SMART Letter #38
May 6, 2000

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------         SMART Letter #38 - May 6, 2000 Copyright 2000 by David S. Isenberg -- "ILOVEU2 -- but I don't use Outlook" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > NGN Ventures -- Sustaining Technology's Last Stand > NGN Ventures -- Dr. McQuillan, Arno Penzias & Guy Cook zero in on Optics, Crayons, Ethernet, Instant Provisioning and Whatever Arno Is. > A note on TIRKS, PICS, and DCPR by SMART Person Amos Joel > Quotes of Note: Arno Penzias on David S. Isenberg Phil Agre on Competition and Network Effects David Farber on Technology and the FCC George Gilder on Market Timing and WDM > Smart Remarks from SMART People Arnim Littek on Venture Capital in New Zealand James McKenna on Nasty Trends in BW & Content Martin Elton on "Highly Regulated" Swedish Telecom > Conferences on my Calendar, Copyright Notice, Administrivia ------- NGN VENTURES -- SUSTAINING TECHNOLOGY'S LAST STAND Dr. John McQuillan's NGN Ventures conference (Burlingame CA, April 25-27, 2000) provides the best look at the emerging edge of networking you can get without signing an non-disclosure agreement. The companies that present at NGN Ventures are network infrastructure companies somewhere between their second round of financing and their "liquidity event" -- usually an acquisition or an initial public offering on the stock market. These companies were at a stage of development when it is important to sell (i.e., to communicate) what they have and what they're doing. But apparently the ground rules of the conference specified that presentations were to be non-sales- oriented. This set up a disconcerting tension -- often I was not sure what some of the presenting companies did. Once, Dr. McQuillan noted that the three companies we just heard "had very different approaches to the same thing." Apparently he spoke from inside knowledge (or maybe I'm dense) because I couldn't tell the three companies apart. Another time, Dr. McQuillan had to give explicit permission for the presenters to discuss pricing. Furthermore, it has been a long time since I've been to a meeting where "disruptive technology" was such a minor meme. Indeed the semantics of "Next Generation" (the NG in NGN) imply orderly transition, as in, "Sonny-boy is a chip off the old block (well, maybe he's a bit wild, but) he'll grow up, settle down, get a job and raise a family, just like Dad." Dr. John McQuillan is a serious, understated man. To him, the recent stock market gyrations are merely "an inflection point." Nevertheless, despite the low-hype-factor that perfused his program, the most dramatic moments of the conference came when the disruptive genie refused to stay inside the lamp. For example, in the Metro Optical session the audience broke into spontaneous applause when Dr. McQuillan read an audience question that asked, "Why are we still worrying about SONET when we can do straight Gigabit Ethernet?" (Also, see the transcribed discussion with Dr. McQuillan, Guy Cook and Arno Penzias below.) If Dr. McQuillan weren't so comprehensively knowledgeable and incredibly brilliant, he'd be boring. He introduced and summed up every speaker in every session for three entire days and hardly ever smiled. I kept expecting to be annoyed, but I wasn't. His insight prevailed. The "Innovative Communications Providers" session was my personal conference highlight. Yipes -- where I am the entire advisory board -- presented its simple, low-cost, scalable Ethernet-based data service. So did the other two panelists: Telseon and Broadband Office. The panel's message was simple and clear; Ethernet's not just for LANs anymore. As surely as steamships destroyed the great houses of sail, carriers and equipment providers that do not understand the ascendancy of Ethernet will be blown away. Yipes! It is "ip" surrounded by "yes" -- a brilliant piece of branding. Jerry Parrick, Yipes' CEO, laid out the numbers: IP over Ethernet beats IP over ATM over SONET in operations by about ten-to-one and in provisioning by about five-to-one. Yipes! That's cheap! Yipes! It's scalable, too, especially compared to SONET! Soon Yipes' customers who need more bandwidth will click-to-provision, and then click to de- provision when they're done. (This is a nice customer control gimmick, but who'd ever want to de-provision bandwidth once they get it? Especially at Yipes prices.) The other two panelists were in pretty much the same services space (about $2500 a month for 100-Mbit metropolitan service), but their messages were not as well developed as Yipes', in my entirely objective opinion. But just as you never learn the finer points of sailing until you race, these companies, at minimum, serve as trial horses for each other. At this early stage of market development, the situation reminds me of the one about how, "One laywer in town starves, two lawyers in town and they both get rich." It is a rapidly expanding pie. Yahoo! Yipes! Telseon? There were several sessions that turned me off because they ignored the headlong progress we're making, and treated some of today's interstitial opportunities as if they're going to last forever. I'm not in synch with that evolutionary thing. (However, venture capitalists need to hedge their bets. As Vinhod Khosla said, "I don't have a crystal ball. The way I survive is by assuming that I don't have the answer.") The DSL and Cable session was one such boring session. Its subtitle was "Putting Voice Back into the Equation." It was about all this special machinery over-engineered for telephony. Yawn. Can't we get over it? Voice compression is a PC application already. Session participant Gary Tauss, CEO TollBridge Technologies, said no. He said, "We are a bet that there is a phased transition. You can't take the ILECs and retrain their whole workforce." OK, OK; there's a pretty big installed base of telephones, but I can't get excited about it. (Meanwhile, the problems with DSL -- and there are many, such as distance, crosstalk, provisioning (especially competitive provisioning) -- are being addressed by some pretty interesting startups that were not represented at NGN Ventures.) The Metro Optical session was another session where I kept waiting for some action. It was aptly subtitled "SONET's Last Stand." This is the one where the question about why don't we go straight to GigE got applause. I can imagine General Sonet standing in South Dakota asking Dr. McQuillan, "Are those Ethernet feathers sticking over the crest of that hill?" [For non-US SMART People, "X's Last Stand" recalls Custer's Last Stand -- in 1876, General Custer and his troops were wiped out by Native Americans who believed that white people such as Custer wanted to subjugate them, destroy their culture and take over their lands.] On the whole, the conference was a superb learning experience. It gave a sweeping context in which to position and compare a wide variety of new technologies. At the end of the conference, Telcordia Vice President (and SMART Person) Bob Lucky summed up his impressions in three words: Provisioning, Scale, Leadership. Indeed -- if I were venturing my capital, these would be three excellent squares to put my money on. ------- FROM NGN VENTURES: "BOARDROOM PERSPECTIVES" BY DR. JOHN McQUILLAN, GUY COOK AND ARNO PENZIAS. [The best moment of NGN Ventures occurred in the "Boardroom Perspective" discussion that followed the Optical Access session. Right after the session I rushed out to the lobby to buy the tape so I could share it with the SMART People! I have edited the dialog to keep it short, readable and hard hitting. -- David I] Dr. John McQuillan: It is my pleasure to welcome Arno Penzias, a venture partner at NEA. Arno, previous to this position has had a very distinguished career. He headed Bell Labs Research for many years in the 80's and through the 90's and is also a Nobel Prize winner in physics. And secondly, Guy Cook who is Vice President of Internet Services at Qwest . . . Guy Cook: There is no doubt, from a carrier standpoint, that we are going all-optical. We are going to get rid of as many components as we possibly can. We are going to try to keep things dumb in the core of the network and try to make things more economic. I think there are some very serious challenges . . . Qwest, by the way, is building fiber rings in 25 major metro areas. We will be done in the next 18 months or so. We will light up about 1000 buildings. We have a partnership with Bell South and we're just about to take US West . . . McQuillan: Take? Take??? Oh dear! Guy: Right. [The U.S. West acquisition] opens a great deal of opportunity and great deal of complexity . . . McQuillan: You're building regional networks and metropolitan networks and you're even building access? Guy: The distinction between access and regional, or access and metro gets blurred. When you're running fiber and lighting up buildings, what's the difference? McQuillan: Well, what is the difference Arno? Arno Penzias: Well, the difference is how expensive and complicated the boxes get. We seem to blame SONET for our own sins. McQuillan: No, it is *SONETs* fault! (laughter) Arno: Oh. Good! So we didn't do anything stupid by running a train in a circle where at each stop all the passengers get off and have their tickets replaced by another ticket, and then they all get back on and go to the next stop, and do it all over again. I would love to give this thing over to the Crayola Crayon people. You get a box with 100 crayons. Each one is a different color and whoever is managing the network just takes a crayon and colors in the network to one of your 1000 office buildings. No boxes, just crayons. A different color every place. That would certainly save a lot of electronics. McQuillan: Would you like to build that network? Guy: I'd love to build that network. What you described, Arno, sounded like simplicity. Arno: Save software. That is the only thing that doesn't work [better] by expending bandwidth. You asked me, John, to explain the difference between hardware and software. Software is the stuff that never works. It always needs to be maintained and repaired. McQuillan: And it gets worse over time. Arno: And hardware is the rest. (Applause) McQuillan: And I'd even go further. There is electronics hardware, which seems to work until you find it doesn't. And then there is optical hardware, which is just crayons. Arno: Instead of TIRKS and PICS* and all this other stuff you just take your crayons. You just color everybody. [snip] McQuillan: [We just heard the previous panel] describing a very lovely vision, where I could have a 20 or 30 megabit [service agreement] on my Ethernet interface. I could go to a website and click [and get] 45 or 65 megabits. It could happen in 14 seconds instead of 14 weeks. Now, I think there are boxes that can do that. Can your network and operational support systems . . . ? Guy: The answer, quite frankly, is no! This has been nirvana for the entire communications industry for a long, long time. We have to get there . . . with a mindset that if we have a simple solution it is much more likely to work. [snip] McQuillan: So Arno, what do you think about this dream of being able to click and get more capacity? Arno: I don't think it is going to be necessary. McQuillan: Not necessary? You always surprise me! Not necessary??? (Voice rising.) This is our dream! Arno: No. It is not your dream. It is a limited dream. I don't think you have enough imagination! (Laughter) Seriously! In my lifetime, I've been to a step-by-step switch -- not even a crossbar switch -- that was still working. And I heard, "We can't change," and everyone had good reasons. I always listen to the good reasons. But should we ever ration bandwidth at all? That is all we are talking about here. On the way to Guy's POPs you are going to get fast Ethernet, or a one-gigabit pipe. Ethernet is a very forgiving technology. . . . But just think in a different way, because . . . I have been very serious until now. McQuillan: Yeah. You're deadly serious . . . Arno: There are four things in the world that are very much alike -- two are them are money and sex and the other two are storage and bandwidth. In every single case . . . McQuillan: (Sarcastically) They are practically the same. (Laughter) Arno: Yes, because in all four cases, only too much is enough. (Laughter) McQuillan: Thank you, Arno. Thank you. (Applause) Now we know where Arno stands. Arno: Don't ration it. Seriously! McQuillan: (Sarcastically) I'm there! I think bandwidth should be free! I think software should be free! Power to the people! Arno: The point is how you sell it. If you try to count every bit, the overhead cost -- even in the Telephone Company of a decade or two decades or ago, we spent much more money on billing than we did on the entire facility. McQuillan: Indeed! Arno: We [didn't lose] that mentality [until one day] when AT&T Wireless Services . . . said, "We are not going to worry whether you call Omaha or whether you are calling across town." . . . The savings and the simplicity made their network easier and they saved a lot of software. [And, more importantly, AT&T Wireless Services got a lot of new customers who used to think that cellular telephony was expensive! David I] McQuillan: You know, I think we have already lived with this for a decade with Ethernet in our offices. Arno: Right! McQuillan: In a sense Ethernet is the way God intended networking to be. (Laughter) Metcalfe didn't invent it the way it is now. The way it is now is the way God really meant it to be, which is 100 megabit or gigabit, with structured wiring and [non-blocking] switches, and it costs less than 100 dollars. Arno: And because it is a forgiving medium, it allows itself to make mistakes. McQuillan: OK. Arno: And we don't attempt to ration it, we don't attempt to monitor it and we put all the responsibility on the user at the desktop. And the users, in return, are willing to take a lower level of service. If we had to wait until we provided cell phones with landline quality we wouldn't have anything out there. [snip] Guy: I am happy to buy that story but we have to get the fundamental economics to make sense, not only in terms of the cost of the boxes, but for implementation, maintenance, and so on. Then we can provide those big pipes to everybody. That would be perfect. [snip] McQuillan: I'm going to close the session now. We would love to continue this over cocktails tonight. Maybe Arno would make even *more* sense after a drink or two. For me, I am going to interpret what we're saying as some kind of cockeyed endorsement [of] adopting Ethernet at the POPs. Guy: Yeah, we are going to push as hard as we can to get there. McQuillan: So, this is a great opportunity for technologists, for business people, and for whatever Arno is. (Laughter). Arno: I'm investing in technology. Right? (Applause. End of session.) --- *SMART Person and old-tyme switching guru Amos Joel sends Arno "best regards" and writes: "TIRKS = Trunks Integrated Record Keeping System, PICS = Plug-in Inventory Control System, a part of DCPR = Detailed Continuing Property Records." [These are just three of the hundreds of Operations Support Systems in the Intelligent Network. (Are these the systems that helped the RBOCs lose US$18,600,000,000.00 worth of hardware that they still bill us for? To find out, see -- David I] ------- QUOTE OF NOTE: Arno Penzias on the occasion of David S. Isenberg's appointment as Bell Labs Distinguished Member of Technical Staff: "Your ability to present your thoughts clearly and persuasively has solidified your company-wide reputation as an innovative thinker and a leader in technology transfer." [In the Bell Labs tradition, Arno asked me what he should write, and since I can present my thoughts clearly and persuasively . . . ] QUOTE OF NOTE: Phil Agre, Notes and Recommendations, Red Rock Eater News Service, April 30, 2000. "When you have an industry like high technology . . . where network effects and economies of scale tend to produce monopolies, competition will reward those who are good at a particularly fast and violent form of land-grabbing in the early stages, long before most anyone is aware that the market even exists." QUOTE OF NOTE: David Farber, Chief Technologist of the FCC, keeper of the IP List, IP: Washington Diary #2, April 27, 2000 "I am, on the average, very impressed with the staff at the FCC. They do what they believe is best for the country, recognizing that they are dealing with powerful industrial players who often run to the Hill and the courts for protection if they are pushed too hard. . . . I was surprised [that] there are essentially no technical people on the staff of the Commissioners. . . . If I had one concrete suggestion I would mandate a Personal Technical Advisor to each Commissioner as they have a Legal and Economic Advisor. How they can make informed decisions in this rapidly evolving technology business without that astonishes me." QUOTE OF NOTE: George Gilder, Gilder Technology Report, April, 2000. "We ourselves don't do price and timing, leaving that to higher level thinkers. We prefer the easy stuff, like the physics of WDM." ------- Smart Remarks from SMART People --- From: "Arnim Littek" [] "In the last six months, there's been a drastic turnaround, at least on the surface, of the nature of investing in New Zealand. For a long time, venture capital was something that happened in the US. Kiwi investors were classified as too risk-averse. But, of late, every Tom, Dick and Harriet is announcing yet another venture capital fund. They seem to be coming out of the woodwork like someone's discovered that nothing ventured, nothing gained. . . . Even in this technological backwater, the shoals are shifting with the global current." [It must be a joy to be a VC in NZ, where the only dangerous thing in the whole country is the Katipo Spider. -- David I] --- From: James McKenna [] "I'm seeing the nasty trend to bundle bandwidth and content in more places than the cable industry. A few brief examples: "Ebay -- Want an image on your Ebay auction? Got to host it somewhere--but that somewhere is not your local ISP. "Sure, we'll host your COMMERCIAL content, if you pay for a COMMERCIAL hosting package." Suddenly every transaction is all-caps COMMERCIAL. I thought the Net was unbundling commerce from big business, but it seems that's not so. On this micro scale, the effect is that millions of ordinary online humans are now out of the running on Ebay. So much for the global bazaar. You STILL need a vendor's license and a box of capital just to show up. "Local-access wireless (not) -- Know any wireless companies who are making it easy for small fry to send content to users' phones? I don't (not that I expected to). Thus, WAP content is the same old same old Yahoo, Mapquest, CNN, blah-blah. "Universal broadband this year, I mean next year, I mean . . . If there weren't an unholy marriage be- tween content-distribution mega corporations and infrastructure mega corporations, don't you think this one would have been sorted out five years ago? Instead cable access is stalled, DSL is stalled, because the only thing they really care about is protecting their content. . . . If Napster is giving people hemorrhages when nearly everyone who's on is on a dialup, is it any wonder that universal broadband is always over the horizon? . . . We're talking about the end of the fable of Internet empowerment because empowerment means the big checks will start getting smaller. [James -- Don't assume a conspiracy when incompetence, maladaptive corporate culture and The Innovator's Dilemma are reasonable explanations. If there's an organized conspiracy to hold back DSL and Cable, its a "Spy Who Couldn't Shoot Straight" story. The content thing, on the other hand, is a different kettle of fish. But don't blame the companies here either. They just don't know any other way to (try to) do things. -- David I] --- From Martin Elton [] [Martin takes on the issue that Barbara Esbin and I dance around (in SMART Letter #37) regarding whether Swedish telecom is "highly regulated":] Since the introduction of the telephone more than a century ago, the Swedes have followed a distinctive approach to regulation. Throughout Europe most telecommunications companies had their monopolies protected by law and regulation. There was never such protection in Sweden. Quite possibly, its light regulation contributed to the (two-year) lead over the U.S. in cellular telephony. Sweden seems to be off to a good start with DSL. Currently a number of companies there are offering two-way 2 Mbit/sec. service at a flat fee of about $25 (US) per month, plus a one-time charge of about $250. In cable television, there has never been regulation to protect the monopoly status of cable television companies in Sweden. As a result, there have been five or six competing cable companies in Stockholm for a long time. (So much for the argument that cable is a natural monopoly!) It seems to me that the US cable industry wants to have it both ways; to enjoy being a protected monopoly, but to avoid the regulatory burden of this status. It's time to stand up to the industry's threat that it won't invest in infrastructure if regulation interferes with its monopoly power. ------- CONFERENCES ON MY CALENDAR May 7-12, 2000. Birmingham UK. World Telecommunications Congress. I am an invited speaker for the session entitled, "What's your network IQ?" Answer: Too high. For info, see May 23-26, 2000. Laguna Niguel CA. VORTEX. It looks like I'll be co-kibitzing the VC panel with Bob Metcalfe, then talking about something (tbd) for a few minutes after that. For more info, see May 27, 2000. San Diego CA. Porter Stansberry's Pirate Investor Conference. Avast me hearties! The bucko tar can sail to windward. Don Luskin (CEO MetaMarkets) will be aboard too! Sign the log at (, or call 800-433-1528. Pre-registration $99, or register at the gangplank for $149. June 7-10, 2000. Toronto ON. TED CITY. My only role here is as a paying member of the audience, but I think that Richard Saul Wurman does a real job with his TED conferences -- every one I have been to has had deep lasting impact. June 26-27, 2000. New York City. Entertainment Internet 2000. I'll be on a panel with some of my favorite fiber and bandwidth companies. The website is thin, but there's info there -- or call 212-336-6000. September 13-15, 2000. Lake Tahoe CA. TELECOSM. Featuring George Gilder, Clayton Christensen, yours truly, and a cast of geniuses, troublemakers, and people who got rich by listening to George. This thing sells out, folks -- a word to the SMART. September 22-24, 2000. Woods Hole MA. An equinoctial weekend of deliberation for SMART People here beside the rising tide. Details soon -- but mark your calendars now. ------- COPYRIGHT NOTICE: Redistribution of this document, or any part of it, is permitted for non-commercial purposes, provided that the two lines below are reproduced with it: Copyright 2000 by David S. Isenberg -- -- 1-888-isen-com ------- [to subscribe to the SMART Letter, please send a brief, PERSONAL statement to (put "SMART" in the Subject field) saying who you are, what you do, maybe who you work for, maybe how you see your work connecting to mine, and why you are interested in joining the SMART List.] [to unsubscribe to the SMART List, send a brief unsubscribe message to] [for past SMART Letters, see] [Policy on reader contributions: Write to me. I won't quote you without your explicitly stated permission. If you're writing to me for inclusion in the SMART Letter, *please* say so. I'll probably edit your writing for brevity and clarity. If you ask for anonymity, you'll get it. ] ** David S. Isenberg, inc. 888-isen-com 908-654-0772 ** -- The brains behind the Stupid Network -- **