SMART Letter #46
TELECOSM CONDUIT & CONTENT
October 10, 2000
SMART Letter #46 -- October 10, 2000
Copyright 2000 by David S. Isenberg
isen.com -- "communication, not content"
email@example.com -- http://isen.com/ -- 1-888-isen-com
> Quote of Note: Nobuyuki Idei
> Telecosm2000 Notes
> Steve Forbes Defends Defense
> Henry Nicholas Misses the Cluetrain
> Leo Hindery Learns to Separate Content from Conduit,
but does he know why it is a good idea?
> Quote of Note: Nicholas Negroponte
> Smart Remarks from SMART People
> "Former AT&T Employee" on why C. Mike Armstrong is lucky
to be an American.
> Dennis Saputo defines "Investment Grade Telco"
> Raj Singh on European Air Traffic Control
> Conferences on my Calendar, Copyright Notice, Administrivia
QUOTE OF NOTE -- Nobuyuki Idei
"We don't have time to persuade the people who don't
want to change." Sony CEO Nobuyuki Idei quoted by
Dan Gillmor in San Jose Mercury News 9/30/00.
Weeks after Telecosm 2000 (September 13-15, Squaw Valley CA) its
impact is finally starting to settle in my mind. Each of the 4
Telecosms has been more ebullient than the last. It took an
especially long time this year for the big thoughts to rise to
You can see the formal proceedings at
http://www.forbes.com/telecosm/, so I'm going to cut right to
the chase. [Note: You'd be well-advised to catch the speech by
Extreme Networks CEO Gordon Stitt (which lays out the disruptive
basis of the emerging end-to-end Ethernet network) -- and the
closing speech by semiconductor physics genius Carver Mead.]
A. Forbes Defends Defense
Last year at Telecosm, Steve Forbes was running for POTUS and
gave a campaign speech. The year before, he talked about the
Four Laws of Wealth -- which to me seemed like laws of "How to
Keep the Wealth You Have" rather than "How to Create New
Wealth". It was consistent of him -- in the first Telecosm he
missed the wealth-creating role of U.S. government grants in
creating the Internet.
This year Steve was not running for anything, but he waxed
passionate about national defense. Somebody should tell Steve
that nation-states are old-economy. Tired. Yesterday. Over.
Globalization happened. Multi-national corporations rule. Just
ask anybody on either side of the WTO issue.
Steve forgot to explain to the globalized netizens in the
audience why the United States was so all-fired worth defending.
The United States does a lot of things right and a lot of stupid
things -- even Steve doesn't buy the entire agenda. Maybe
learning-teaching-commerce is a better national agenda than
defending the whole arbitrary package.
B. Henry Nicholas Misses the ClueTrain
Henry Nicholas, Broadcom founder and CEO, is smart, tall,
strong, articulate and used to taking risks. Mostly, he wins.
Broadcom is a powerhouse of new communications technology. One
of Broadcom's latest innovations is an 8-port Gigabit Ethernet
switch on a chip, which promises end-user GigE at under $200 a
port. Coooool. Awesome.
But if Henry's so smart, why does he keep saying that we're
going to use TV-over-IP to click on the clothes that sitcom
stars are wearing so we can buy them too. Or order pizza. Or
get info on this hot car or that hot babe. He's stuck in a
content and consumer world. He doesn't seem to get how the
Internet changes content into communication and consumers into
people. He dosen't get why ITV failed and the Internet
succeeded. How did Henry miss the ClueTrain?
When George Gilder argues for the separation of content and
conduit, he is arguing for the destruction of Henry's biggest
customers. Henry will have better customers when his biggest
customers -- the ones who are trying to re-create ITV -- fail
again. The separation of content and conduit, the end-to-end
principle, the Stupid Network, is a thoroughly subversive,
little-d democratic notion. It is what ties George Gilder's
thinking most directly to my own.
The Telecosm 2000 "debate" that Henry Nicholas had with Zaki
Rakib of Terayon was a non-event. Next year I want Nicholas in
a REAL debate. "Resolved: the Internet is a giant commercial
for The Gap".
C. Leo Hindery Learns Stupidity
George Gilder is my friend even when we disagree, so before I
ask a question that might embarrass George's friends in public,
I tip George off so he can help them come back at me with their
best shot. This year, I told George I'd question former cable
guy Leo Hindery, Global Crossing's newest CEO, about the
separation of content and conduit, given his words like this:
"I don't want to be anyone's dumb pipes.
If all you do is racks and servers, that's dumb.
What we're doing is melding the network and the
content." (Leo Hindery, quoted in the Industry
Standard, March 27, 2000)
Hindery's previous two jobs, at TCI and AT&T Broadband Services,
required him to combine conduit and content -- the very
conjunction of the concepts "Cable" and "TV" make it so. But at
Global Crossing, dumb pipes R us. Or as Gilder says, "That
seamless seductive planetary waveguide [is] the business plan."
Global Crossing's two advantages are (1) cables crossing oceans
and (2) a globally unified network of wires and switches, not a
multi-party handoff network cobbled together from piece parts of
networks owned by other carriers.
Global Crossing is a pure pipes play -- its customers are pipe-
fillers. Hindery might be tempted by content, but he'd risk
competing against Global Crossing's customers.
Gilder says that Hindery "gets it big time" or at least he's on
a steep learning curve. When I got my chance to ask Hindery
about content and conduit at Telecosm, his response -- "content
will never be our business" -- sounded good at the time.
Some hours later, though, I came down with a severe case of the
"shoulda-saids". Did Hindery's really understand or was he
coached? I should have asked him *why* content and conduit
should be separate. Now the mystery must wait.
But I want to believe. I would have liked Hindery to tell a
don't-compete-against-your-customers story like the one about
AT&T's brief foray into the mail-order catalog business. In the
pilot program a decade ago, AT&T-branded catalogs racked up
promising sales. After a few months, AT&T's Chairman got a call
from the head of L.L. Bean or Land's End or Sharper Image (I
forget). The supposed conversation opened something like this:
"I hear that AT&T is making x-hundred thousand
dollars from catalog sales. Meanwhile, our AT&T
long distance bill is y-tens of millions. Which
of these revenue streams would you like to lose, Bob?"
After that, AT&T quickly abandoned its mail order effort.
There are other competing-against-customers stories Hindery
could have told. He could have told the one about how AT&T
couldn't simultaneously sell switches to RBOCs and enter the
local telephony market, so it had to spin out Lucent. Or he
could have told the story of the impact of Pepsi's restaurant
business on its sales of soft drinks to other restaurant chains.
The Harvard Business Review is full of cases like these.
There's another class of story that Hindery could have told. He
could have talked about Apple's relative failure (vis a vis
Microsoft) to separate and build a clean interface between
hardware, which became commoditized through competition, and
software, which remains a branded premium product. When
competitive products are separable from branded premium
products, the two separable pieces are governed by different
market imperatives. Thus most software makers want their
software to run on PC, Mac, Linux and any other platform there
is. That's why PC makers (post-Microsoft, anyhow) want their
platforms to run any Operating System. And that's why telecom
networks should be as vanilla as can be.
There's a third kind of story that would have satisfied me.
People often miss it, so I would have been overjoyed if Hindery
told it. It is the single critical reason why the Stupid
Network wins, and it goes like this:
Internetworking is about ignoring network-specific differences.
So if a network owner installs a value-added feature or a
special optimization inside the network they own, the
Internetworking Protocol's job is to route around it. Thus, in
an Internetworked world, any value added to a network is
irrelevant, lost. The value migrates to the edge.
And that is why network-based Quality of Service (QoS) is a
slippery slope. You put an "optimization" in the network for a
certain kind of content or medium or source or destination, and
surprise! the Internet begins favoring such traffic over other
kinds. What happens when a new, unanticipated category of
traffic appears? Choke. Today's optimization becomes
tomorrow's bottleneck. (Mike O'Dell said that.) And the key
property of the Internet -- stupidity in the middle -- that
caused it to become the greatest legal wealth creator in history
(John Doerr said that), slips away.
Maybe Leo Hindery knows this already. If so, he really is a
fast learner. And maybe George Gilder will help him learn more.
Gary Winnick founded Global Crossing on a rock. Leo Hindery is
no Winnick, but it seems to be dawning on him that his
superstructure doesn't need much filagree to deliver the bits.
QUOTE OF NOTE -- Nicholas Negroponte
"If you want to do one thing to change the economic
future of a country, change to an unmetered charging
system for local phone calls." Nicholas Negroponte,
quoted in Financial Times 8/22/00
SMART REMARKS FROM SMART PEOPLE
["Former AT&T employee" now working for a major Japanese
corporation sent me a copy of an angry letter from the
Comptrollers of New York City and New York State to AT&T CEO
Mike Armstrong (9/22/00). "We are troubled by the continuing
decrease of the value of our investments in [AT&T]." the letter
said. It expressed concern that certain AT&T strategic options
might, "undermine fundamental principles of good corporate
governance," and "could be detrimental to the interest of long-
term investors". -- David I]
"Former AT&T employee" writes:
"This is really embarassing. Armstrong should
consider himself lucky to have been born in Michigan
and not in Japan, otherwise he would have committed
Hara-Kiri by now."
Dennis Saputo, [Dennis.Saputo@moodys.com] defines "investment
"An investment grade (Moody's ratings of Baa3 to Aaa)
telco is a company that is perceived to have a
relatively small degree of investment risk and high
probability of debt servicing. [Such companies have]
a history of and an expectation for continued strong
and predictable revenue, earnings and cash flow
generation relative to debt burden.
"Clearly technological developments are threatening to
turn highly profitable incumbent telcos into 'also
rans'. Such companies [have questionable ability to
meet new] challenges and sustain their business,
competitive and financial positions.
"At this point in time though, it is clear that telcos
rated investment grade will be able to meet at least
some of the market challenges and capitalize on at
least some of the new opportunities that are
developing in this industry."
[Oh yeah? Wave after wave of disruptive technology crashes over
the industry, each dissolving profits and eroding once-solid
ground. Today, Ethernet technology is moving into the long-haul
network so fast that 5-year SONET and ATM equipment is
threatened. What's next? The hardest job in the world must be
telco CEO. Or maybe telco financial advisor. -- David I]
Raj Singh [firstname.lastname@example.org] writes:
"If you think Air Traffic Control is bad in the USA
(see SMART Letter #44: Move Air Traffic Control to the
Edge, September 10, 2000) try Europe. Every national
government runs its own FAA equivalent. Getting
clearance for a London-Frankfurt flight requires
asking multiple ATCs - none of which are up to date,
or able to cope with the volume of traffic. Result:
predictable delay, often longer than the flight
"Here in the UK, we are in the process of privatising
the CAA, in hope of gaining efficiency. Your comments
apply, except that efficiency inside the UK would not
affect most international (European) flights.
CONFERENCES ON MY CALENDAR
October 31, 2000. New York City. Merrill Lynch TechBrains,
featuring some of my all-time heros like Gordon Bell, Clayton
Christensen, Phil Neches and Don Norman. I'll beat the drum for
IP-Ethernet-Optics from 1:35 to 2:15. To get in, contact
Vanessa Brown, 212-236-7072, email@example.com and tell her
the name of your Merrill Lynch representative.
November 5-9, 2000. Rose Hall, Jamaica. Porter Stansberry's
Pirate Investor's Ball, featuring Eric Raymond, Tom Petzinger,
Porter's impressive research director David Lashmet, and yours
truly. Porter is a big-picture guy, a cross between George
Gilder and Tony Robbins, with a nose for leading edge values
in infotech and biotech. Contact Andrea Shaw,
November 13-15, 2000. Hong Kong. Jeff Pulver's VON Asia.
VON stands for Voice on the 'Net. It's the premiere Internet
Telephony show in the U.S. and Europe; this is the first Asian
VON. I'll be doing a panel, subject TBD. (I've suggested to
Jeff that it be called XON with X unknown.) For more, see
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Copyright 2000 by David S. Isenberg
firstname.lastname@example.org -- http://www.isen.com/ -- 1-888-isen-com
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-- The brains behind the Stupid Network --