You've heard the term The Last Mile. It is the part of the telephone network or cable system that connects to the subscriber. In all residential housing in America, the Last Mile always crosses land that is - or was at one point in time - owned by someone other than the subscriber/resident. In many residential communities, the owner or developer continues to own or control that land. Indeed, some owners and developers recognize that the land beneath The Last Mile is so important that it should rightfully be called the First Mile because of its proximity to the end user and its economic significance in the network. I call it the Gateway Mile.
Developers, REIT's, telephone companies, cable companies, wireless companies, DBS companies, network manufacturers (e.g. Cisco) and even software giants like Microsoft vie to control the Gateway Mile. This competition probably makes the Gateway Mile the most valuable real estate in America, particularly in housing under construction.
Some wireless and DBS operators think they are going to bypass the Gateway Mile. In truth, they cannot. At some point, the wireless or satellite transmission has to be delivered to an antenna and the signal put on a wire. The antenna is invariably on the outside of a structure and the wire runs through the walls of the structure. The Gateway Mile is not confined to empty land outside a building. It includes the walls inside a building,
In the residential construction trade, this piece of the Gateway Mile - the internal wiring in a building - is called "structured wiring." This term was recently borrowed from the commercial construction industry. In a commercial office building or shopping center, the owner has to provide a complex array of telecommunications facilities for a variety of different tenants. The wiring is kept accessible and organized at its termination point in cabinets in the utility room. The cabinet has many different ports - i.e. physical connection points - to route outside telecommunications services to the appropriate locations inside the building.
Structured wiring is now being used the same way in residential housing. Consumers need to wire their homes so they can use all of their telephones, computers, television sets, home entertainment centers, stereos, environmental monitoring systems, sprinkler monitoring systems and security alarms. Consumers want music in the shower, a computer in the kitchen, a fax in their home office and cable and ethernet outlets everywhere. To accommodate that need, residential builders are routinely putting quad shielded RJ-6 and CAT-5e throughout their buildings. These lines are being terminated in a single cabinet or rack and the whole system called structured wiring.
Structured wiring, in its simplest and least expensive form, is just a rack with a collection of splitters and blocks that route telephone, cable, data or internally generated signals (e.g. stereo) through out the home. The rack costs about $300 installed.
But that is just for starters. The rack can be loaded up with all sorts of goodies, including modems, hubs, routers and software to make it a center for the management of all data, information and entertainment in the home. Structured wiring can do a lot more than just direct stereo from one room to the other. It can also be the working brains for monitoring the video cam at the front door, turning the lights off when you go to bed, telling you what time your kids came home and so on. These kind of "smart" structured wiring systems start at $1,500 installed and go up from there.
Structured wiring is rapidly becoming standard practice in the residential construction industry. Vendors of structured wiring say that it is a $500 million a year business that doubled since last year and is expected to double again this year. And the greatest growth is expected in the "smart" systems.
The deregulation of telephone service in 1996 put tremendous competitive forces into play. For the last five years, the impact of deregulation is been slowly gaining momentum. The emergence of high speed internet access (which can be traced directly to deregulation) is accelerating change not only in the telephone industry but also in the cable/wireless/DBS businesses and the data industry (software, computers and networking technologies.) As voice over IP gains acceptance by consumers, the rate of change will increase exponentially. These industries will be reshaped forever as they collide like massive tectonic plates; grinding together to create a new land mass. And the Gateway Mile is at the epicenter of this monumental process. Since 1996, the real estate, telephone, wireless, DBS and cable industries have been warily sparring over the Gateway Mile. The recent FCC rules that permit DBS antennas on tenant controlled property and ban exclusive telephone service contracts in commercial office buildings are just part of that process. In the meantime, the data industry has been quietly staking its claim to the Gateway Mile by putting the intelligence into structured wiring.
Judging from the products displayed at the recent National Association of Home Builders show, it appears that the data and software industries have made progress in adding new value to structured wiring as a facility unto itself. Thus they have gained ascendant influence in controlling the Gateway Mile.
The data industries do not have a lock on structured wiring or the Gateway Mile. Far from it. But they are gaining the confidence of the developers who install structured wiring. And that confidence gives the data industry an intangible but significant advantage in influencing how the developer views and uses the Gateway Mile.
To understand this influence, and the competitive pressure it puts on the telephone, cable, DBS and wireless industries, you need to look at the world through the eyes of the developer. Location and amenities sell housing - regardless of whether it is a single family home, apartment or condo. Consumers of housing want high speed internet access. Indeed, requests for high speed internet access are at the top of everyone's list of requested amenities. Prospective residents want to know if there is a pool and high speed internet access - in that order of importance. (Cable television service is taken as a given). Prospective residents of the higher end properties want to know if there is a pool, high speed internet access and the cost of joining the golf club - again in that order of priority. Developers everywhere have been scrambling to fill their customers' expectations for high speed internet service.
Demographics are also driving the demand for high speed internet. Today's college students routinely have round the clock access to huge amounts of bandwidth on the school's data network. As these young people leave school and go into the workplace, they are expecting huge internet capacity to be included in the rent - just like it was in school. As anyone who has ever used high speed internet access knows, it is very addictive. Going back to dial-up speeds and constant disconnects is just not acceptable.
The developers of residential housing want - no, make that need - to give their customers high speed internet access. They have to satisfy that demand or risk losing sales to competitors who can deliver it. They also want to maximize the revenues they can get from the Gateway Mile. The more aggressive developers see structured wiring and the Gateway Mile as their opportunity to turn what has previously been a liability - a sold home or condo - into a revenue generating asset.
In a traditional business model, developers would simply invite competing vendors of high speed internet access to give them competing proposals and make a choice from there. But when it comes to this particular service, the traditional model is breaking down.
The first reason for the breakdown is that high speed internet service cannot be considered in a vacuum. Once the developer decides to exercise control over the Gateway Mile, he has to consider all of the other outside services that connect to structured cable including video (cable or satellite), security alarm monitoring, telephone and high speed internet access. Each one of these services has its own set of considerations and complexities.. The fact that there are a myriad of vendors each with a different sales pitch and none of whom really covers all the bases makes the selection process very time consuming and difficult. But more developers are going through that process and fewer are accepting the default choice of the incumbent local exchange carrier and incumbent cable franchised operator.
There is also uncertainty and confusion about the vendors themselves. Developers are bombarded literally every day by vendors of high speed internet access. Some are franchised cable operators, some are private cable operators, some are ILEC's (incumbent local exchange carriers), some are CLEC's (competitive local exchange carriers), some are DLEC's (data local exchange carriers), some are BLEC's (building local exchange carriers), some are "system integrators" (a term of art that loosely describes people conversant with networks, computers and internet protocol), some are wireless providers (in both the licensed and unlicenced frequencies), and some are DBS providers.
Add to this confusing mix of vendors an even more confusing economic landscape. Serious real estate people are savvy investors. They know that CLEC stocks tanked, the market in "technology" is down, the ILEC's are retrenching and some companies who deliver high speed internet access are going bankrupt. They have no better idea than anyone else about how to profit from the future of high speed internet and avoid its risks.
The developers of residential real estate are, however, far enough up the broadband learning curve to know that they need to put structured wiring in their buildings. And they are looking for vendors and partners they can trust to deliver the services and make them money. It is this trust that is the key to the Gateway Mile.
The developers have yet to a anoint a winner from among the competitors for their trust. So far, it is still a horse race. But the data and software industries have staked out their claim to the developer's confidence by adding intelligence and value to structured wiring. It is time for the other pretenders to the throne to do the same. Or they may be ground to dust as the forces of technological change and competition do their work.