Tom Stanton, Chairman & CEO, ADTRAN

There we go. Anybody that comes up with this stack of papers, you should be worried about if they're giving a presentation. But I promise you, I won't be going through all of this. But I did want to relay my thanks for being able to be here today and to talk to you a little bit about broadband. And I think this is a perfect place for that, and it's very much in tune with what our company does and what a lot of our focuses are. So when I was asked to speak here a few weeks ago, I was going back and thinking what I could actually bring to the table here that you haven't already heard. There are a lot of slides. By the way, I appreciated Olf's presentation because I think it's very much in line with the way that we think. So I was trying to think through, well, maybe we could bring a different perspective and a different way of looking at what's going on in our society and also what's going on in broadband in the network in general.

So the key premise here is that I think things are changing. And I don't mean just normal evolutionary change. I don't mean going from one generation of car to the next generation of car, or one generation of airplane to the next generation of airplane. What I'm saying is, in broadband and in networking in general, we're seeing a vast acceleration of change. And there are some key components, some key things that are going on in our industry and in society as a whole that's actually driving that change. So with that premise, I started doing a little bit of research, looking back and saying, well, what have other people seen? Has this happened historically somewhere in our history that would actually bring some perspective to what's going on in the broadband industry today and what's going on in society today? And I started doing a little research and trying to see if we couldn't find some luminaries that could probably add some different perspectives to what we're actually seeing. And of course, the first one I happened upon wasn't the best one. It was actually the commissioner of the U.S. Patent Office who came out, this was in the early part of the century of 1900s, and said everything that had been invented, everything that can be invented had already been invented. Not really a good place to start if you're trying to research change and how change and innovation can actually affect the network. So I quickly moved on. Are there other people out there that I could draw from that would actually give us a perspective as to what's going on? And I found this one: 'I think there's a world market for maybe five computers.' Now this was from the chairman and CEO of IBM who, at the time that he actually said this, was really in the card reading business, so you probably had some self-motivating reasons as to kind of downplay the impact of computers. And I should say he went on to actually lead IBM into the mainframe development and its dominance in computers after that. So when thinking through that, I'm thinking, okay, what would be the next generation of that? And a company came to mind that was founded right around the late 70s that really changed the dynamic of the computer world. That company was Digital Equipment Corporation. Some of you may know it, founded up in Massachusetts in the U.S. And their premise was empowering people and empowering corporations. So IBM had had a long dominance in the computer world with its mainframe, but it was a very expensive system. As the picture showed there that Olf had presented, it was rooms full of computers and it really wasn't too user friendly. And Digital Equipment Corporation came in and completely changed the game. They came in with a much more nimble system, a much more flexible system, a much more cost effective system, and changed the dynamic of that entire industry and really empowered, at that point in time, corporations of all sizes to be able to participate in the IT revolution. So I go and look at that, and by the way, the founder of that company was a man named Ken Olsen, who also served as chairman and CEO pretty much through the tenure of the growth of that company. So I'm thinking, this guy knows what he's talking about. This is Ken Olsen's quote: 'There's no reason for any individual to have a computer in their home.' And I'm starting to feel I'm a little stuck here, by the way, because all of these visionaries, even Ken Olsen who had made his company and his fortune off of the premise of really empowering people and looking at the universe in a different way than the embedded establishment, couldn't see beyond maybe the next two years. They had gotten stuck in that mindset of 'the battle that I'm fighting today is the way the future is going to be.' So I continued to search. Now I just threw this one up there because I like it. Even Bill Gates, and there are many quotes of Bill Gates which turned out not to be spot on, but even Bill Gates, as visionary as Bill Gates is, has problems sometimes looking at the future. So going through that, I'm thinking to myself, okay, what can we actually bet on? What can we actually use as the premise for why change is accelerating? And all of us kind of feel it. I think Olf's presentation mentioned some of the staggering changes in data usage, and not only in data usage but in the way people interact with devices, in the way that people actually run their lives. So stepping back and thinking, okay, what's a more analytical way to look at this? There are some laws that basically govern, you can call them almost the natural laws of telecom and really of IT. And the first one of those laws, most of you in this room probably know, if you're a journalism major may be outside of your field, but the first one is Moore's Law. Moore's Law is something that was stated, 1965 I think it was, when Gordon Moore came out with a statement that said the processing power will double in about every two years. It started off at 18 months and he modified it since then. And really what he was doing at that time was just stating a matter of fact. In 1965, he had looked at the progression of processing power since that period of time and really saw no big barriers to changing that. And in fact, which is kind of surprising, there have been some authors that have gone back and looked at processing power in different metrics and saying that that's actually carried forward over the last 50 years or so. So it's been an incredibly strong kind of foundation for the way that the industry has been able to progress. So I'm thinking, I have this one data point here that maybe you know, you have this foundation that you can start really exploring what the possibilities of the network can be. There's another foundational law: Gilder's Law. George Gilder, who was an author, kind of scientist type person, came out with this in 2000, which is that the bandwidth of the systems will triple every 12 months. And it's really kind of a derivative of Moore's Law. Now this one turns out to be less accurate. And kind of surprisingly, when we actually looked at the numbers and we ran some numbers and tried to say, okay, what has bandwidth really done over, let's say, the last 20 or 30 years? And what you'll find out consistently is that bandwidth has grown about 45% a year. Now in the overall scheme of things, that's not bad. I think most of us would be happy with a 45% a year growth rate. But in comparison to what Moore's Law would predict and what is actually capable, what we could actually achieve, it's substantially less. There's a third law that I'm going to introduce you to, and this is the one that I think is the most exciting one, and it is the one that I think is actually driving all of the change that we're talking about. And that's Metcalfe's Law. Now Metcalfe's Law, which was developed by Mr. Metcalf, who was the chairman and CEO of 3Com and is also somewhat related to Moore's Law, is that the value of a network is proportional to the square of the number of the users of that network. Those of you with math degrees totally understood what I just said. Those of you that don't have math degrees, what I'm saying is every single user adds exponentially more value to that network. And we can see it today. The Facebook numbers that Olf mentioned are directly related to that. That value can be in dollars. I think Facebook's market cap right now is about 136 billion or so. There's some value there, but that value can have more intrinsic impact, kind of more societal impact, and I think we're actually starting to see that. So in going through all this, we're saying, okay, we have the foundational piece which is Moore's Law, we have Gilder's Law which is kind of underperformed, and then we have Metcalfe's Law which says, well, even though the network is underperforming, we're getting more and more users and the intrinsic value of the network itself is growing. And I think within those three, we're seeing really the foundation of the phenomenon that we're actually experiencing today with some of the companies that Olf mentioned. When you take these three pieces together, and the three really start playing off of each other, you have something that we call a synergistic reaction. Now what's the synergistic reaction? If any of you have seen the YouTube videos where somebody drops a Mentos in a Diet Coke, or have you ever seen vinegar and baking soda, where you put it together and you see a huge reaction? That's a synergistic reaction. And that's exactly what's going on, I think, today in our industry. For the first time, you're seeing Metcalfe's Law and the capabilities of processing power, you're seeing broadband actually get to a point where you're seeing wide dispersion, and you're seeing users be able to connect in a way where the growth of these pieces and the interplay of these three pieces is going to drive significant capabilities and bandwidth requirements in the future. So what are these different phenomena? Or what has this allowed us to do? And I will tell you, it's exactly these pieces right there. It's because of Metcalfe's Law, it's because of Gilder's Law and the capability of bandwidth that we're seeing users actually come on in different applications and in different areas and things that we could have never envisioned before. So I'd like to take you to a story of where this has happened before. And it may be overreaching a little bit, but I think it's a good analogy of what we're actually experiencing today. So back a long time ago, in 1500 or so, a man named Johannes Gutenberg, who actually was a silversmith, had this great idea that he was going to develop something called movable type. And what movable type did is it allowed extremely quick processing of books. Prior to that, if you wanted to have a book made, you had to cast the pages in iron and then actually press it, and it was an incredibly time consuming process. So much so that the only people that actually had books were very, very wealthy people, or clergy, or somebody of that ilk. And what Gutenberg did was come out with movable press and completely change the dynamics of printing. And I would argue that that Gutenberg press is very similar to what we're seeing in Metcalfe's Law and the processing power that's coming online today. But what that did in a relatively short period of time, in a matter of a few decades, completely changed society. All of a sudden, books and the knowledge associated with books and education became available to everybody. And you saw a huge wave of transformation which started initially in Europe, spread through the rest of the country, and through the rest of the world. And I would tell you that what I think is going on today is of no less importance than what happened with that printing press. That we're actually seeing these pieces come together, and we're seeing users enabled through smartphones, through the network, through applications in a way that hasn't happened since that printing press. So when I talk about this synergistic reaction, what is the impact on the network? Well, I really think you're starting to see those pieces playing together. And you can see the growth rate now of global internet traffic hitting that exponential curve that we saw in Metcalfe's Law. We're actually seeing the users come online and seeing data usage really change its trajectory from the normal kind of linear growth rate that we'd seen at the 45% to really, really start to take off. And I don't think that that's a phenomenon that's going to stop anytime soon. In the U.S., it's been dramatic. The growth rate from 2008 to 2013 is phenomenal, something we had not seen in any period of time before that. And I really think it's because of the synergistic reaction where applications are coming together, users are being empowered, and we're seeing a tremendous growth and potential and innovation being unleashed. Now some of you will look at that chart and say, well, yeah, it's 62% video. Well, it is video, but it is video that is now available through uploads. It is video where the content model has completely come unleashed. And I will tell you, if you think it's going to stop because at some point we're going to hit this video piece, I would point you back to Ken Olsen's slide. This is not something that's going to change in our lifetime, and that we really ought to be getting ready for it. So with all those pieces, what can we conclude? Well, as I mentioned, the rate of change is accelerating, and that rate of change is not going to slow down. We may see lows, we may see recessions, but over the long term, that rate of change is not going to slow down. What does this mean? I know a lot of the carriers hate this slide, but that means the demand for broadband is infinite. And I put it in quotes. And the reason I put it in quotes is because over the longer term, it is impossible for us today to see where that broadband requirement is going to peak out, or if it ever does peak out. The other phenomenon that's going on is because of the change, the availability of this broadband and the availability of applications, customer requirements are changing to match up, and expectations are changing to match up with what people are used to seeing in their smartphone. And all of a sudden, everything has to be available everywhere to really fully utilize and see the dream of what could happen with this change. So staying relevant. How do we as an industry or as vendors actually stay relevant? And there was some talk in Olf's presentation about increasing our relevance and increasing the network's relevance. And I think we're at a real turning point here. Number one thing is speed. Speed is still important. I will tell you, I believe fundamentally that speed is the bottleneck to innovation today. That if we increase access speeds, if we increase speeds of devices, we will continue to see an unleashing of capabilities and of innovation that we haven't yet seen before. That means things like VDSL2, vectoring technologies, that means WDM-PON, that means whatever we can do to make the network faster will have a profound impact on the way that people utilize devices and the innovation that we can unlock. Connectivity is also a key point. You have to be connected anywhere, and the device that you connect with or the location you connect from, it has to be ubiquitous, it has to be the same. And then service ubiquity. And I will tell you, there was some discussion in here again, Olf's presentation which I think spoke directly to this. The network is not scalable if we always build for everybody having everything. The cost implications are too high if we have to build routing tables and QoS for every customer regardless of what they actually use. And I think SDN and NFV really point to a path for us to scale in an economical way and allow users to have the same experience regardless of what application they're using, whether it's for business connectivity, whether it's for video conferencing, whatever it is. It allows us to scale in an economical way, and I think it really does point to the wave of the future. Finally, I'd like to leave you with this thought. Assuming I'm right, assuming we really have kind of hit this inflection point, the growth potential is tremendous. Ray Kurzweil actually wrote a book on this, looking back over history and saying, okay, what kind of growth have we seen before and what can we actually expect? And his surmise was that we won't see a hundred years of progress in this century, but it'll be more like 20,000 years of progress. And I think he's totally right. If we can unlock the bandwidth bottlenecks that we have today, we will really be able to unlock the capabilities of what society can actually do. So with that, thank you very much, and it was good talking to you.