?

And yet, since the advent of young Mr. Fanning’s original Napster over a decade ago, there has remained a persistent mindset among a certain segment of the digerati that continues to drive online theft of digital content, based on the blithe perception that no-one gets hurt, everyone benefits, and, well, all those studios and labels are and have been ripping us off for decades in any event – so let’s stick it to the ill-if-ever-defined “man.”

The music industry was caught unawares – unforgivably in my opinion – by the peer-to-peer revolution led by Napster, Kazaa, Limewire, Frostwire, etc., etc., and since then, carried on largely in the more efficient, faster, and arguably slightly less malware-friendly multi-peer to peer BitTorrent universe (including also The Pirate Bay, ISOHunt, Demonoid, etc.). Notwithstanding some fruitful, more often less, and sometimes absurd lawsuits filed by the music industry, and lots of noise and limited (very) success with Digital Rights Management solutions, it was Apple and iTunes that stepped into the breach to save – and suckle from – what was a hobbled, floundering music industry. Streaming services like Rhapsody have further bolstered legit consumption of music.

The video and movie industry were largely spared in these early days, largely due to bandwidth limitations, with piracy limited to snippets and/or ueber-poor quality full-length copies of video shared over P2P networks, YouTube or otherwise. Quite simply, the file sizes were just too large to move over pre-broadband networks. Video piracy was largely defined by Asian and other-market cottage industries built (and still thriving) around bootlegging and street-selling.

But, in today’s world of increasingly ubiquitous high-speed broadband – cable, fiber, WiFi and up-and-coming 4G wireless networks (LTE and WiMax) - the threat is real and the BitTorrent libraries are jam-packed with full-length, including recently released, films and full seasons of network programming.

And yet, unlike the seemingly hapless music industry, and borrowing from now well-entrenched consumer comfort with iTunes-like experiences, a host of services have emerged that make legal, online, on-demand video consumption a viable commercial proposition – Netflix and Amazon are great examples. And, moreover, anticipating the phenomenon of Internet video streaming to the big screen, Boxee, Hulu, Kylo (Hillcrest Labs) and others have built relationships with video and film content owners and created unique browsing solutions for delivering licensed content to stand-alone PCs or, increasingly, PCs integrated into home theaters and big screens.

Is torrenting a thing of the past? No, not at all. And the cost to the industry of such activity is staggering: While somewhat dated, a 2005 survey conducted by the MPAA, relying on a consumer survey conducted in several countries, found that U.S. motion picture studios lost $6.1 billion to piracy (notably not limited to online piracy) in 2005.

But, there is a generational change underway. Today’s torrenters are yesterday’s P2P pirates – 20-somethings that grew up file-sharing and for whom the concept of buying a CD or paying for a tune from iTunes borders on alien – this is the lost generation, the behavior of which will be challenging to change, until and/or unless they simply grow out of it. The good news, however, is there is a ‘tween and teen generation that has grown up with the reasonable price points, spontaneity, and utter simplicity of iTunes, Rhapsody, Amazon, etc. This generation is more accustomed to playing for content, and, moreover, since they have been weaned on simple, easy-to-use UI’s and online experiences – they are less likely to dive into what remains the somewhat arcane and still-dangerous world of BitTorrent.

The challenge now for the studios and networks is to nurture this generation, and to introduce services of their own to compete with the aggregators and resellers (Netflix, Amazon, etc.) lest they suffer the same fate that the music industry and artists continue to struggle with – low-to-no margins on traditional product (music tracks) shared across multiple stakeholders, and the resulting challenge to create all new experiential products to drive new revenues, new successes.

In short, online digital piracy, at this very unique moment in time, is as much opportunity as threat. The latter must be addressed, and organizations like the MPAA are well-equipped to continue the good fight. The former, however, is the greater imperative, and will require quick, creative, innovative and perhaps risky new investment and initiative from the motion picture, film and television industries.

‘Should be fun to watch (as it were)…

Illusions of Grandeur...

2010-07-20T12:19:00.004-04:00

Interesting week for Nokia and Nokia-Siemens, resulting in not-insignificant jumps in share price for the mother company.

But why?

Two major developments: Nokia-Siemens announced its intent to buy out Motorola's non-iDEN based infrastructure business and, reportedly, a search is underway for a new CEO that could, some say, result in Olli-Pekka Kallasvuo's ouster as early as next month.

Hey, these are both big deals, but, well, they're questionably meaningful in any real commercial sense and the share-price jump is almost certainly a short-term phenomenon unless a "really big deal" (e.g. a complete and utter strategy overhaul) happens, and soon...

Considering the Nokia-Siemens acquisition of the Motorola infrastructure assets, what does this really mean? Yes, on the upside, investing over $1.2 billion could be considered a good move, given that Nokia-Siemens reported a 7% annual revenue decline in Q1 2010 while the Motorola division posted a decent $112 million operating profit, a figure which Nokia-Siemens could arguably grow should it succeed in digesting the Motorola assets and rationalizing and/or eliminating redundant spending and R&D, etc. And yes, the acquisition might boost Nokia-Siemens opportunities in its weakest market – North America – if it succeeds in leveraging the long-term and healthy relationships Motorola enjoys with Verizon, AT&T and Sprint. But, let's recall that both Nokia-Siemens and Motorola were essentially shut out of recent Verizon and AT&T 4G/LTE infrastructure projects (which were awarded to the unofficial infrastructure vender duopoly of Ericsson and Alcatel-Lucent) - so it's unclear what this perhaps "too little, too late" acquisition might mean in the cases of those major operators, at least in the short- to medium-term (unless Ericsson and/or Alcatel-Lucent majorly screw up in terms of their contracted deliverables, which has happened before...).

We should also recall that Motorola's strong presence in the U.S. market is a legacy one. A not-insignificant percentage of Motorola's past infrastructure revenues and related profits were the result of selling 3G equipment based on CDMA2000 to Verizon, Sprint, and others. Given that CDMA2000 is itself a legacy standard, having been trumped by LTE, where (again) Motorola's infrastructure business has failed to break through in the U.S. (not unlike Nokia-Siemens), it's unclear where the real value is to Nokia-Siemens, excepting perhaps a breakthrough opportunity in WiMAX with Sprint/Clearwire.

I'd have argued (indeed, I have argued for a year-and-a-half now, in this blog and elsewhere), that Nokia would have done better to invest that rather remarkable chunk of change in a wholesale conversion to Android-enabled devices, derailing Motorola's terminals division, rocking RIM's nebulous recovery and standing up to HTC which in less than two years has seized significant market share and, remarkably, achieved almost household brand status.

Which leads me to that second big development: The swirling rumors over the last 24 hours or so about a purported Nokia search to find a replacement for Olli-Pekka as CEO.

Not too long ago, I posted a "don't blame Olli-Pekka for the mess in the U.S." rant (see May 2, 2010 post). My thoughts have not changed. However, when a company is consistently challenged to deliver, year after year, regardless of where the fault ultimately lies, the buck's gotta stop somewhere, and, mixing metaphors, it appears this chicken's come home to roost. Assuming that the rumors are true, including the imminent timing of the change, I think the big question should not be "who will it be?," but, rather, "what will he/she do differently?" Some important strategic decisions begging resolution:

- Wither Symbian?
- Why not Android? It's late, perhaps critically so, but it's not too late...
- If Android, MeeGo as well? Why?
- What about an unholy alliance with equally-struggling Microsoft (see June 23, 2010 post)?
- Wither Ovi? It's not on a par with the Apple and Google solutions. White label for operators? Go unholy and relaunch (see bullet immediately above)?
- What about the all-important U.S. market? Overhaul a management team that has failed to deliver for almost four years? Outsource all product to exacting operator spec (beat LG and Samsung at their own game)?
- What about morale - employee and investor? Recovery will not come overnight.
- How about an iconic product? Not some N8-like thing, but something truly iconic, like the 6160 married to AT&T's one-rate plan back at the turn of the Millenium when Nokia commanded near 40% share in the U.S. alone?

Not easy challenges, not easy decisions. But the world has moved on as Nokia has serially re-org'ed for the last three-four years. It is indeed a time for wholesale and brave renewal. I wish the greatest luck to Nokia and whomever emerges as its leader - it's gonna be one hell of a bumpy ride.

Later...

My start-up flop...

2010-07-14T23:39:00.004-04:00

A few weeks ago I marked the one year anniversary of the beginning of what turned out to be a short-lived career as President and CEO of an early stage mobile application/interactive marketing start-up. As I embark this week on the next stage of my career, completely unrelated (indeed, a return to my D.C. roots of yore - but that's another story), I'm unable to resist the urge to chronicle the sad debacle that was my start-up experience.

When leaving Nokia in February 2009, a far more bitter than sweet experience, I had a reasonable cushion upon which to mount my job search. Don't get me wrong, I was terrified from the first day of unemployment, but I was also in a position to consider a wide range of options, and I was in some sense driven to recapture the excitement and passion from that time I spent leading Nokia's maverick North American Multimedia business.

I had feelers out to every headhunter I knew, and was meeting new ones on a regular basis. I networked with former Nokia and other industry insiders at other companies in the mobile space. I flirted with one or another courting start-up, and, then, was approached with a unique and intriguing President and CEO opportunity by a headhunter I'd befriended via a mobile-related blog he managed.

What followed was a series of interviews with a range of advisers to and Members of the Board of the fledgling start-up, founded by three software platform developers who'd been together for a pair of decades and were making their first foray into the mobile space. Their solution was not rocket science, and I'll get to it in a minute, but it did indeed have the potential to be disruptive, and successful.

The start-up's Chairperson, who represented the VC that led the miniscule $750k A Round of funding (almost a third of which was already gone by the time I joined), was the prime decision-maker, and had surrounded herself with an eclectic group of well-pedigreed but oddly - seemingly - ill-fit (in terms of the start-up's offering) advisers. Hers was the decision to hire me, only after which did I get a chance to meet the Founders.

The Founders and I quickly bonded - good guys, if, however, in my perhaps not-fully-informed perception, set at pre-commercial Internet clock speeds when it came to development. When I came on board in late June, I was told we'd have a commercial solution in mid-July. Uh, not...

But what was it?

Well, when the iPhone SDK was released, the guys, who, again, had no mobile background, saw it as their next platform, and developed a clever mechanism to essentially circumvent the iterative iPhone application development process.

The way it was working when they birthed their brainchild, let's say in the context of a content owner, was that the content owner would hire an app developer, tell them what they wanted their app to do and feature, wait for the developer to return something that, with luck, actually met their specifications, then submit the app for Apple's review and, ultimately, publishing. If the content owner wanted to update the app, well, they'd go back to the developer, get the changes tweaked, pay for it, re-submit to Apple, re-publish, wait for iPhone users to update their apps, etc. Not a terribly dynamic process.

What they guys figured out was that the configuration file at the core of any app - the "property list" - could actually be updated without re-publishing if the originally published app's property list contained code for all of the potential functionality that might ultimately be desired in the app, even if the initial app only featured, in terms of the user experience, some subset of that functionality.

The solution, grossly simplified, was for the app, each time launched by an end user, to quickly touch the start-up's servers and, if the server-based config file had changed, so too would the app's property list, enabling what appeared to be a magically morphing app in terms of look, feel, feature set, experience, etc. Quite cool.

So, with a rudimentary, clumsy and awkward UI version of the solution, I set out to convince content owners that they should license our platform, bring their app development process in-house, and launch apps that they could continually morph, whether based on user behavior, new product launches, what-have-you...

I had a couple of working leads, pre-dating my coming on board, one a specialty marketing shop with a couple of trendy brand clients (lined up by one of the quirky advisers), the other a major educational content publisher. The former ultimately signed a contract, but never made use of the platform, instead leveraging one of the Founders to design and redesign an app that never launched. The other, sadly, bogged down in its own inertia, and, frankly, our failure to deliver a compelling design experience.

I turned my attention to richer content opportunities, engaging, for instance, a major music publishing group representing multiple labels, a couple of indie labels, and two major professional sports leagues.

What we soon learned from our very rich and intriguing conversations with these potential customers was that, in fact, they were frustrated by the entire mobile app experience. They couldn't make money off apps. Yet, they kept contracting developers to deliver them because apps had become a hygiene requirement in the mobile space.

All the while, I was fielding almost daily requests from the Board Chairperson and one or another of her advisers to consider random, alternative business model deviations and/or to consult with some newfound "expert."

Sigh... You see, the start-up was the Chairperson's first lead investment and, as I'd been warned by the Founders in my first week on the job, her constant interference reflected her fundamental lack of confidence and basic understanding of our business and the industry in which we were doing business. My failure - my key failure - was not putting my foot down early, demanding that she allow us to do our jobs rather than respond to her each and every whim.

In September, came an epiphanal conversation with the folks from that major music publishing group I mentioned.

What if, I suggested, we turned the model on its head, published one core app for free on Apple's App Store, with the richest potential configuration possible, and then launched a drop-dead simple consumer-focused site where individuals could design, publish and virally share their own configuration files? The content owners could open up their content management servers - just the basic, static stock content - and allow individuals to, for instance, create config files celebrating their passion for, e.g. Lady GaGa, or the Washington Capitals, or whatever. The config files, easily plugged into the single core app, would spread virally across social networks, libraries would emerge, hosted by content owners, or otherwise. Content owners would have a whole new distribution channel to up-sell premium content to people who had self-identified themselves as passionate about their content. And we'd get a piece of the action in terms of up-sell revenue, and everyone would benefit from advertisement- and analytics-based revenues and consumer behavioral understanding.

The major music publisher loved the idea. As did the couple of indies I was talking to, as did the two pro sports leagues, as did the Founders. I prepared an entirely new business plan around the new model, projecting viral growth of the core application and uber-viral growth of consumer-generated app configurations, but, importantly, no revenues until 2011, earliest.

With funds dwindling, even after having been augmented by an A+ Round of a couple hundred grand in November, I pitched the Board a new plan in the context of launching a B Round to fund us through 2010 until we could reap 2011 revenues. The Chairperson rejected the idea, as did her adviser. And then, the one Founder on the Board caved in, leaving me stranded, and, worse, facing demands from the Chairperson for a business plan that would drive 2010 revenues, perhaps around, sigh, custom app development... Such a pedestrian business was not what I signed up for...

...And, in short, it was not a terribly cordial parting of the ways. I believed in my plan and believed it would earn us a B Round. Indeed, I believed in it so much that I offered to work for sweat equity until we landed that B Round. But the Chairperson was adamant, and, unknown to me at the time, had already decided I was to be ousted, having recruited yet another "expert" to step into my shoes, notably bringing with him not insignificant funding.

We had some heated conversations, the Chairperson and I, but to no avail, other than her somewhat petty refusal to allow one of the willing Founders to write a recommendation for me on Linked-In.

And that, in short, and for the record, is my start-up story. A fabulous learning experience if nothing else.

Notably, and as an epitaph of sorts, since my departure in December, seven months later, the re-focused start-up has published, to the best of my knowledge unless otherwise white-labeled, exactly one app powered by their unique platform. One. And that one app was for the home-managed business of one of the Founders' spouses. And it's available for free from the app store. Sad. And, meanwhile, Google has recently launched their own custom individual consumer application configuration utility for Android apps. Go figure...

But, hey, all of that's behind me now...

Later...

IAccessibility: Policy Imperative, Industry Challenge

2010-06-30T17:19:00.005-04:00

As Congress debates an overhaul of the Telecommunications Act of 1996, a separate debate related to one of the lesser-known provisions of the 1996 Act is also underway, with the potential to critically impact on future information and communications technology innovation. What complicates this instance of digital post-convergence/pre-chaos/current collision, is the highly emotionally-charged nature and topic of the debate: Ensuring communications and Internet accessibility to individuals or varying ability or disability.

Section 255 of the 1996 Act, implementation of which was debated for many years, requires telecommunications products and services to be accessible to people with disabilities, to the extent that such accessibility is "readily achievable." The definition of readily achievable has always meant different things to different people, but the FCC, disability advocates and industry players generally agreed it to mean “easily accomplishable, without much difficulty or expense.” Of course “much difficulty” and “much expense” were situational definitions at best.

In any event, per Section 255, if manufacturers cannot make their products accessible, then they are required to design products to be compatible with adaptive equipment used by people with disabilities, again, “where readily achievable.” To the extent that adaptive equipment technology in certain instances did not keep pace with mainstream information and communications technology, manufacturers of the latter were often compelled to include what might be considered “retro” technology in otherwise cutting-edge solutions to ensure interoperability. Such compromises, in my opinion, were worthy of the goal of extending accessibility as readily achievable as possible.

In terms of the application of Section 255, it was defined to cover wired and wireless telecommunication devices, pagers, and fax machines, other products that have a telecommunication service capability, such as computers with modems and equipment that carriers use to provide services, such as a phone company’s switching equipment. Of note, the possible functions of a product are key in determining coverage. If a product can provide telecommunication services, then that portion is covered - for example, televisions generally are not covered by section 255, except where a set-top-box enables e-mail communication or Internet access, and then only that device is covered.

During the debate around the implementation of Section 255, there were moments bordering on the absurd. However well-intended (truly) the provisions were, the myriad of disability advocates demanding accessibility features threatened to overwhelm innovation – particularly in the mobile space - as debate floundered in the miasma of trying to address the broadest spectrum of abilities and disabilities in terms of accessibility. In the end, however, reason prevailed, and under the ever-nebulous “readily achievable” rubric, manufacturers did indeed innovate select creative solutions to address accessibility challenges – if not in every device, then across a portfolio of devices - while not derailing the promise of mobile broadband multimedia, and all under the auspices of light FCC regulatory oversight incorporating a reasonable and reasonably managed complaint process.

As a brief aside, related to the reference above to addressing the broadest spectrum of abilities and disabilities in terms of accessibility, consider how the Americans With Disabilities Act defines a person with a disability. While the ADA does not provide a list of disabilities, it does define a legal test to decide if a person has a condition that is severe enough to be an ADA disability. As such, the ADA defines a current disability as “a medical condition or disorder (called an impairment) that substantially limits a person in doing basic activities (called major life activities). “ Examples of major life activities include walking, seeing, hearing, breathing, caring for oneself, performing manual tasks, sitting, standing, lifting, learning, and thinking. The point of the reference in the paragraph above was to emphasize that designing every product to be accessible to such a broad spectrum of potential abilities and disabilities would be beyond readily achievable, it would be, in fact, utterly impossible.

Earlier this month, Representative Edward Markey (D-MA) re-introduced “The Twenty-First Century Communications and Video Accessibility Act,“ (also known, in Congressional parlance, as H.R. 3101) , which, with references to Section 255 and other related accessibility-focused regulation and legislation, would extend Section 255-like requirements to cover every provider of Internet access service and every manufacturer of Internet access equipment, unless it would be an undue burden, to make user interfaces accessible to individuals with disabilities (as defined by the Disabilities Act of 1990, as amended). “Undue burden” has stepped into the “readily achievable” space, and is defined as “significant difficulty or expense” – a seemingly significantly higher threshold. To the extent that threshold could not be achieved, like Section 255, H.R. 3101 would require that the equipment or service be compatible with existing commonly used peripheral devices or specialized customer equipment, unless, again, that requirement would be an undue burden.

The Twenty-First Century Communications and Video Accessibility Act would cover a broad swath of the Internet industry, introducing rules and regulations where they may not have been applicable, or not perceived, or not enforced in the past. Of note, H.R. 3101 has a special focus on video, which offers an illustrative example of the challenges the bill, if enacted, will introduce across the digital spectrum. In terms of video, for instance, the bill would require that any apparatus that receives or plays back video programming and has a picture screen of any size be capable of decoding closed captioning, transmitting and delivering video description, and conveying emergency information. Notably, “video programming “ is specifically defined as “including programming distributed over the Internet or by other means”. Specific accessibility requirements would include mandating that any apparatus to receive or play back video, including using the Internet, allow control by individuals with disabilities and that on-screen menus, guides and/or navigational devices be accompanied by integrated or peripheral audio output and/or other accessibility solution to enable control by blind or visually impaired individuals unable to read the visual display. These requirements impact on everyone from YouTube to TV manufacturers to PC venders and beyond, including as well the accessories – mice, keyboards, remote controls – such services and/or hardware rely on.

The intent of H.R. 3101 is laudable, and yet, as the debate matures, there will doubtless be numerous exchanges bordering on the absurd as advocates representing individuals and groups across the ADA spectrum drive their individual interests while industry positions itself to both protect bottom lines and explain what is and is not technologically, commercially, and meaningfully achievable all-the-while operating within the basic laws of physical reality. There will be moments of clarity and compelling reason. There will be moments in which reason, logic and honesty are utterly ignored. The role of lawmakers and regulators throughout the process should be as an honest broker shepherding a debate that results in reasonably achievable, commercially- and humanly-meaningful compromise that drives rather than stymies innovation, market-based competition, and, of course, meaningful accessibility.

Meanwhile, there are a variety of solutions already market-tested and deployed. For instance, Microsoft’s Active Accessibility (MSAA) and UI Automation initiatives are aimed at providing better access for individuals who have physical or cognitive difficulties, impairments, or disabilities. And, there are literally dozens and dozens of screen readers available for vision impaired Internet users, and equally numerous video relay and video captioning services for hearing impaired users. These are positive, if not fully comprehensive, steps in the right direction.

Going forward, Internet accessibility – as driven by both regulatory and public demand, both spurred by the increasing integration of Internet activity into our daily lives – may well prove to be a cottage industry as lucrative as “green technology” has become. Watch this space in terms of start-ups and VC activity…

Latest on Network Neutrality...

2010-06-25T11:24:00.001-04:00

'Round and round and round we go, where we'll stop, nobody knows...

The Senate Commerce Committee yesterday (6/24/10) questioned three FCC commissioners about FCC Chairman Genachowski's oft- and passionately stated intent to assert more control over the way broadband providers manage Internet traffic by extending existing telephony authority to regulate Internet access as well. Genachowski was not present at the hearing. Not surprisingly, Committee Democrats voiced support for the FCC's actions as essential to driving ubiquitous broadband, while Republican counterparts challenged the plans, expressing concern that such regulation would stifle innovation.

The FCC proposals, which would include an overhaul of the $8 billion Universal Service Fund - which currently subsidizes phone service for low-income folk and rural areas - to instead allow for funding new Internet access in rural areas. The bigger question though, is, of course, whether the FCC has or can contrive to extend any authority over Internet traffic or services in general. Indeed, as previously blogged, Genachowski's proposals fly in the face of the April Federal Court ruling that concluded that the FCC overreached when it sanctioned Comcast for deliberately slowing some of its subscribers Internet traffic.

I applaud Genachowski's initiative in the context of it shining a brighter and brighter light on both the need for accelerated broadband deployment and the imperative to curb access provider abuse of market power. As said before, the debate itself is serving as regulatory oversight of a sort. I worry though, just a bit,that it may also serve to delay the very deployments that are critical to our broadband future...

Stay tuned.

Online Privacy: Challenges and Opportunities

2010-06-24T12:21:00.004-04:00

Almost a decade ago, there were fierce policy debates in regulatory backrooms about how digital privacy might be managed as the commercial Internet blossomed towards the multimedia broadband wonder that it is today. The heart of the dialogue was whether or not people should “opt in” to or “opt out” of use of their personal information for advertisement, experience customization, personalization, etc.

While there were already countless laws on the books and regulations promulgated to protect consumer privacy, financial transactions, health records, etc, and so forth (although almost all drafted in the pre- or early-commercial Internet age and arguably ill-fit or un-tested in the digital world), the opt in-opt out debate – focused on driving commercial value from the Internet – was a watershed.

In markets where, for instance, direct mail and telemarketing were commonplace, the initial kneejerk was in the opt out direction – if someone didn’t like the use of their data they would have the option of stopping the process (if, of course, they even noticed). In other markets, where such practices were frowned upon (or even illegal), opt in was the preferred mechanism.

Long story short, opt in emerged as the status quo, and specifically in the context of people opting in based on the concept of “informed consent.” In other words, people had the right to a full description of how their data might be used in advance of agreeing to its use. Notably, the general public was largely unaware that this debate was taking place, nor that a common policy had been defined and agreed.

Over the last 10 years, reaching a crescendo as social networks have exploded allowing people to share more personal information, there has been growing consumer concern related to identity theft, cyber/real-world stalking (via e.g. Google Streetview or mobile location-social network mashes like Foursquare, Loopt and Gowalla), and other privacy intrusions or mis-uses of personal data. The fundamental question facing people today is: Even if I opted in, was my consent really informed?

The most recent and perhaps most resonant hullabaloo has been around Facebook’s iterative editing (and lengthening) of its privacy policy and settings, culminating in the introduction of Facebook’s “Instant Personalization Program.” Overnight, the IPP resulted in Facebook members suddenly broadcasting their activities on a wide variety of otherwise unrelated websites, like Pandora, Yelp, and Microsoft docs.

Notwithstanding Facebook's Zuckerber Washington Post “apology” (which was not his first and anything but, and included the strangely cultish mantra “If people share more, the world will become more open and connected…a better world”), opting out of IPP is doable, yet only truly effective if all of your FB friends do as well (if any of your friends visit the other websites without opting out, they get your info anyway).

Meanwhile, in the less mainstream/not-yet discovered/feared realm, sites like Spokeo offer downright spooky profiles based on publicly available digital data. Spokeo, which bills itself as “not your grandma’s phonebook, asks for nothing more than a name and city and state.

The results: Name, phone number, street address (without the specific number), household members (an incomplete list in my case), age, ethnicity, marital status, occupation, hobbies (not sure where this wild list came from), estimated home value, gender, zodiac sign (they got it wrong for me, but only by a month), level of education, home ownership, length of residence, basic socio-economic data on your neighborhood, and, of course, a Google Earth shot of the immediate neighborhood, with your house and neighboring grayed out.

And that’s the free offering. For $2.95 a month you can get a one year membership that will fill in the blanks and add photos, videos, etc. pulled from social networks, blogs, etc., as well as (I’m really not sure what this might entail) religious and political and other affiliations.

For whatever it may be worth, Spokeo is only one of many such sites offering similar “services.”

So, with all of the above said and known, and despite the efforts of groups like the Electronic Frontier Foundation, the Online Privacy Alliance, The Center for Democracy and Technology and the Electronic Privacy Information Center (EPIC) to better educate consumers on how to protect themselves online, the general population remains somewhat schizophrenic in it’s behavior and concerns. To wit, in a recently conducted (private) poll of a statistically relevant population (100’s, relatively affluent, ranging in age 15 to 45), the following results emerged:

• Almost 2/3’s of respondents are online daily for non-work/school experience, split more or less evenly between 1-2 hours and 3-5 hours daily.
• Few perceive benefit from personalized ads (based on service provider understanding of their online activity), half simply don’t care, almost 1/3 are slightly unnerved and 10%+ consider it an intrusion.
• Over half of the surveyed population make online purchases regularly or often, 2/3 recognize a remote possibility of identity theft, 25% are completely unconcerned, only a small percentage are deterred from online financial transactions for privacy concerns.
• 3/4 most trust their credit card companies to manage such transactions, with Paypal a second preference (essentially an extension of their credit cards), more than half neither trust nor distrust Apple and Google, while half list Facebook as least trusted.
• Over half of respondents use their mobile device to go online at least 1-5 hours a week, with another 1/3 going online 1-5 hours daily.
• ~60% rarely use location-based services (mapping, social location, etc.) on their mobile device, but almost 20% report using same more than 10 times a week or “practically always” (evenly split).
• Just over 10% perceive a benefit from customized services linked to their mobile device location but almost 50% would find it somewhat unnerving (29%) or an intrusion on their privacy (21%).
• No clear trusted party for managing such services emerged, indeed, 51% listed “no-one” as most trusted partner. To the extent trusted parties might be ranked, wireless operators/service providers edged out Google, with almost 50% listing Facebook as least trusted.

From a policy perspective, the good news is that EPIC, CDT, EFF and the Online Privacy Alliance seem to be united in promoting market-based as opposed to heavy-handed regulatory-based solutions to ensuring privacy protection without bringing digital commerce and social activity to a grinding halt. That said, they are also actively engaging in Washington to ensure that egregious behavior does not go unchecked – for instance, EPIC recently led 14 other organizations in filing a joint complaint with Federal Trade Commission (FTC) related to Facebook’s IPP. And, these groups are maintaining their initiatives to educate the general population appropriate individual protection. For instance, EFF is tracking Facebook’s privacy changes closely and providing clear instructions how to adjust personal settings accordingly, to the extent that Facebook makes that possible.

And, in the face of Congress preparing measures to regulate online privacy, and the FTC warning it will endorse such efforts if the industry fails to step up self-regulation, Internet companies like Yahoo and Microsoft and advertising giants like WPP are promoting a new market-based system to police privacy abuses by companies that track consumers' Web-surfing habits for ad targeting (see WSJ report).

Further good news for those of us who are fans of market-based solutions is the fact that (as also reported by the WSJ), venture capitalists – including top tier firms like Kleiner Perkins and Accel Partners - have identified privacy as a new investment opportunity and are pumping millions of dollars into privacy-related start-ups.

• Online privacy start-up ReputationDefender Inc. which provides a service to monitor what is said about an individual online and can help remove private information from certain websites, will soon disclose that it has raised $15 million in new venture funding—even though the company wasn't actively looking for new cash.
• SafetyWeb Inc., which helps parents monitor their kids' online activities recently closed $8 million in funding.
• And the well-branded Truste (a not-for-profit until 2008), which offers seals of approval to websites that meet certain privacy standards, recently raised $12 million.
• SocialShield Inc., funded by Venrock Associates and others, like SafteWeb has launched a web service that parents can use to help them track and analyze their children's online behavior, telling parents when others have posted and tagged photos of their kids online, giving them a chance to have them removed, among other thing.
• And, Abine Inc., funded by Atlas Venture, recently launched a product that can block online tracking and opt out of online ad networks.

As consumer awareness of privacy threats increases, even if behavior is not changing apace to address the threats, the market is responding with appropriate solutions and, hopefully, genuine commitment to self-regulation. But, all it may take to trigger potentially over-zealous lawmakers and regulators to step in will be more snafus from Facebook, a monster-scale case of identity theft, or a gruesome headline or two related to cyber-stalking.

A space worth watching, both in terms of personal security and business opportunity.

Later…

The unholy - or perhaps holiest - alliance...

2010-06-23T09:43:00.004-04:00

Watching Nokia’s slo-mo-but-steadily-accelerating crash and burn over the last couple of years has been painful to say the least. And there seems to be no end in sight, yet, perhaps, appearances aren’t, as they say, everything…

The collapse dates back to the Nokia reorganization in the mid-00’s that took a chaotic hodgepodge of nine devices Business Units and combined them into three new and focused Groups: Enterprise Solutions (aimed at dethroning RIMM), Multimedia (driving the future of mobile computing), and Mobile Phones (delivering bread-and-butter volume feature and entry phones). The unintended result was a strong focus on the high-end in Enterprise Solutions and Multimedia, and a natural gravitation towards the low end in Mobile Phones, which sought to capture and hold emerging market share. The door was left wide open for Samsung and LG to capture the mid-range feature phone space, where they continue to dominate today.

The acceleration of the meltdown came with another reorganization at the end of 2007, this time uniting the three separate devices Groups into one. Enterprise Solutions had essentially failed, Multimedia was poised to succeed, and Mobile Phones was chugging along in the low-end, so Nokia rightfully sought to achieve the efficiencies of a single devices Group, married up to a newborn Services Group, together meant to drive new hardware-software blended experiential Solutions into the market. The unintended result, in part influenced by an ill-timed global economic crisis, was the sacrifice of high-end device momentum - just as Apple was crashing the party and Android was a glint in HTC’s eye - as Nokia laser-focused on share, share, share. And that meant moving volume. And that meant driving low-end, entry-level phones.

There have been two additional reorganizations since, neither doing much harm nor good, neither speeding things up or slowing them down – just moving the pieces and bodies around. But, meanwhile, companies like China’s MediaTek are making Nokia’s much-vaunted global scale and efficiency less relevant in the low-end, enabling multiple Indian and other Asian companies to deliver the same $27 phones with $3 margins that have been Nokia’s mainstay in entry-level devices.

So, struggling to catch up in the high-end (where Apple and Android rule), just another middling player in the mid-range, and getting pressed hard and fast on the low end, and with its “me-too” suite of Ovi-based service offerings not having taken off to add value and differentiation to the Nokia device experience, and with its share price hovering above what would have been an inconceivable 5 Euros just two years ago, what is the one-time mobile giant and leader to do?

When I left Nokia a year-and-a-half ago, I recommended to senior leadership a North American recovery built on a departure from the global cookie-cutter approach. I have since repeatedly promoted that same strategy, both in this blog and in informal exchanges with Nokia: Scrap Symbian and deliver Android-powered devices. Just in North America. Recover here, where brands are made and broken. Then leverage that success globally.

Had Nokia taken that approach a year ago, Motorola would have crumbled, HTC would not now be a household brand, and RIMM would be yet more perilously hanging on than they already are today. But with seemingly Wang-like myopia, Nokia has stayed the Symbian course, pursuing Maemo (now MeeGo) on the side.

Notwithstanding my previous recommendations, frankly, a Nokia shift to Android at this point would be if not too little, certainly too late. It just seems so hard to fathom, a company with a history of risk and innovation watching the world go by… But, again, perhaps appearances aren’t everything.

Recall that there’s another tech giant out there struggling to succeed in the mobile space, a giant with which Nokia has had an on-again-off-again collaborative relationship, and with which, based on some personal historical knowledge, Nokia has maintained a regular senior level dialogue. Microsoft.

It’s a way out of an otherwise seemingly endless downward spiral, and I’d like to believe the plans are already in place and maturing. A Nokia-Microsoft alliance would shake the mobile space to its figurative knees. Indeed, as MS is poised to launch a refreshed mobile OS at year’s end, a suite of Nokia devices powered by that OS – if it’s everything it’s promised to be - could captivate the market. Such a bold move would certainly benefit both companies’ share prices, and, related, the sheer audacity of the move would give Nokia the opportunity to jettison it’s long-term commitment to Symbian as a mobile computing OS, instead allowing that OS to become the feature phone solution it’s destined to be. Wither Meego? I’m not so sure, but in the near-term we’d see the market boil down to three mobile computing OS’s – Apple’s OSx, Google’s Android, and Windows Mobile (or whatever it may be called) championed by Nokia. Yes, this would certainly eat into Nokia’s device margins, but it might also make Ovi much more relevant, and drive revenues through that channel that make up the difference.

Just imagine…

Streaming Internet Video to the Big Screen

2010-06-16T19:24:00.005-04:00

It's been awhile since I posted a tech tip here (if you visit the "mobile related posts" drop-down to the right of your display you'll see that it was once a staple).

In any event, and with zero focus on mobile, as streaming Internet video and content to the TV is becoming more and more commonplace, I thought I might offer some handy guidance....

Until the big CE guys (HDTV, DVR and set-top box venders) mainstream their Internet-enabled offerings, in terms of both selection and price point, (and, by the way, the potential for all of this Internet-enabled CE simply begs in advance for a consistent UI), your alternatives are multiple.

Apple TV takes a combined hardware/content approach, but has experienced limited uptake at best. And, of course, Google has announced its intent as well - Google TV - we'll wait and see what becomes of this... Even Netflix has gotten into the bundling game, teaming up with hardware partners like Roku. And, of course, if you happen to have a Wii, PS3, or XBox360 around the house that isn't otherwise in use for its primary purpose, any of the gaming consoles will support Internet streaming and, well, some limited clunky browsing as well.

Beyond the mainstream, there are any number of lesser-known hardware venders that are pushing Internet streaming-enabled HTPC's (Home Theater PC's - check out Mvix's HD Home, Acer's Aspire Revo, and Dell's Inspiron Zino for examples) and NMT's (Networked Media Tanks - check out Popcorn Hours' range of products, Western Digital's TV Live, and EGreat's somewhat chunky machine for examples) - but these things ain't any cheaper than the Apple solution (ranging from a couple hundred bucks to a thousand), nor, yet, any more mainstream.

While the hardware side of the equation has yet to mature, what most people are doing is simply hooking their PC's or laptops to their big screens and either streaming direct specific content providers (from YouTube to the networks - ABC, NBC, CBS - we've all grown up with, and beyond) or from Amazon or Netflix, or via Hulu, Boxee, or Hillcrest Lab's Kylo. The first two are basically content aggregators, Kylo is actually designed (Mozilla-based) as a true multi-functional optimized-for-TV web browser - worth checking out. Why? Because Kylo isn't just about streaming video - although it excels at that - it actually converts your big screen into a full, easy-to-view and easy-to-navigate Internet browser.

After you've hooked your PC to the TV (a simple process for weekend geeks but perhaps a challenge for the average Facebooker), the extended user experience - from the couch, as it were - is still a challenge. A wireless mouse and keyboard make it easier, and Hillcrest's Loop Pointer - a Wii-like remote - is a true marvel. Again, the latter is worth checking out (and, strangely enough, the Hillcrest technology incorporated in the Loop in part powers the Wiimote as well).

And there are other solutions as well. For those of you who are iPhone or iTouch owners, ASRock's AIWI is another clever solution. Strangely, there is no Mac version of the software, but if you download the free client to your PC and install the free app on your iPhone/iTouch, you get a WiFi- or Bluetooth-powered remote of sorts for your PC. In short, the iPhone/iTouch app allows you to use the touchscreen as a virtual mouse (and, in terms of the online gaming solutions ASRock is powering, the app also harnesses the iPhone/iTouch accelerometer for a pretty cool experience, albeit still quite limited in terms of game selection).

'Nuff said for now... Later.

Let the wireless broadband tiering begin...

2010-06-02T10:08:00.002-04:00

Mobile operators are taking first steps to introduced tiered billing for wireless broadband access, laying the groundwork and creating the model for fixed broadband to follow - the market-based (as opposed to regulatory-based) solution to network management (not "neutrality") that I've been discussing in recent posts on the topic.

For more detail, check out Verizon's approach; AT&T Mobility's approach.

Landscaping - One Year Later

2010-05-24T14:46:00.002-04:00

About a year ago, I was invited by INmobile.org to moderate a dialogue within the INmobile community focused on the mobility space, wondering "who eats who?," and including a parallel conversation pondering the nebulous space between fixed and mobile, what I deemed "nomadic," specifically in the context of netbooks. I was recently asked to update my viewpoint and, since INMobile is closed to non-members, my update (slightly tweaked) is copied below (and, notably, blends in multiple musings from other recent blog posts).

What a difference a year makes...

Let's re-set the stage. Imagine a consumer electronics continuum - a simple line stretching from "mobile" at one end, through "nomadic" in the middle, ending at "fixed" at the far end. In the mobile bubble, you find cellphones, single-purpose devices like music players, digital cameras, gaming units, etc. - all meant for on-the-go, mostly-everywhere use, some connected to a network, others connectible, some requiring an intermediary (e.g. a PC) to connect. In the nomadic bubble, up until about a year ago, you'd find laptops, e-Readers, GPS devices, portable video players and the like. Portable, yes, but designed for a more nomadic experience - sort of "fixed on the go," most capable of a network - wired or wireless - connectivity. In the fixed bubble, you'll find TVs - big ones these days - desktop computers, gaming consoles, DVRs, even component stereo systems for true audiophiles (maybe even a turntable).

Now, overlay across that continuum both a component layer (chip-sets, cables, routers, and the like) and a software layer (OS's designed, until recently, to support individual classes of devices in individual bubbles, bolstering the unique nature of each individual bubble). Now further imagine a brilliantly-colored rainbow stretching behind the continuum, representing the richness and vast depth of multimedia content - music, video, Internet, etc. And, yet further, imagine a vast grid behind your continuum and rainbow, representing the various flavors of connectivity, from copper to coax to fiber to 4G - the world of access. And, finally, imagine the whole mix floating in a sometimes-stormy, sometimes-calm cloud-like mass - the Internet.

This is the world we live in. Or lived in. A year ago. Today, convergence is taking place in some areas, collision in others, chaos in yet others.

Most interesting to watch over the last year has been the bulging and overlapping of the mobile and nomadic bubbles. Apple's iPhone burst free of the mobile bubble two years ago in a bold foray towards nomadic with the world's first true mobile computer. Google's Android is capitalizing and mainstreaming this momentum, with HTC, and to a lesser extent Motorola (which has bet the farm on Android), and a host of others deploying or planning to deploy that mobile computer OS in true numbers. Meanwhile, in the wake of Apple's iPhone introduction, we witnessed the nomadic bubble push its edge towards the mobile bubble, with last summer's much-hyped netbook revolution. A short-lived revolution to be sure - the advent of the iPad and the multitude of clones to follow have very likely set the stage for a woot.com exit for the netbook players.

Some CE venders span the continuum from a hardware perspective, e.g. Samsung and LG, which deliver phones, smartphones, laptops and TVs. HP's acquisition of Palm strengthens their potential in this context, but that's a story yet to be written, and I wouldn't assume (nor, however, entirely rule out) a happy ending. Yet others - Apple and Google - have grander aspirations. Apple has had phenomenal success in tapping the content rainbow to bolster its hardware and software solutions, has also built an entirely new industry around mobile applications, and has even made a not-yet-successful foray into bridging further into the fixed realm with Apple TV. Google, leveraging it's Internet roots, has delivered a world-class mobile OS married to its online solutions, is also fiddling with breaking through to the home big screen with Google TV, and, yet one step further, is now deploying high-speed broadband in select markets to get into the access game (and I' hazard a guess that a Google wireless MVNO is a not-too-distant prospect). One-time global wireless leader Nokia is also attempting to break out of the mobile bubble with its Ovi-based content and application solutions, but is trailing, and not terribly closely, and has some critical decisions to make about its aging Symbian OS. And then there's Microsoft, the ultimate wild card...

I guess what I'm getting to here is, well, the end of the wireless industry as we once knew it. While that may sound overly-provocative, please understand that I'm not saying that wireless broadband isn't key to our digital future, rather, that wireless-enabled devices are merely additional nodes on the Internet. Mobile phones, smart phones, mobile computers, laptops, netbooks, tablets, e-readers, digital cameras, e-meters, etc., etc., are all just nodes on the net. The industry is broadband, connected devices, and multimedia content and services - wireless is just one flavor of access. The cloud is absorbing the bubbles.

So what does all of this mean for the key players in what was a "wireless" industry? Some potential implications:

- From the mainstream, volume-oriented CE manufacturing side, HTC, Samsung and LG are best positioned to continue to succeed. Motorola, which does not manufacture its own devices nor develop its on OS, has effectively become a sales and marketing organization.

- From the mobile device OS perspective, Google's Android has the best shot at near-term dominance and a clear chance at becoming a truly global de facto standard (and not just in mobile devices). The other contenders, the Nokia-Intel MeeGo and the LiMo Foundation's open mobile Linux, will need to accelerate at dramatic rates if they are to stay in the game (Nokia needs to stop re-organizing and re-discover its history of innovation and execution). As long as the Apple ecosystem remains closed to other venders, scalability to Android levels is unlikely, all-the-more so if multitasking and Flash are not enabled in its devices (both forgivable in my opinion in terms of the iPhone, but not at all forgivable on the iPad).

- That said, Apple will continue to maintain its innovative edge, and should be expected to disrupt the market again, setting new trends, new directions and a new pace for others to follow. Indeed, while Apple will no doubt continue to successfully evolve its business model leveraging its strong position vis a vis content delivery, where I'd really like to see their next innovation would be in yet further simplifying the user experience (and here's where I borrow from my most recent post). Take QWERTY for instance. While those of my generation and the one or two that have followed might still have an affinity for this user interface, it's dated, and, frankly, not terribly efficient. What will we be using in 10 years? Touch is all the rage today, and will remain a key element of the UI experience. Voice activation will also become more and more common, but has it's downsides in terms of use in public places (privacy, ambient noise, etc.). Gesturing certainly has promise, as does facial recognition and/or expression reading, as well as virtualization. I would not be surprised if over the next decade Apple's innovation makes QWERTY and old-school telephony keypad UI's the exception, not the rule.

- Network operators - fixed and wireless - will continue their battles of the bundles, but from a consumer solutions perspective, there's is increasingly a utility business, like it or not. We will see more and more mergers as this field winnows down to two or three at best. (Side note: The real value growth for operators is in the enterprise space - providing SMEs and MNCs alike high-value, end-to-end communications and hosted and/or cloud-based enterprise services).

- The major content players will continue to struggle, just as operators will, to evolve their business models so that players like Apple and Google cannot continue to suck the value out of them.

It's a brave new world...