Consultant's Call
Wall Street Journal
September 21, 1998
Lawrence Vanston Makes Some Pretty Bold
Predictions for the Future of Telecoms. He's Been
Right Before
By G. CHRISTIAN HILL
http://www.wsj.com/public/current/articles/SB905789075507168500.htm
Some people are born to sing, some to run; Lawrence K.
Vanston was born to predict.
Mr. Vanston, 44 years old, is
president of Technology Futures Inc.,
an Austin, Texas, consulting firm
that specializes in forecasting the
impact of technology change, particularly on the telephone
companies. His father, John, founded the firm in 1978 to
predict energy trends, and taught a technology forecasting
seminar at the University of Texas, where he was a professor
of nuclear engineering.
While the younger Mr.
Vanston didn't exactly grow
up discussing Gompertz and
Fisher-Pry forecasting
models around the dinner
table, he did take his dad's
seminar while completing a
doctorate in operations
research, a field that involves
modeling and optimizing
business processes. After four
years at Bell Laboratories, he
decided the forecasting game
was in his blood too, and joined his father at the research
firm.
"I saw a need for a perspective that fit between dealing with
day-to-day problems with a short-term focus and blue-sky
speculation about the distant future," he says. "This
perspective requires balancing realism and imagination.... In
other words, you have to have one foot firmly planted on the
ground and the other in the clouds. That was me, so I decided
to go for it."
Mr. Vanston's work involves a lot of sophisticated statistical
modeling based on how new technologies have replaced old
ones in the past, and a canny recognition of all the variables
and assumptions that might throw the model off. But he's
careful to point out that some of his forecasts are based
partly on somewhat simplistic "everything else stays the
same" scenarios.
For example, Mr. Vanston might look at what would happen
in the market if wireless prices plunge while assuming that
the Bells' prices and costs for providing voice service remain
the same. These simplistic analyses aren't necessarily
unrealistic, though. While they try to compete with wireless
providers, the phone companies may in fact have trouble
lowering both prices and costs while financing major
investments in new technology.
Based on such assumptions, Mr. Vanston's forecasts can be
breathtaking: Local telephone carriers could lose 50% of
their calling revenue to wireless providers by 2005; unless
they co-opt wireless technology, grab much of the data
traffic and successfully enter other new businesses, their
annual cash flow will turn negative by 2010.
He also foresees nearly 90% of the nation's households being
able to buy some sort of digital data pipeline -- a cable
modem, digital phone line or direct connection to a
fiber-optic network -- by 2020, and being able to download
video and other information at the amazing speed of 100
million bits a second. That's enough capacity for each home
to simultaneously receive three or four high-definition
television shows, conduct several video-telephone
conversations and still have room to download other data or
graphics at more than 10 million bits a second.
But Mr. Vanston isn't regarded as some loose-tongued
dreamer. His clients include most of the Baby Bells, GTE
Corp. and Sprint Corp. They belong to a joint research
effort, the Telecommunications Technology Forecasting
Group, and have been paying for the Vanstons' research for
about a dozen years. They have used it to, among other
things, help persuade regulators to let them write off older
cable and switching equipment much more quickly, on the
theory that rapid technological changes were rendering the
assets obsolete more quickly.
"In categories where you can have a quantitative track
record, his record is very good," says Robert N. Welsh,
manager for capital recovery at Bell Atlantic Corp. and the
forecasting group's chairman. "A classic example is the
analog switch. Larry's company forecast the demise of the
analog switch investment long before it showed up in the
[actual] data." However, Mr. Walsh warns, "you have to be
careful when you look at studies in which a lot of things are
being held equal. It is a very simplistic model of a very
complex set of things."
Bell Atlantic is already aggressively pursuing
countermeasures advised by Mr. Vanston, a spokesman for
the company says. It has the largest wireless operation
among the Bells and plans to deploy seven million
high-speed digital data lines to customers by the end of next
year.
If anything, Mr. Vanston tries to err on the conservative
side. For example, some of his forecasts aren't adjusted to
reflect the potential "multiplier" effect of several
complementary technologies, such as fiber optics and
advanced digital switches, being adopted at the same time. A
forecast he made in 1995, of 48.9 million cellular-phone
users by 1997, fell short of the actual number, 55.3 million,
although it was still a lot closer to the mark than most other
predictions.
Recently Mr. Vanston sat down with The Wall Street
Journal to discuss his outlook for competition in the
telecommunications industry -- in particular, whether the
Bells' lock on the "last mile" of connections to the nation's
households would retard market changes, or whether it
would be circumvented by new technology.
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