Intel Infineon: history repeats itself

Unlike its perplexing McAfee move, Intel had to acquire Infineon. Intel must make the Atom succeed. The smartphone market is growing fast, and the media tablet market is in the starting blocks. Chips in these devices are increasingly systems-on-chip, combining multiple functions. To sell application processors in phones, you must have a baseband story. Infineon’s RF expertise is a further benefit.

As Linley Gwennap said when he predicted the acquisition a month ago, the fit is natural. Intel needs 3G and LTE basebands, Infineon has no application processor.

Linley also pointed out Intel’s abysmal track record for acquisitions.

Intel has been through this movie before, for the same strategic reasons. It acquired DSP Communications in 1999 for $1.6 Bn. The idea there was to enter the cellphone chip market with DSP’s baseband plus the XScale ARM processor that Intel got from DEC. It was great in theory, and XScale got solid design wins in the early smart-phones, but Intel neglected XScale, letting its performance lead over other ARM implementations dwindle, and its only significant baseband customer was RIM.

In 2005, Paul Otellini became CEO; at that time AMD was beginning to make worrying inroads into Intel’s market share. Otellini regrouped – he focused in on Intel’s core business, which he saw as being “Intel Architecture” chips. But XScale runs an instruction set architecture that competes with IA, namely ARM. So rather than continuing to invest in its competition, Intel instead dumped off its flagging cellphone chip business (baseband and XScale) to Marvell for $0.6 Bn, and set out to create an IA chip that could compete with ARM in size, power consumption and price. Hence Atom.

But does instruction set architecture matter that much any more? Intel’s pitch on Atom-based netbooks was that you could have “the whole Internet” on them, including the parts that run only on IA chips. But now there are no such parts. Everything relevant on the Internet works fine on ARM-based systems like Android phones. iPhones are doing great even without Adobe Flash.

So from Intel’s point of view, this decade-later redo of its entry into the cellphone chip business is different. It is doing it right, with a coherent corporate strategy. But from the point of view of the customers (the phone OEMs and carriers) it may not look so different. They will judge Intel’s offerings on price, performance, power efficiency, wireless quality and how easy Intel makes it to design-in the new chips. The same criteria as last time.

Rethink Wireless has some interesting insights on this topic…

Google sells out

Google and Verizon came out with their joint statement on Net Neutrality on Monday. It is reasonable and idealistic in its general sentiments, but contains several of the loopholes Marvin Ammori warned us about. It was released in three parts: a document posted to Google Docs, a commentary posted to the Google Public Policy Blog, and an op-ed in the Washington Post. Eight paragraphs in the statement document map to seven numbered points in the blog. The first three numbered points map to the six principles of net neutrality enumerated by Julius Genachowski [jg1-6] almost a year ago. Here are the Google/Verizon points as numbered in the blog:

1. Open access to Content [jg1], Applications [jg2] and Services [jg3]; choice of devices [jg4].
2. Non-discrimination [jg5].
3. Transparency of network management practices [jg6].
4. FCC enforcement power.
5. Differentiated services.
6. Exclusion of Wireless Access from these principles (for now).
7. Universal Service Fund to include broadband access.

The non-discrimination paragraph is weakened by the kinds of words that are invitations to expensive litigation unless they are precisely defined in legislation. It doesn’t prohibit discrimination, it merely prohibits “undue” discrimination that would cause “meaningful harm.”

The managed (or differentiated) services paragraph is an example of what Ammori calls “an obvious potential end-run around the net neutrality rule.” I think that Google and Verizon would argue that their transparency provisions mean that ISPs can deliver things like FIOS video-on-demand over the same pipe as Internet service without breaching net neutrality, since the Internet service will commit to a measurable level of service. This is not how things work at the moment; ISPs make representations about the maximum delivered bandwidth, but for consumers don’t specify a minimum below which the connection will not fall.

The examples the Google blog gives of “differentiated online services, in addition to the Internet access and video services (such as Verizon’s FIOS TV)” appear to have in common the need for high bandwidth and high QoS. This bodes extremely ill for the Internet. The evolution to date of Internet access service has been steadily increasing bandwidth and QoS. The implication of this paragraph is that these improvements will be skimmed off into proprietary services, leaving the bandwidth and QoS of the public Internet stagnant.

The exclusion of wireless many consider egregious. I think that Google and Verizon would argue that there is nothing to stop wireless being added later. In any case, I am sympathetic to Verizon on this issue, since wireless is so bandwidth constrained relative to wireline that it seems necessary to ration it in some way.

The Network Management paragraph in the statement document permits “reasonable” network management practices. Fortunately the word “reasonable” is defined in detail in the statement document. Unfortunately the definition, while long, includes a clause which renders the rest of the definition redundant: “or otherwise to manage the daily operation of its network.” This clause appears to permit whatever the ISP wants.

So on balance, while it contains a lot of worthy sentiments, I am obliged to view this framework as a sellout by Google. I am not alone in this assessment.

A small step for Google, a giant leap backwards for America?

Google is rumored to be ready to cut a Faustian deal with Verizon, benefitting its shareholders by selling the soul of the Internet, namely open, equal access.

If the rumors turn out to be true, Google might consider changing Point 6 of its corporate philosophy (which currently says “You can make money without doing evil“) to “We don’t care. We don’t have to.

Update: Google and Verizon deny the rumor.

Net Neutrality heating up

I got an email from Credo this morning asking me to call Julius Genachowski to ask him to stand firm on net neutrality.

The nice man who answered told me that the best way to make my voice heard on this issue is to file a comment at the FCC website, referencing proceeding number 09-191.

So that my comment would be a little less ignorant, I carefully read an article on the Huffington Post by Marvin Ammori before filing it.

My opinion on this is that ISPs deserve to be fairly compensated for their service, but that they should not be permitted to double-charge for a consumer’s Internet access. If some service like video on demand requires prioritization or some other differential treatment, the ISP should only be allowed to charge the consumer for this, not the content provider. In other words, every bit traversing the subscriber’s access link should be treated equally by the ISP unless the consumer requests otherwise, and the ISP should not be permitted to take payments from third parties like content providers to preempt other traffic. If such discrimination is allowed, the ISP will be motivated to keep last-mile bandwidth scarce.

Internet access in the US is effectively a duopoly (cable or DSL) in each neighborhood. This absence of competition has caused the US to become a global laggard in consumer Internet bandwidth. With weak competition and ineffective regulation, a rational ISP will forego the expense of network upgrades.

ISPs like AT&T view the Internet as a collection of pipes connecting content providers to content consumers. This is the thinking behind Ed Whitacre’s famous comment, “to expect to use these pipes for free is nuts!” Ed was thinking that Google, or Yahoo or Vonage are using his pipes to his subscribers for free. The “Internet community” on the other hand views the Internet as a collection of pipes connecting people to people. From this other point of view, the consumer pays AT&T for access to the Internet, and Google, Yahoo and Vonage each pay their respective ISPs for access to the Internet. Nobody is getting anything for free. It makes no more sense for Google to pay AT&T for a subscriber’s Internet access than it would for an AT&T subscriber to pay Google’s connectivity providers for Google’s Internet access.