SMART Letter #46
October 10, 2000

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------ SMART Letter #46 -- October 10, 2000 Copyright 2000 by David S. Isenberg -- "communication, not content" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > 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. ------- TELECOSM NOTES 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 the top. You can see the formal proceedings at, 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.] Here goes: --- 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, [] defines "investment grade telco": "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 [] 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 duration itself. "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, 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,, 410-223-2648. 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 ------- 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 -- **