Commentary | Was Henry Ford II Right on Transmission Demand?

by

Henry Ford II was a strong advocate of telecommunications services. He had observed that the cost of transportation continued to rise while the cost of communication dropped. In 1976 I had the opportunity for a private meeting with the Ford Motor Co. chairman after winning the competition for Intelsat 5. I described the rapid growth in demand for Intelsat voice circuits. The graphic showed steady geometric growth into the future. Mr. Ford said, “When will this demand begin to saturate? Surely it will grow at slower rates in the future. Every process saturates eventually. You must figure out when that will happen. It will be important for your business.”

Henry Ford was literally correct. The circuit-switched telephony or trunk traffic business of Intelsat came to an end. It was replaced by fiber optic cables under the sea and across the land. The number of voice circuits, which were examined by Mr. Ford, has indeed dropped dramatically, essentially toward zero.

On the other hand, over the past 35 years, it appears that Henry Ford was generally wrong. What has happened is that the types of communications services have changed from voice to data. Telecommunications growth has expanded for decades in an almost unrelenting fashion. There have been brief periods in the early 1980s and early 2000s when demand declined slightly. 

At first, national and regional services and video distribution replaced voice circuits. Today satellite transponders primarily carry bytes of data transmitted by Internet Protocol that are used for video, email, data, very small aperture terminals and sometimes voice services.

The initial objective of this discussion was to determine whether there is a peak to this mountain of information. Although it would be difficult to identify hard limits, there are certain growth factors that appear to be slowing. Other considerations suggest sustained growth.

n The population of users will not grow indefinitely. Birth rates are falling all over the world and population will eventually level off and perhaps decline. The key parameter, however, is per capita gross domestic product, which fortunately is increasing rapidly in the developing parts of the world.

n Higher costs could restrain demand. Thus far, people keep paying higher bills and have begun to think of communication services as an essential utility. There is certainly a tendency for higher transmission rates to be more expensive. The desire for individual consumption of data might slow or level off if total communications costs increase. 

n Most of us can only do one thing at a time. There are many alternative options for individuals, including watching programmed television, accessing the Internet and playing games. Time is limited for every individual. We know that people have been watching about six hours of television per day in the United States for several decades, a figure that is relatively constant. Individuals are spending less time talking on telephones, but they are spending more time accessing data on smartphones and from computer stations. The number of subscribers to almost all television services appears to have peaked and is declining.

n There has been a clear shift from voice services to data. We see that people now look at their smartphones and seldom talk to them. The shift from voice to data is also apparent in the space-based satellite telephony. Average revenue per user has been dropping for Globalstar and Iridium. These satellite telephone businesses are addressing a declining voice market. Some narrowband space systems are not well suited to provide high-speed data access. Satellite transmission data rates have not grown as fast as terrestrial. Furthermore, revenue paid to fixed and mobile satellite service operators have been growing at 3 percent to 5 percent per year. Direct broadcasting satellite services have been growing somewhat faster, nearly 14 percent per year.

n Not every new communication innovation will be a success. Users may not fall in love with the latest craze in technology. 3-D TV remains a small market. The thrust for ultra-high-definition television may very well be limited if it costs more and the users cannot discern any visual difference. Content is often more important than “quality.” Mobility or some other feature may be more important than speed. Many of us remember some notable new product failures like Betamax tapes. Quadraphonic sound was introduced over 30 years ago, but even today most audio systems remain two-channel stereo. Large analog and digital videodisks rapidly disappeared as well. Eventually, smaller DVD and Blu-ray disks were a hit, and now movie downloads over the Internet are more popular.

So where is this heading?

Over the past 30 years we have witnessed the computer revolution, the mobile telephone sensation, the Internet and high-definition television. New gadgets came along like personal organizers, laptop computers and smartphones. New applications are emerging all the time. However, it is not certain that there will be a sustained thrust for higher data rates in every case. 

Clearly, the expansion of computing power and the drop in the price of telecommunications equipment have led to substantially more data transmission. The U.S. Federal Communications Commission, in its 2010 report “Connecting America: The National Broadband Plan,” concluded the annual data growth was 27 percent. This was equivalent to a doubling of user data rates every three years or a factor of 10 every 10 years. However, when we examine the earlier days of the Internet, from 1994 to 2003, the data growth rate was nearly 49 percent per year. Therefore, a case can be made that the growth rate of data communications is slowing significantly. When it will stop, nobody knows.

 

Roger Rusch is president of TelAstra Inc., a firm that consults for investors in satellite communications. He can be contacted at rogerrusch@telastra.com.