BuddeBlog

By Robin Whittle

Ordinary PCs can execute the cryptographic algorithms on which SSL is based (public-key algorithms such as RSA, Diffie-Hellman, El-Gamal and IDEA), without the need for the user to generate or maintain secret keys. These algorithms are capable of encrypting messages to a strength far beyond the capabilities of the largest government agencies to decipher with current technology in timescales under several billion years.

While this is good for privacy and security, ‘strong’ public-key cryptography (that which is well beyond the capacity of governments to decipher) has been the subject of laws aimed at restricting its availability to business and domestic users, or at least to restrict its export from countries such as the USA. These laws are predicated on the assertion that such restrictions will materially reduce the accessibility of this strong cryptography to criminals, terrorists and enemy governments. For better or worse the software to achieve this (Pretty Good Privacy [PGP]) has been freely available via the Internet since the early 1990s (and in a legally exportable printed book form since 1995), so virtually no-one outside certain government circles accepts this argument any more.

Until the end of 1999, slow progress was made dismantling the legal barriers to exporting cryptographic software from the USA. In early 2000, the US government (http://www.bxa.doc.gov/Encryption/ ) relaxed regulations so it became legal to export cryptographic executables and source code which were part of ‘retail’ or widely available products. The relaxed regulations enabled the legal export of full-strength versions of PGP, the Netscape Navigator Web browser and server programs. Meanwhile, such software had long been available commercially and on a free basis from several sources outside the United States, for instance: Secure Apache (http://www.apache-ssl.org ).

The remaining cryptographic regulations concern the export of software from particular countries, and the ability of citizens of those countries to use it freely. For instance, in early 2000, the UK government proposed legislation, which would make it a criminal offence to be unable to supply decryption keys to law-enforcement authorities, including in the case of those keys having been lost. Since the SSL encryption used in secure HTTPS sessions uses dynamically generated keys which are not saved in any form, it would seem that some governments are keen to criminalise the use of the most widely accepted security mechanism used in electronic commerce.

Ultimately, it could be argued, governments will accept that for better and for worse strong cryptography is ‘out of the bottle’ and that its use should be allowed and indeed encouraged as a part of reducing crime, protecting privacy and security and promoting confidence in electronic commerce. If this is true, the debate about legal access to strong cryptography will appear quaint in years to come. Until this happens, legal restrictions on cryptography present barriers for law-abiding users and companies in many countries. Up-to-date information on cryptographic technology and regulation can be found at: http://cryptography.org .

During 1998, CLEAR announced it would trial local multi-point distribution service (LMDS) technology. If these trials proved successful, CLEAR intended to spend NZ$50 million on building a wireless network. The new wireless technology, using radio spectrum to carry high-speed voice and data traffic has the potential to reach up to 70% of all businesses in New Zealand. This would increase CLEAR’s access by 60%. LMDS will allow CLEAR to extend local access for data and voice services outside the areas it currently serves. The company spent NZ$800,000 on a high frequency 28-gigahertz spectrum licence.

For more than a year nothing happened and many questioned the viability of the project. However, soon after the Telstra Saturn announcement regarding their broadband network, things started to move.

In March 2000 Clear announced that it would extending its fibre-optic network with LMDS to those areas that are currently not covered by cable. Rotorua and the Auckland suburb of Penrose would be the first two markets, and they would be linked to the network by mid-2000.

The company will use its own block of LMDS licences but it also bought the ones held by Formus.

The ITU has played a useful role in the past in laying the foundation of what has become today a US$1 trillion industry. There is still a key role to play in the future as long as the organisation is prepared to fundamentally transform itself.

A special Panel in charge of the reforms focussed on eight areas on which they made, in March 2000, broad recommendations for change. The areas range from the very nature of the organisation, its mission, its stewardship of scarce resources to policy development and coordination and the role of ITU as a neutral third-party. They also cover ITU working methods and management including TELECOM events.

The first recommendation on which the Panel agreed is that the ITU should become a truly public/private sector partnership to preserve and strengthen its international credibility.

While the structure of this new form of partnership needs to be defined, the new ITU should reflect today’s competitive telecommunication marketplace where the private sector plays a lead role while regulators act as abitrators for the wider public interest.

In policy-related areas, the scope of ITU’s role as an international focal point for the discussion of telecommunication policy and regulatory affairs was considered key issue in tomorrow’s ITU. In addition to providing a forum where national regulatory authorities from around the world could discuss key issues and obtain input from those to be regulated, ITU should become a think-tank for collecting and collating best practice regulatory policies and act as a repository for benchmarking in its area of expertise.

Policy work currently divided in ITU’s three sectors and in the General Secretariat with the resulting lack of coherence, should be combined to create a centre for regulatory expertise. The Panel also agreed that ITU’s role as global facilitator in regulatory and policy matters should be strengthened.

Another area where the scope of ITU’s role could be expanded is in the field of dispute settlement. While stressing that the issues of dispute settlement were complex ones, the Panel considered that ITU was well placed to provide governments and the private sector with a neutral and effective mechanism to resolve disputes which are international in nature.

ITU’s role in Internet governance was a cornerstone of the reform agenda. While it was recognized that the Internet had evolved without formal structure nor government regulations, the question as to whether it could continue the same way in the future was raised. As the Internet itself is branching into telecommunications, whether in voice telephony, mobile communications or digital broadcasting, there was clearly a role for the ITU on the Internet scene.

While there was agreement that the ITU should not intervene on issues outside its core expertise such as content, there was broad consensus on the useful role that ITU could play in its areas of competence to help reconcile different national policies and rules that might hamper the growth of the Internet and e-commerce.

On the management front, the Panel felt that accountability for running the ITU should rest with the Secretary-General who should be given greater authority and responsibility for the operation of the Union. It felt that a new process for the efficient nomination and approval of senior officials needed to be put into place.

Net2Phone and Samsung Electronics have announced a strategic alliance to create Voice over IP (VoIP) products for businesses worldwide. The first product, IP KeyPhone, is a PBX device designed for small to mid-sized businesses. The device has full PBX functionality, connects directly to the Internet or an ISDN line, and will be packaged with limited free VoIP minutes.

Over the last few months Telstra has indulged in a flurry of strategically disastrous announcements and non-developments. For instance, it has:

- tried to acquire OzEmail (rebuked by ACCC);

- tried to acquire Publishing and Broadcasting (rebuked by board);

- discussed the acquisition of Seven Network (has been doing this for years);

- tried to split off its online business (rebuked by board);

- proposed to sell off its construction business NDC.

This dog’s breakfast of initiatives didn’t make much sense to anyone and public opinion was reflected in the share market after the half-yearly announcement when Telstra wrote off well over $6 billion of the company’s value.

Telstra’s problems began in 1986, after the company launched Videotex, its Internet predecessor business.

Initially all went well, but a year or so after the launch the company decided that it wanted to own content. In a similar fashion to its current dotcom acquisitions and shareholdings the company began to either buy or secure equity in a range of companies. They included:

- online brokerage (bought from Fairfax);

- software downloading company (bought from PBL);

- e-commerce services for a dozen different industries;

- erotica (50/50 venture with Penthouse)

- and so on.

As far as we know none of these are still in existence. In the process, however, Telstra managed to annihilate a large number of start-ups – they were simply smothered by the much larger Telstra. And, due to the lack of proper deregulation, Telstra was able to promote its own services on its videotex network by discriminating against others via difficult indexing and search procedures.

The whole videotex business collapsed in the early 1990s.

Ever since that time I have argued that, while Telstra may be one of the best telcos in the world, it is not a media company. The company is built by engineers, run by engineers, their investment is almost entirely based on technology, and so on. There is absolutely nothing wrong with that.- On the contrary, they could exploit this by simply being the best telco in the country – delighting their wholesale and retail customers and charging fees that customers are prepared to pay, based on customer demand, quality, customer service, etc and not on monopolistic rents such as they currently charge in local and mobile calls.

With everyone now wanting to be on the Internet, and e-commerce poised to boom, there is a hell of a lot of network capacity required. Without a network there won’t be an Internet. What a prime position to be in if you run the country’s largest network! But no, Ziggy tells us that they are not a telephone company and Pretty tells us that the company doesn’t want to be in dumb pipes. Imagine a car manufacturing company saying that it didn’t want to manufacture cars, that it didn’t like steel and was only interested in painting cars in different colours and selling sexy accessories.

This is why the financial and business market is now so uneasy. They are all questioning the company’s long-term direction and strategies.

And Ziggy replies: ‘We don’t know. The company might be a different one in another 3 months’ time.’

Not a very encouraging response from a CEO.

While I realise that it is easy for me to criticise, it is nevertheless clear to the objective observer that the writing has been on the wall for over a decade and Telstra should have picked up on this by now.

Ziggy is presently talking up Telstra’s ADSL and cable modem service as potential money-spinners. They have been testing ADSL since 1994 and launched their cable modems in 1996. However, they were at a loss as to how to proceed because at that stage they were avoiding any investments that would look bad on the pre-privatisation balance sheets. They were ‘maintaining shareholders value’.

As long ago as 1989 it was known that the company’s network was well below international benchmarks but, with a total lack of vision and direction, Telstra made no developments in this area until ten years later, in 1999. They have now realised that these networks could be very profitable (according to our calculations – between $500 million and $1 billion could be generated from high-speed Internet services alone).

So where to go from here? In my opinion, this is easy to answer. Telstra should accept that it is a national network company and make sure that it is simply the best in town. They should concentrate on the network, on wholesale and corporate business. They should build new networks, use the huge profits to accelerate network upgrades and as soon as possible offer affordable high-speed Internet access, broadband facilities etc, as these will be the money-spinners of the decade.

They should immediately bring the price of unlimited ISDN access down to around $50 a month in order to regain a lead in this market. If necessary they should acquire a TV station – not for its programming but for its broadcasting infrastructure. Digital TV will become just another access technology and so will fit nicely into the company’s networking strategy.

They should sell off the dotcom business and Foxtel (or create separate companies for them), making some money on the stockmarket in the process, which will keep the shareholders happy. But they should keep the networks on which these services run within Telstra and ‘rent’ them out to media companies, ISPs and others who are much better at content, customer service, marketing, etc. They should create an open network environment, stop the current exclusive deals and let as many companies as possible use the Telstra network for whatever services they want to develop. These content- and marketing-based companies know the market much better than Telstra and they will generate lots of traffic over the Telstra networks, for which Telstra can, of course, charge them.

If these companies are doing a good job, people will want to use these services and Telstra will collect access charges, either from the customers or from the content providers via a service package. These new companies need lots of new services from billing to network management, interlinks with inhouse computers, intranets, software maintenance – in short; plenty of new areas for Telstra to move into, and areas that are much more closely related to their core business.

Telstra should really look after wholesale and corporate customers and ensure that they all use Telstra’s network and services for their customers – not because they have been bullied into it, but simply because Telstra is the best in a market., After all, unlike the newcomers, they have over 100 years of experience in this market.

Telstra should not feel threatened by the service providers.. It should immediately abandon all the legal actions it has instigated against them and assist the service providers (wholesale customers) to build-out their services and their customer databases.

It will be impossible for Telstra to dominate the entire country so they should work with other infrastructure providers – especially in the bush – to develop new networks. Why not score some Brownie points by helping others (like the many new regional networks that are springing up around the country) to provide good networks in places where Telstra finds it hard to deliver good services and/or to provide the quality needed by these customers. While it might be a good idea for Telstra to start up a rural unit, the best solution for the bush is to generate competition. After a decade of deliberations the government should stop procrastinating and open up the Universal Obligations to the competition – and may the best man win!

It’s time for both the government and Telstra to move into this brave new world. Once they have got their house in order there will be very little opposition from the Australian people (who own half of Telstra) to privatise the rest of the company.