SMART Letter #47
October 25, 2000

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------ SMART Letter #47 -- October 25, 2000 Copyright 2000 by David S. Isenberg -- "take the work out of network" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS >"Network Guru Wonders" by Scott Moritz, > Conferences on my Calendar, Copyright Notice, Administrivia ------- "Network Guru Wonders Whether Split Is Enough to Turn AT&T Around" by Scott Moritz, Senior Writer,, 10/24/00 3:03PM ET, [When people in my business begin believing flattering adjectives flung by the press they lose their edge. My edge is gone. I'm proud to own: "Today, probably no one can more fittingly [tell AT&T], I told you so." But I'm not gloating. Companies die; it is sad. I just provided an early diagnosis of the fatal disease. -- David I] "Now that AT&T (T:NYSE) has reportedly come to terms with its fate, a four-way breakup, it's a good time to chat with networking visionary David Isenberg, of After 12 years with Telephone as lab geek cum in-house provocateur, Isenberg overstepped his bounds and was shown the door in 1997. [Not! Well, maybe. As Bob Lucky says, "Sometimes it is hard to know when you're fired." -- David I] "His crime? Confronting Ma Bell with what now appears quite obvious. In his notorious essay The Rise of the Stupid Network, Isenberg wrote that AT&T had engineered itself into obsolescence and that the rise of the Internet would quickly reduce its empire to rubble. "In a conversation with's Scott Moritz, Isenberg offers his thoughts on his old firm and a prescription for its survival. Isenberg, a longtime advocate of a breakup of the old phone giant, says AT&T is just now realizing the world has changed and that its adjustments may well be too late. [Well, I don't think I am a "long-time" advocate, but I did start saying, "break it up" long before last weekend. -- David I] "TSC: You got slapped aside for trying to point out a new networking opportunity to AT&T. Today, probably no one can more fittingly say, I told you so. I know there is some sense of vindication in that, but I also know you have mixed feelings about the company where you spent 12 years of your professional life. "Isenberg: Yes. Increasingly, though, the sadness fades as the immediacy of the personal relations I established at AT&T recedes into the background. And many of those people who I associated with AT&T have moved onto other positions outside the company. In fact, the company is a different company than the one I quit. "TSC: Three years later, it looks like AT&T is failing from the very things that you laid out. The stock is down to a three-year low, the gold- plated long distance service is now an anchor around AT&T's neck, and the pricey entry into cable is still unproven and one of the most second-guessed moves in modern corporate strategy. So if they came to you, now that you are an established expert guiding new technology companies in the Internet era, [That Moritz sure can lay it on thick (and his editors let him get away with it :-)). -- David I] and they asked you for advice, what would you tell them? "Isenberg: I'd say break it up, spin it out, sell it off, reorganize it. They've got to face the fact that the value proposition that built their company is over. "They have to figure out what they have that's relevant to the New World and optimize that and quit trying to recreate the Old World. "TSC: For the uninitated, Isenberg's belief, which will be featured in an upcoming Streetside Chat, is that the abundance of network capacity rewrites the rules for network services. The overmanaged per-minute communications traffic flow that travels as though through a cocktail straw will give way to limitless bandwidth, which in turn opens the door to new network business models such as peer-to-peer file swapping and the like. [Since you SMART People are not "uninitiated", you probably realize that abundance is not the only thing pushing value creation to the edge. Internetworking, which makes network-specific differences irrelevant (even value-added network-specific differences) also has something to do with a facility owner's inability to continue "business as usual". -- David I] "Isenberg: AT&T is almost literally like a dinosaur. It's been hit in the tail for years with this Internet growth thing, and the signals are finally getting to its brain and it's about to turn around. But the thing that was wiggling the tail may be moving on. It may be that there's yet another market logic that's coming into place. [C. Mike never got the culture thing. Middle management's job is to defend its turf, even when it's not in the best interests of anyone else in the company. Armstrong is a product of this culture -- whadaya think of this here polluted water, Mr. Fish? -- David I] "TSC: Under C. Michael Armstrong, AT&T took the approach that it would be the all-communications- service provider. But as we have seen, AT&T's offerings are still fractured and it's not even clear people want all their services from one provider. Now suddenly, separate is better. What's going on there? "Isenberg: AT&T is still chasing that goal of being an Internet-oriented growth company. They want to be there. So they're trying to lose the long distance business because its slow growth is dragging AT&T's share price down, even though it has healthy cash flow. "There's another reason for the company to be breaking up, because you can't manage for both cash flow and for growth. So, fundamentally it's a correct strategy. The problem with it is the timing. "They've got to find new businesses, and those are going to have different profit margins. Businesses that are associated with owning wires and switches are going to have much, much lower profit margins. The ones that have the potential to create huge value -- at the edge of the network -- are going to be hobbled by their association with the company that owns wires and switches. "TSC: Can AT&T pull this off? "Isenberg: With its once heavier cash flow from long distance, AT&T could literally afford to make mistakes, or to make nonoptimal purchases. "Now, once it gets rid of the cash flow, and its only lifeline to the market is growth, well, then they're going to have to perform, and I'm not sure they remember how. Especially when almost all the good people have already left." [The article above appeared without my snide comments at this URL: It is almost certainly Copyright 2000 by and used here because I don't think Cramer is gonna sue me. -- David I] ------- 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 hear that unpredictable things can happen when you get Bell and Christensen in the same room!) I'll beat the drum for IP- Ethernet-Optics from 1:35 to 2:15. To get in, contact Vanessa Brown, and tell her your contact info and 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 November 28-29, 2000. Montreal PQ. THE NETWORKED NATION: CANARIE's 6th Advanced Networks Workshop. I'll be speaking, and so will Francois Menard, Paul Hoffert and other (mostly Canadian) folks who are honing Canada's leading edge. SMART People will remember that last year the word from CANARIE was Ethernet (see CANARIE Sings -- SMART Letter #30, December 9, 1999). Months later the Ethernet story hit The New York Times and Business Communications Review. This year I hope to learn something about grids -- watch this space. ------- 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 -- **