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How to Protect your Wealth by Investing in AI Tech Stocks

Thoughts from the Frontline Weekly Newsletter - A Most Disruptive Technology

Stock-Markets / Financial Markets May 12, 2007 - 01:01 PM GMT

By: John_Mauldin

Stock-Markets In this issue:
The World Is Rather Bumpy
Backhoes Don't Scale
The Most Disruptive Technology
A Brief Introduction to Wireless Mesh Technology
I Feel the Need for Speed
The Fastest Rollout of Any Technology Ever
So What Really Changes?
Switzerland, Scotland and Spain

"What we call here a Black Swan (and capitalize it) is an event with the following three attributes.

"First, it is an outlier , as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable." - Nicholas Nassim Taleb In Taleb's world, Black Swans are not just events like 9/11 or the crash of '87. They can be positive events like the introduction of a new technology which changes everything. It is now easy to see the affect of the Internet, but not many saw it in 1987, and those who did were few and considered kind of strange. The steam engine changed a world, slowly at first, but it was a major Black Swan.

This week we look at what I think will be another Black Swan with the potential to be one of the most disruptive introductions of technology in the last 20 years. In one sense, it is entirely predictable. On the other hand, it will fundamentally alter the economic equations of the telecommunications world, as well as spawn whole new enterprises and enable radical new ancillary technologies.

What happens if you add 3 billion new people (in a very short time) to the internet, and increase the bandwidth available to everyone by a factor of 20 today with a potential for a factor of 100 in the near future? Let's look at the implications of a new technology that holds the promise of inexpensive broadband coming not only to your backyard, but to the backyards of an entire world. This is the beginning of a revolution that will sweep throughout the world faster than the adoption of any previous technology. Cellular technology was just beginning 20 years ago. This is going to be cellular on steroids. That is a bold statement, but I think when you read this week's letter you will at least understand the basis for my contention.

For most of us, it will mean better access to the internet, cheaper phones and entertainment, and a wide new variety of experiences all at prices much lower than what we are paying today. Towns and communities, indeed whole nations, that for whatever reasons have not had access to high speed broadband will now be able to make sure that everyone gets that "last mile" ( to your door) connection. For some of us, it will be an investment opportunity with considerable long term implications. While this letter is somewhat longer than usual, I think you will find it very interesting. (Warning: this is partly about a new technology with which I am involved financially, so there may be some investor enthusiasm. That being said, I will try and hold it in check.)

The World Is Rather Bumpy

Tom Friedman tells us that the internet, global outsourcing and a lowering of trade barriers all have increased competition and global trade to the point where the world is flat. I would contend that the world is still rather bumpy, but will soon be getting much flatter than Friedman or almost anyone today can imagine.

Following the "world is flat" analogy, for much of human history, the world was quite mountainous. There were significant barriers to trade. Not just mountains, but oceans and politics impeded trade. Trade was limited to what could be carried on the back of pack animals or in the holds of small ships. As time went on, and the technology of boats and sailing improved, so did trade. By the dawn of the industrial revolution, trade allowed different regions to produce and sell a limited number of products far from the immediate area.

Then along came trains, and commerce began to explode. Trains were a giant hammer, so to speak, which flattened some of the mountains that were the barriers to trade. Since the beginning of the 19th century, there have been numerous hammers (innovations) which have helped flatten parts of the world such as the dramatic and ubiquitous use of computers in every facet of our life. One of the largest and most recent hammers has been the ability to communicate over the internet.

But as influential as the internet has become, the large majority of the world does not have access to the internet, and an even larger majority does not have "broadband" access, or access that is faster than dial-up connections. Thus, my contention that the world is still bumpy in many places, even in major segments of the US, and quite mountainous in Africa and much of the developing world. While there may be high speed communications in the industrial parks of Mumbai, the vast majority of citizens have spotty, and slow, access when they go home.

Much of the problem is the same one faced by Samuel Morse when deploying the telegraph: telegraph poles don't "scale." They don't get significantly cheaper the more you make them. It takes a certain amount of labor to install a telegraph pole. No matter how much you improve the technology of telegraphy, you still have to get someone to put up a pole.

Backhoes Don't Scale

The same for telephones and for cable or fiber optics. Someone has to dig a trench or string a wire. While the cost of computers and routers and switches keep dropping as their performance improves, the cost of the last mile does not. Backhoes don't scale. The cost of everything else associated with telecommunications keeps dropping, but the cost of connecting that last mile is essentially the same as it was 15 years ago.

And the process is expensive. You only pull that fiber or wire in places where you can see enough demand to make it economically feasible. That means mostly urban and suburban areas, and mostly only upscale neighborhoods, especially in developing countries. There are tens of millions of people even in the US who do not have access to high speed internet and are limited to dial-up speeds.

There is wireless, of course, based on cellular technology, but it is expensive and still relatively slow, with speeds in the real world rarely over 400 TO 500Kbps, and most often much slower. You are not going to be doing a lot of web searching on your computer, V/IP (Voice over Internet Phone) calling let alone streaming video over a cellular connection. Soon, you will be able to stream video on a tiny screen with lots of artifacts on your cell phone. Not much of an entertainment revolution. You can do text email and some browsing, but it makes you wish for your high speed connection back at the home or office. You can find a hotspot in a local coffee shop, but the speed is limited to their connection and the bandwidth must be shared with everyone else. I can tell you, getting online at airports can be slow, and you can get bumped off a lot.

What the world needs now is fast, cheap bandwidth. And it is going to get it and faster than anyone can now imagine.

The Most Disruptive Technology

Would you like to know what the future will look like? Think it will make investing easier? Professor Vernor Vinge of the University of California at San Diego (UCSD) is a very famous science fiction author as well as mathematician and futurist. Last year he wrote a book called Rainbow's End about how the world will look in 2025. Whether or not you like science fiction (and Vernor does it as well as anyone, with a shelf full of awards), you should read it to see what one of the true experts in the futurist field thinks about what type of technologies will be available in less than 20 years.

One of the things that stands out (at least to me) was the ubiquity of wireless communication in his future. Everything and everyone was instantly connected. Whole worlds became virtual. In his future, your wireless communications with someone becomes visual and three dimensional in character. Your inputs come from multiple sources. You will need that quasi-intelligent interface to keep up with the input.

But much of Vernor's vision, and the vision of a generation of futurist and science fiction writers depends on cheap wireless bandwidth. Frankly, it will need bandwidth that will be several orders of magnitude more than we have available today.

The table below is from a recent issue of The Economist. It shows how the efficiencies of wireless communications (in terms of data processing power) have increased by a factor of one trillion since the invention of the radio 110 years ago. They expect that to improve by roughly another 10,000 times in less than 20 years. Interesting, they assume that WiMax will be a big part of the increase in efficiency and the decrease in cost.

While WiMax technology is interesting and possibly useful in certain applications such as very rural areas it is limited by the laws of physics when compared with the efficiency and costs of a competing standard called "mesh technology." In an urban and suburban/small city environment, mesh has lower cost of deployment and higher potential speed per dollar invested, as well as an absolute speed advantage.

WiMax and cellular technology systems are based on the single cell tower system. Mesh uses small radios or access points which are much cheaper to deploy and which connect to each other with many possible routes, passing information up and down the system.

A Brief Introduction to Wireless Mesh Technology

Wireless mesh technology was developed for the US Defense Department. Basically, it was a way for tanks on the battle field to communicate with one another and a central system. Each tank was an access point (AP). An AP would talk to its nearest AP who would relay the messages to another close AP, passing messages up and down the line. The network was "smart" in that you could take out one tank and it would "heal" itself, finding the shortest way back to the central command center.

Today, mesh has evolved. Most mesh technologies still use a single radio for sending the information up and down the network as well as connect with a customer device like a phone or internet connection. In practical terms, this limits the speed (bandwidth) of the network, and also means that the system can go no further than 3 hops before it needs to find a connection into the internet fiber "backbone" as a single radio system loses, on an average, about two thirds of its speed over three hops. This drawback also means that wi-fi enabled phones have trouble working as there is the old problem of latency. Remember the earliest cell phones where you would have to wait for the other person to finish talking before you could start because there was a lag in the system? That is latency.

From time to time, some company announces that it is going to build a wireless mesh system on the public wi-fi spectrum in a certain city. Then nothing much happens. The problem is that at the current state of development, mesh does not deliver enough bandwidth to the end user to get people to want to pay real money to subscribe to the system. It is not economically viable, and in many cases after a great deal of money is spent, the system does not work as advertised.

That is getting ready to change. There is a new company with a new approach to mesh that changes the economics of wireless technology and offers speeds much faster than your DSL and cable.

I recently had lunch with Vernor Vinge. As I described what the new mesh technology will be able to do, you could see his eyes light up. This would help make the world he envisioned come into reality. "This," he said, "is the most disruptive technology to come along in some time."

How I (hopefully luckily) stumbled onto this company and the technology needs a brief set-up.

In late 2005, my publisher for this letter, Mike Casson, called me to introduce me to a reader he had met and who had asked to meet with me. Mike said he thought Jack Harrod and I would hit it off. We met for a one hour lunch and three hours later finished. As it turns, out, we had a lot of interests in common. Our Dallas Mavericks tickets were only ten feet apart. Jack is a former executive vice-president for Texas Instruments and ran a major part of their defense business before it was sold. He then led the development and took to production their Digital Light Processor business from scratch before retiring. He has since spent his time on various technology companies, often as an angel investor. As readers know, I am fascinated by new technologies, and enjoyed hearing from a real insider what was transpiring in his world.

At one of our lunches, he asked me where I lived and I said Colleyville, which is a small suburb in the Dallas area. He then said he was investing in a company that had developed a new wireless "mesh" network technology that was being deployed in operational form for Colleyville's First Responders (police, firemen, ambulance, etc). Long and short, I spent a great deal of time looking at the company, and decided to invest alongside. It was (and is) quite risky, as the radically new technology was just being deployed for the first time in a real operational environmental. It had yet to be brought on line and turned over to the city to operate.

Now, over a year later, the firm has developed and deployed yet a third generation mesh network leaping far over the technology in the market today or what they had even one year ago. It has been retrofitted into the Colleyville site and is operating as expected with vastly superior performance over potential competing systems. And this week, we received a contract to install an expanded version of this high speed, wireless broadband system in Richardson, Texas. This system will be the first of its kind anywhere. This, gentle reader, is not your father's Oldsmobile.

Caveat: I am now on the board of directors for the private firm which is called MeshLinx and a minority shareholder. So my view point does have a bias. That being said, while we think we have a several year lead on the technology I will describe in a minute, it is highly likely that competitors will have similar systems within a few years. We can see a pathway to significant improvements to stay in the lead for a period of time and have no doubt our competitors will over time move in our direction as well.

So, while I hope that the growing little company I have invested in is able to keep a lead and get some healthy percentage of what will be a monster market, from a consumer standpoint it makes little difference which of several companies (and there will clearly be more than one) will succeed. Within a few years, the world is going to be much flatter than we can imagine.

So, let's cut to the chase. What is MeshLinx going to do in Richardson? (A little background. Richardson is a city of 100,000 people covering 27 square miles, with a mix of high rise offices and commercial businesses as well as homes and apartments. It was recently named as the third most technologically advanced city of its size in the US. The University of Texas at Dallas is in the city, where one of the most important nanotechnology research centers in the country resides. It is home to some of the country's leading technology firms. It is known for its "telecom corridor" because many of the manufacturers of telecommunications equipment have their US headquarters in Richardson. In short, this is a forward looking city with a number of engineers and tech savvy people on its city council, and a mayor who "gets it.")

Within 10 months, Richardson will have the most advanced wireless broadband system in the world, what we think of as a third generation mesh system. Over this time, the company will be installing approximately 700 basketball-sized access points (APs) throughout the city on light poles, buildings and other infrastructure. This will lay a very dense high speed wireless broadband blanket over the entire city. Each access point has six radios in it. For the technically minded, this is a single silicon tunable chip, radio mesh network digitally interfacing with every network layer and able to automatically adjust in real time.

This is the first of its kind in the world. I smile when I think that one of our major competitors produced a white paper about a year ago detailing why such a multi-radio system could not work, even as we deployed our initial three radio system, which has been successfully working (through Texas summers, winters and tornadoes) for over a year. We will look at more about the technology of the system in a minute but let's look at what it can do.

First and foremost, it delivers bandwidth on the public wi-fi spectrum to the end user, the so-called last mile, at a speed unrivalled by its wire bound brethren. And at the end of the day, that is what consumers really want: high speed bandwidth. They really are agnostic as to how they get it. Just serve it up, as fast as you can and easy to use. Oh, and can you please make it cheap?

Every citizen in the City of Richardson will be able to access 756 Kbps of internet connectivity for free, from anywhere in the city. They will be able to access the internet from their homes, schools, restaurants and parks using standard wi-fi connections which are now installed on almost every notebook computer. That is almost as fast as many so-called high speed broadband connections that one pays dearly for today, and several times faster than the various hotspots at your local coffee shops. And I should note that the tax-payers of the City of Richardson are not paying one penny for this, and in fact are going to see additional revenues as a benefit.

But once the infrastructure is built, it can do so much more. For those who want higher speeds, they will be able to buy up to 20 megabits of bandwidth (upload and download) for quite modest expense when compared to what they are paying today. That is up to 10 times or more faster than what we currently think of as "high speed broadband." Faster than your T-1, DSL, cable or cellular 3G. You will pay less and get more.

Your information upload and download will be symmetrical and far faster than anything your experience today. You will be able to download streaming high definition video in real time. As such service becomes widespread, and it will, whole new industries and methodologies for the delivery of entertainment over the internet will develop. In the very near future, you will be able to quickly access high quality programming from hundreds of channels, picking and choosing your own special programming package from off the internet. Your choices are going to expand beyond our current imagination. (Today, you can download streaming video while driving down the street in Colleyville, Texas.)

You will be able to videoconference with a far greater clarity and quality than today's systems, and at a cost that will be minimal. The day will soon come when you will be able to sit at your computer or TV and hold a conversation without the annoying jerkiness you experience today. The video telephone that we were promised as kids at Disneyworld is getting ready to become a reality, except that it will be a computer. And the cost? Simply the cost of your internet connection and some ever cheaper and higher quality cameras.

With high definition cameras becoming ever less expensive by the quarter, the quality of your picture will become very high. This is important. We humans have a need to look at the people we are talking with to get a "feel" for what they are saying. When you're talking with them and they are on a large screen, the ability to communicate will be significantly enhanced. It will also mean that you will soon be able to communicate with someone (family, friends and business associates) almost anywhere in the world at a very high quality level. Think the world is flat today? Wait five years.

You will be able to use your wi-fi enabled Voice over Internet Protocol (V/IP) phone in the City of Richardson. Your long distance calls will be made over the internet. Your "long distance" service provider may be Skype or any of its competitors. And because of the unique system designed by Meshlinx, your wi-fi/cell phone (which are already being made by multiple vendors) will be mobile, so you will be able to use it anywhere in the city. Calls will pass seamlessly from access point to access point, just as your cell phone passes your calls from cell tower to tower today. And yes, this means that your phone service will get cheaper. A lot cheaper. And not limited to where you can pull a wire or a plug.

And an added bonus for the city? One of the six radios embedded in each access point will be dedicated to first responders, operating simultaneously with the wi-fi frequency, on a special frequency set aside for them. In disasters, the entire network can be instantaneously tuned to the first responder network.

But once you have the infrastructure in place, there is so much more that you can do. Let's list just a few of the possibilities.

Do you feel a need for a little more security? You can place a wi-fi enabled camera anywhere and review it real time from anywhere. Such a camera in the microphone on the policeman's shoulder would allow fellow officers to see what the problem is in real time as they respond to a call for help. Inside an ambulance, emergency room workers could see the patient as he is on the way to the hospital. A fire captain could see what his firemen were seeing and doing inside the building and monitor their vital signs.

Neighborhood security? Simply place relatively cheap cameras at strategic locations and police or security services could monitor far more places in real time and respond far more quickly to suspicious activity. You could place a camera in your nursery and using your phone you could see how your baby was doing while you are away. Parents could see how their teenagers were doing in their cars real time. My grandkids (if I ever get them) are going to hate this, but their parents will love it.

We are all aware of the great tragedy that recently took place at Virginia Tech. One of the problems was that students were not aware of the problem early enough. What if there were cameras which were placed all around the public areas of any campus? If you made the cameras available to the student population (through passwords), and in combination with true connectivity, students could easily see and share about problems in real time. Rather than a few campus police who cannot be everywhere, now you have a thousand eyes and ears.

(The debates about privacy in the future that have largely been confined to academic and futurist societies? They will be coming soon to a city near you.)

Where is the most sophisticated phone banking system in the world? In the Congo in Africa. There mobile telephone users see a product they want to buy, send a coded text message with an amount in it to the business owner, and the money is transferred immediately from one bank account to another. While that might not mean much in the developed world, as credit cards and their infrastructure are already in place, as wireless mesh systems are deployed around the developing world, it will enable all sorts of new commerce as the benefits of access to our capital with our credit cards that we all enjoy in the developed world will come to a developing world.

As the system will not be used very much between 1 and 5 am, it is likely that very cheap back-up services for computers will develop to access cheap bandwidth at that time. Of course, automatic water and electric meter reading would be possible. There are a lot of options once you have the infrastructure.

What about the lag I mentioned earlier with mesh technologies? MeshLinx solves the problem by using a multiple radio system. One radio moves data up the system and another moves it down, with the rest of the radios assigned to customer access or looking for interfering signals. MeshLinx currently uses a six radio configuration as its standard configuration, but could use a 3 radio set up for less demanding applications or put up to 12 per AP. (The reason to add radios would be because of dense customer demand in an area.) It is no mean technological feat to put multiple radios in the same pod and keep them from interfering with one another. As I mentioned earlier, one of the main equipment competitors released a white paper last year "proving" that a multiple radio system would not work.

The multiple radio configuration employed by MeshLinx allows the data to go at least over nine hops and only lose about 1% of the speed per hop, so there are no latency issues. That also means you only have to have 10% of the number of expensive direct connections into the fiber backbone of the internet.

How many access points do you need per square mile? We have 12 APs covering five square miles in Colleyville, but the system is currently only used by city employees. The amount of APs needed is primarily a function of customer usage (streaming video, Voice/IP, etc), density of homes and businesses, demand and the environment (trees, buildings, etc.) in which the network is sited. An area that has numerous high rises or multi-story office buildings would need a lot more, whereas a rural city with a less dense population might need a lot less per square mile. We expect to deploy over 20 APs per square mile in Richardson.

The radios themselves are quite advanced having been redesigned into a silicon chip with total digital control. We refer to this as a Software Configureable Radio. For the engineering types, the access points are then capable of interfacing with all the MAC (Media Access Control) layers of the network.

The radios are placed three to a mini PCI board and plugged into the processor board. The radios are fully programmable which means that, as an example, the channels and center frequencies can be changed in milliseconds to avoid interfering signals or tuning all radios to the Public Safety frequency. While we currently use public spectrum wi-fi channels (802.11) and a public safety band, there is no reason in principle we could not switch one or more of the radios if another frequency (say Wi-Max, if they ever get it figured out) has enough demand.

In the current configuration, we will provide one channel for public safety staff (police, fire and emergency) to be able to communicate with each other. In a real emergency, one or more of the public channels could be instantaneously switched to the public safety frequency, providing more back up.

The access points come with a two to three hour back up battery supply in case the access point loses power. As an option, one can put a two or three day battery back-up into each AP, making sure they stay up during an emergency or when there is a total power outage. And the APs are smart enough to notify the system when they are having problems. If an AP goes down, the system automatically reconfigures itself.

The entire system can be run from a laptop. You can see every node, connection and radio. The network itself is a very smart system. Of course, there is tremendous security built into the system, as the chief designer started out from a public safety perspective where security was paramount. So, nobody is going to be able to browse your computer through the system.

I Feel the Need for Speed

Much of Vernor's vision of the future mentioned earlier depends on cheap bandwidth. Frankly, in that future we will need bandwidth that will be several orders of magnitude faster than what even MeshLinx can provide today. Our current system delivers a net payload of 60 Mbps (the real speed after the overhead and other non-contributing bandwidth factors are taken out).

In ten years, we will think of the 20 Mbps we will be offering in the same way that we think of dial-up today. Fortunately, we believe we see a clear pathway to 2 Gbps (gigabits per second) of system speed, or almost 40 times faster than we are running today. We believe we have the talent at MeshLinx to develop this new technology within a relatively short time. It would not surprise us to see another factor of five achieved within the next five years. And as I noted, if we can do it, it is safe to say that others will eventually be able to do so.

Does 10 gig of speed sound like overkill? Think back to the early 90s and the speed of your computers and internet connections. The applications we need and demand today simply would not work in such an environment. The applications on the drawing board today that we will want to use in just 10 years will make gigabit speeds necessary.

The Fastest Rollout of any Technology Ever

At the beginning of this letter, I suggested that this would be one of the fastest worldwide rollouts of a technology ever seen. It was just 20 years ago that the first cellular systems were being built. The rollout for mesh wireless systems is going to make that look slow.

There are several reasons I make this assertion. But they all center on the facts that installing mesh systems will be cheaper and easier than any previous system and the economics in both the developed and especially the developing world will be so radically compelling. Throw in the fact the any astute politician will want to be at the front of this parade (They will all want to say, "I was the man who helped bring free internet to everyone!") and the groundwork is laid for rapid deployment.

In Richardson and elsewhere, MeshLinx is offering the basic infrastructure for free. This avoids all the time consuming, political budget battles in the cities. When a service is offered for free, much of the mandated competitive process is eliminated.

Next is the low cost of installation of the system. As noted above, Richardson is a city of roughly 100,000 people living in 27.4 square miles. It will "only" cost about $2,000,000 today to lay the wireless blanket I mentioned above. It will cost a great deal less in the future, as MeshLinx is building the pods at a pace of 100 a month today. The maximum output of the US pilot assembly line is 500 a month. When the demand exceeds this (and it will in a very short time) discussions have been held to move volume production to China. Of course, the world will need tens of millions of pods. The cost for a pod will be a fraction of today's cost, with that installation number for a city like Richardson soon being half (or less) the cost of today.

What does that $1 or 2 million get you? The infrastructure to be an internet connection, telephone, security, entertainment provider and a whole lot more company. As noted, it will get cheaper as the number of pods being made each month rises, thus lowering their costs dramatically. This technology does have scale. The cost of physically putting up a pod is not a large part of the equation, as you simply need to run a power line, attach a few bolts to a mount on the side of a building or light pole and then off to the next point.

Think about the 40,000 homes and businesses in Richardson. If and (hopefully) over time when 10% decide to pay $50 a month for 10-20 Mbps high speed internet access you could see a revenue of $2.5 million a year just from internet access. Now add in all the other income possibilities (phone, entertainment, security and don't forget advertising revenue on the free service!).

Think about your town or country. What would service like this be worth? If you are a small city that does not have high speed connections available, how many businesses that could bring jobs do not come your way because they need reliable communications for their work and their employees? If you are in a developing country, where internet access is difficult and expensive, it will open whole new vistas. Couple that with the various programs which want to give cheap laptops to kids in poor countries, and you could see significant social progress in a generation.

Part of the cost of Richardson is because you have to create a dense network. Where demand would be less, costs would be lower per square mile, and vice versa. But whatever the local cost, it will be a small fraction of pulling cable or fiber optic.

When I was looking at making my initial investment, I talked with Jack and the team about creating a new business model other than that of equipment seller. I felt that this was perfect for creating a business that builds and operates networks.

And rather than having to raise money for each city, county or country, why not use a joint venture model? Part of the important and time consuming initial work is getting the approval from the local authorities at whatever level granting access to light poles and other infrastructure. Ramping up to do the local political leg work would be a huge investment in manpower and money for any company.

Why not partner with local firms, whether large or small, who know the local political landscape and can get the appropriate permissions and contracts (with our assistance)? These partners will also find the needed capital for their market (and in some instances we can help them find the needed money) and then we would sell them equipment on a much reduced price basis and then share in the business and operations. Yes, this means we give up a big slice of each area, but we will have the opportunity to get a much larger "footprint" in terms of areas served when working with multiple partners.

This allows for rapid expansion as more than a few areas can be brought online at the same time. In fact, there is no reason in principle that a hundred areas (or more) could not be in the process at the same time, and we expect that will be what in fact happens within just a few years.

There are any number of skilled technicians around the world who can be taught to do the site locations for the access point pods. Sales and marketing will have similarities so that training is made easier, with each market also having a local flavor. And each joint venture partner benefits in the early stages from the experiences of the fellow partners. It is my personal bet that the several "killer aps" (applications) will come from one of the partners showing entrepreneurial drive to come up with ways to use the wireless infrastructure that we have not yet thought of.

After a few cities and counties are completed world wide, and it is clear even to technological curmudgeons that the technology works, private equity financing will become easy to obtain. For large venture capital and private equity funds, this makes perfect sense. Put in some capital, and you become part of the telecommunications infrastructure in any given area. For entrepreneurs who can figure out how to get the local access rights, they will become part of a dynamic new business.

Let me state that it is not quite as easy as I make it sound, or everyone would already be doing it. There are technological challenges, and to get connected their must be access to the "backbone" of the internet. But these problems can be solved. Governments the world over are going to see the compelling story and know that they must provide access if their citizens are to compete in tomorrow's world. Some will take longer than others, of course, but eventually they will move.

So What Really Changes?

All of the above begs a few questions. First, how will this affect the big telecom and cable companies? The answer is unclear. Just as cellular started small and is now a large part of the telecom world (in less than 20 years), it is mostly owned by the big telecom companies themselves (with a few exceptions). This technology will start small and grow rapidly. Will the telecoms (in countries both large and small at all levels of development) try and compete head to head or use their cash flows to buy access? Perhaps. That being said, the arrival of advanced wireless mesh (irrespective of which firm makes the equipment) in an area will mean a drop in prices of the various services, as the cost of the infrastructure is a fraction of the wire bound legacy technologies.

I doubt there will be much change for the next 3 to 5 years, but then the small incremental changes will start to add up. Telecom companies are going to have to adapt to the new technology or lose major market share and revenue. There is nothing to prevent a large multi-billion organization from becoming a full blown telecommunications company in any given area. And there are scores of multi-billion dollar companies with large cash hordes looking to do something with it. Google keeps talking about wanting to put a wi-fi system in San Francisco and then going from there. Now they could. But then anyone with a few million in spare cash could do the same.

This will make getting your entertainment over the internet possible. Content companies will love it. Cable companies may not like the new world order. They will have to adapt. Someone will offer a new wireless "cable box" to sit on your TV (or in your computer) connected through your local mesh network. Will it be the local cable company or their competitors or any of a horde of new start-ups? Will there be some political battles over this? You bet. Count on the lawyers getting involved. But denying a city or country access to last mile connections will mean the citizens will suffer. Politicians are pretty good about counting votes.

Right now there are a projected 4 billion people who will have a cellular phone with four years. By 2020 those 4 billion and a few billion more will have access to the internet and wi-fi phones, with technology that sounds like science fiction today.

This will re-make education in many developing countries, as kids who had no chance at higher education will be able to get that education for little or no costs. The millions of brilliant minds who never had a chance to give the world their invention will now be able to have a chance.

This will certainly make the world flatter. The internet access that is limited to internet cafes in much of the developing world will suddenly explode in country after country. The economics are such that it is financially viable in most countries and cities, as long as they have a connection to the internet backbone somewhere. If your job can be done over the internet, you are going to get a lot more competition than ever. It also means that you will be able to do your job from a lot more places. Companies are going to go "virtual" at an ever faster pace.

This will also mean that it is going to get a whole lot more difficult for certain developing countries to control the information their people get. Of course, they could simply not install a mesh system, but then they fall even further behind. This is going to force political change as information becomes more readily available. It is one thing to control local media. It is another thing altogether to control information in the internet.

(As an aside, there is a lot of "dark" (unused) fiber in the world. It is going to get used and we will need much more. The guys at Global Crossing were right in their projections about the need for fiber. They were just really wrong about the timing. I am grateful that so many were willing to lose so much so that we could have cheap fiber access today.)

How can you participate? For most readers, there is not much to do but sit and wait. You might want to show the leaders in your city (or country) who are responsible for seeing their area advance technologically a copy of this letter and suggest they consider contacting MeshLinx or starting a study group to explore the directions they should take.

For others, we are clearly looking for joint venture partners. If you have the ability to acquire the rights to a particular city, county, country or other political area, we would like to help you do so. Our model is one where the joint venture partner brings the financing to the table and we sell the equipment at a much reduced rate, although in some circumstances we can find financing.

And of course there will be opportunities for private equity funds to underwrite the cost of building certain regions and countries and participating in the revenue streams. This is a way for non-telecom companies and funds to muscle in on a world-wide multi-hundred billion dollar business

This is going to be a lot of fun. For more information you can contact Jack Harrod the CEO at MeshLinx at or drop me a note and I will get him (or someone from the company) in touch with you. You can also call MeshLinx offices at 972-943-4878. The phone is answered 24 hours a day.

Switzerland, Scotland and Spain

It's time to hit the send button. This letter is already long, so I will close quickly. I am going to be in Edinburgh, Barcelona, Madrid, Geneva and Zurich in late May and early June. I will be doing some open meetings as well as private ones with clients and potential clients. Drop me a note if you would like to meet.

Graduation for my daughter last week was quite special, and this week my daughter-in-law Angel graduates from nursing school. It has been a long road for her and lots of hard work. I have a new appreciation for how hard it is to become a nurse. I am proud of her. Lots of family time as we get together to celebrate. Have a great week.

Your curious to see how the future unwinds analyst,

By John Mauldin

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Copyright 2007 John Mauldin. All Rights Reserved
John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273.


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23 Jan 08, 19:31
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05 May 08, 13:25
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