SMART Letter #51
SUDDEN ABUNDANCE AND ITS ENEMIES
January 27, 2001
SMART Letter #51 -- January 27, 2001
Copyright 2000 by David S. Isenberg
isen.com -- "the incumbent behemoth in our space"
email@example.com -- http://isen.com/ -- 1-888-isen-com
> Quote of Note: William Kennard
> Sudden Abundance and its Enemies, by David S. Isenberg
> Quote of Note: Dan Gillmor
> Now the Good News
> 100 Mbit/s for $100 a month
> The U.S. Government: Here to Help You
> Quote of Note: Clare Short
> How I Beat the Barbed Wire at Davos
> Site for Sore Eyes: Despair.com :-( (R)
> Conferences on my Calendar, Copyright Notice, Administrivia
QUOTE OF NOTE: William Kennard
"I'm hearing a lot of rhetoric about the FCC becoming more
business-friendly. I get concerned that 'business-friendly'
is friendly to the incumbents and not the new entrants."
Outgoing FCC Chairman William Kennard, in an interview with
the Financial Times, January 21, 2001.
SUDDEN ABUNDANCE AND ITS ENEMIES by David S. Isenberg
Professor Carver Mead tells us "Listen to the technology."
But when technology brings sudden abundance, the protests of
threatened incumbents who deal in yesterday's scarcities can
drown technology's voice.
Purveyors of yesterday's scarcity-based value are trying to
defend their disappearing turf. Below we explore how this is
happening in two of my favorite places, in basic network
connectivity and in entertainment publishing.
INCUMBENTS REACTIVISM AND NETWORK CONNECTIVITY
There's a reason who Moore's Law is about speed and Moron's
Law is about dithering and delay. (Moron's Law: "In 18 months
the telco will give you whatever it wants to give you.") In
computing, incumbents couldn't impede progress much. Products
in the market could follow technology's progress as systems
devolved from proprietary solder jobs to retail, piecemeal,
interfaced assemblies of components. At appropriate times,
IBM refocused, DEC dissolved, and the BUNCH took a walk in the
snow, all in response to market forces. Computer progress
didn't stop. New companies came to the fore.
In contrast, progress in communications networks is more
fragile. Incumbent reactivism is a greater threat. Existing
regulations (and the governmental institutions around them)
favor existing business models. The story of the e-rate bears
witness -- e-rate is that part of the 1996 U.S. Telecom Act
designed to connect schools, but it functions to subsidize the
incumbent service model, excluding newer approaches, to the
tune of US$2B a year. This $2B a year would buy a lot of
connectivity if it were spent in a non-recurring manner on
self-built radio or fiber networks. But the law says,
"Service" and we spell that I-L-E-C (Incumbent Local Exchange
Technologically speaking, basic network connectivity is
getting easier and easier. LAN technology is practically
plug-n-play. Technologically speaking, anybody can hook
herself or himself up to the Internet. The only thing in
their way is the incumbent telco, who stands at the last
(increasingly artificial) scarcity -- the access link, the
In Canada, reports Bill St. Arnaud (in the most recent Cook
Report on Internet), when non-dominant carriers told the
incumbent telco they wanted to install fiber on their poles,
"one of the stalling tactics used to be to tell
the entity that wanted to string fiber: 'the weight
of your fiber is too much for the pole to bear.
You [must pay us to] replace the pole with a
stronger device that can carry more weight.'
Or they might say, 'There is no space left on the
pole.' Or [a new carrier] might make an application
to attach to the poles and find they would take a
year to respond."
Fortunately, the CRTC (the Canadian version of the FCC) got
wise. Friendly pole attachment policy was helped along by
Canadian cable TV, which wanted its place on the pole. The
CRTC could act definitively because it was a single, more-or-
less unified regulatory agency (not a U.S.-style hodge-podge
of local, state and national regulatory bodies). Furthermore,
the CRTC could see the economic advantage of a reasonably
priced cable TV rollout across all of Canada. So it set
regulations -- and prices -- that made it practical for
competitors to attach their cables to existing poles.
My friend Porter Stansberry, promulgator of Porter
Stansberry's worthy Investment Advisory newsletter
(subscription required, see http://pirateinvestor.com/) would
observe that pole attachment regulations are tantamount to a
government taking. Indeed, he's asked me if I'm against
private property. No, Porter, I love private property,
especially my own. Private property is the Great Motivator.
But let's face it, property, even private property, is subject
to government regulation. Want yellow headlights on your car?
Sorry, only white and awful-purple allowed. Want to paint
your house Day-Glo yellow with lime green polka dots? Sorry,
guess again (unless you live in the boondocks). Have
something that looks like a roach in your car's ashtray? Bye-
bye car. Taking your underwear on the airplane? Run it
through the machine or don't fly. Want to take your money out
of the bank in cash? Explain it to the FBI. Have a dog?
Need a license. And so on. Regulations on private property,
good, bad and ugly, exist.
The telephone poles on my street fall into a fuzzy area
between private and public. My street is public. The
government provides for the Phone Company to put poles on this
public property. In return, government requires the Phone
Company to give other entities access to these poles. So now
that we've established what you are madame, we are only
negotiating the price.
Setting the price for pole attachment is a matter of public
policy. We want to make it easy to get the latest, greatest
services delivered over the most bandwidth for a price that
reflects the ever-plummeting costs of connectivity. We also
want to fairly compensate pole providers for the use of their
assets, so they don't pick up their sticks and go home.
It is a balancing act. New technology holds its exponentially
heavier thumb on one dish of the scales. Why, heck, we'd even
buy Ethernet-over-fiber from the Phone Company, if they would
sell it. But the milk of disruptive innovation doesn't flow
from cash-cows. Telcos understand that prices of a few
dollars per megabit will destroy their kilobit-flavored voice
service, so they've parked their flabby rate of return on the
other side of the scale.
The specifics devolve into Byzantine details of U.S. law from
1934, 1978 and 1996, with layers of lawyers, court
interpretation, appeal and dissenting opinion. Net-net, the
FCC, like the CRTC, has tried to keep pole attachment rates
low so existing poles can be used for new services, i.e.,
cable-TV-based Internet access. But pole owners from Alabama
Power to Virginia Electric sued the FCC, saying that the 1996
Telecom Act only gave the FCC authority to set rates for Cable
TV, not for Internet services carried on the same cable.
Yahoo News (Jan 22) reports that pole attachment rates for
cable Internet service could go up by 5x (see
(Disruptive access providers often have strange bedfellows.
AT&T and AOL/TW are rooting for low pole-attachment fees too.
Perhaps the new guys can expect a slingshot effect from a low
approach to these dense bodies.)
The U.S. Supreme Court will hear the pole-attachment case in
2001 (along with other contentious issues around the
unbundling (or not) of the existing network). It looks like
the best outcome of the case will be status quo. It is more
likely that the same Supreme Court that brought us George II
will make it more difficult for new access providers to serve
our houses. The ILECs are already out shopping for cowboy
I agree with Porter Stansberry when he says that governments,
because they're not responsive to market forces, are capable
of making big, persistent mistakes. I agree even more when he
says that a marketplace is the best way to convey commercial
But a free market in pole attachment would mean that there
might be five or six pole-owners on my street (and five or six
times more poles) competing for the next wire-slinger's
business. Ain't gonna happen. There's no marketplace in
local connectivity services if there is no customer choice.
Until we can shop a bazaar of fiber, wireless, cable and
copper-based connectivity (all of which will benefit from
competition-friendly pole attachment regulations) no
The United States is too self-satisfied about its Internet
leadership, even post-bubble. Let us not forget that U.S.
Internet success is built on two critical regulatory
foundations: (1) flat-rate local calling and (2) enhanced
services rules. The ILECs won't admit to fathering either of
these and they don't love them. Yet the ILECs, left to design
their own best-of-all-possible-worlds would not have created a
fraction of the value that these two regs did.
Tomorrow's progress in networking technology will appear first
in countries with innovation-friendly policies. When the
United States finds that it is falling behind, will it rush to
catch up or will it do what incumbents usually do?
INCUMBENT REACTIVISM AND DIGITAL PUBLISHING
Entertainment publishers (including book, music, video
publishers, etc.) are in business to copy and distribute works
of art. Now comes perfect copies and virtually free
distribution. Whoops! There goes the business model.
Incumbents reacted with SDMI and DMCA. SDMI (Secure Digital
Music Initiative), an industry music coding initiative, seems
to have failed -- MP3 became too pop to stop. I was lulled.
I slept through the warnings of the Electronic Frontier
Foundation (EFF) and others on the Digital Millennium
Copyright Act (DMCA), which became law in 1998.
Hey, wake up Isenberg! The DMCA is actually dangerous to free
speech! Its ugliest feature is that it criminalizes
circumvention of access-limiting technology. (So now SDMI-
like initiatives have a chance.) The giants of digital
publishing in alliance with Intel, IBM and others, now
threaten to make access control part of generic industry-
standard storage devices, such as hard disks. In other words,
you can have a file on your computer, but you have to ask
somebody else for permission to open it. The DCMA would make
it illegal to write or run software to de-protect files on
your own disk.
I'm no lawyer (and I've made egregious legal interpretations
in this space before), but the way I understand the DCMA's
anti-circumvention provisions, a generic disk that doesn't
have access protection could be illegal if it is *marketed* as
"without copy protection." So don't even think about it.
John Gilmore, in a widely distributed essay entitled "What's
wrong with content protection," sums up the situation like
"We have invented the technology to eliminate
scarcity, but we are deliberately throwing it away
to benefit those who profit from scarcity. We now
have the means to duplicate any kind of information
that can be compactly represented in digital media.
We can replicate it worldwide, to billions of people,
for very low costs, affordable by individuals . . . We
should be rejoicing in mutually creating a heaven on
earth! Instead, those crabbed souls who make their
living from perpetuating scarcity are sneaking around,
convincing co-conspirators to chain our cheap
duplication technology so that it WON'T make
copies -- at least not of the kind of goods THEY
want to sell us. This is the worst sort of economic
protectionism -- beggaring your own society for the
benefit of an inefficient local industry. "
Gilmore is not talking about the so-called piracy of
copyrighted materials. Rather he is talking about the efforts
of media giants to extend copyright privileges by building in
copy protection that goes beyond the intent of the current
law. His whole rant, required reading, is found in at least
Gilmore reminds us that copyright law and freedom of speech
are in conflict -- the more we have of one, the less there is
of the other. In fact, copyright power is defined in terms of
this very trade-off in the U.S. Constitution, which grants
Congress the power, "To promote the progress of science and
useful arts, by securing for limited times to authors and
inventors the exclusive right to their respective writings and
discoveries . . . "
When big media invokes property rights, I find it goadingly
hypocritical. Big Media is built on abuse of property
created by authors, musicians and other artists. Watching Ken
Burns' "Jazz" on TV last night, I learned that the 1930s
featured a two-year musician's strike because record companies
wanted to keep making money from playing artists' works
without paying the artist when they did. If you saw SMART
Letter #42 http://isen.com/archives/000719.html you already
know my feelings on this. And Courtney Love's rant at
still burns with righteousness, passion and truths that the
incumbent publishers won't tell you.
People won't stop creating music, TV, movies, cartoons, novels
and other works of art. If the publishers of the world went
away, artists wouldn't miss a beat. People won't stop
listening to music, watching TV, and reading entertaining
words. New business models will emerge in response to
technology's new abundances to support the arts and artists --
if given the chance.
But incumbent publishers, aided and abetted by the Digital
Millennium Copyright Act and the computer industry, are making
it illegal for anybody to take them out of the loop. If we
can't circumvent the incumbents, we can't do anything truly
new. That's OK, we're happy with the way things are, right?
QUOTE OF NOTE: Dan Gillmor
"Just as a stopped clock is precisely accurate twice a
day, markets hit equilibrium briefly on the way up and
the way down."
Dan Gillmor, San Jose Mercury News, December 16, 2000.
NOW FOR THE GOOD NEWS
100 MBIT/S FOR $100 A MONTH?
I got a call from Joe Kilsheimer of e-xpedient (http://www.e-
xpedient.com) who told me about e-xpedient fixed-wireless 100
Mbit/s Internet connectivity service. Prices start at
$100/mo. Cool. But there are strings (maybe ropes) attached.
First, the whole system's "backbone" runs at 100 Mbit, so
actual access speeds depend on system load. If you want 100
Mbit for any extended period, that'll be at 3:00 AM. Second,
there's a bits-per-month budget. Joe couldn't find out what
the bit-budget was by press time (I'll tell you when I find
out) but he said that if you exceed it, the next level of
service costs $250/mo. Third, the service is only available
in Big Shiny Buildings. E-xpedient has rolled out Salt Lake
City, Cleveland, Oklahoma City, Jacksonville and Orlando, with
a bunch of bigger cities (e.g., Miami) waiting in the wings.
Still, 100 Mbit access, even in small bursts, is better than
what most of us have. And $100 is pretty darn cheap (next to
DSL, Teligent, Winstar, etc.) if the bit-budget is reasonable
and back-end Internet connectivity isn't too stingy.
The e-xpedient access network is laid out as a point-to-
consecutive-point ring. This configuration was developed by
Triton Network Systems (http://www.triton-network.com) for
redundancy (the ring is bi-directional) and to be reliable in
the weather (because rain dense enough to interfere generally
occurs in localized cells). Kilsheimer claims 5 nines
reliability (yeah, sure). He says that it is easy to split
one ring into two if the air gets too busy -- a split usually
takes just one more pair of radios. Connection is via
Ethernet, so Kilsheimer says that you just unplug your old
Internet access, and drag your RJ-45 to the e-xpedient box in
your Big Shiny Building. Then you dial e-xpedient's auto-
provisioning voice response system, key in your credit card
number and you're on the air.
Is it as good as all that? I'll give it a closer look. It
might be something to connect with while we're waiting for the
**really** cool access to arrive.
THE U.S. GOVERNMENT: HERE TO HELP YOU?
In the Gates era, how does a Rockefeller get respect from the
tech set? U.S. Senator Jay Rockefeller has introduced the
Broadband Internet Bill of 2001, see
It will give a 10% tax credit to companies that bring today's
broadband technologies to under-served areas and a 20% credit
to companies that bring "next generation broadband" to
residential customers. It has lots of co-sponsors in the
Senate. I'd like to think this is good news, but I smell
bacon cooking in the back room. What's to keep the ILEC from
saying, "We're already doing that," and passing this little
morsel of corporate welfare straight through to the dividend?
HOW I BEAT THE BARBED WIRE AT DAVOS
The Titans of the New Economy might've been able to meet in
Switzerland this week without any Bushies, but isen.com was
there. The Daily Davos, MSNBC's tentacle into the World
Economic Forum, published my article, "Big Telco's Last Gasp"
http://www.msnbc.com/news/522489.asp in which I distil my
message (familiar to anybody who has read this far) for those
privileged enough to deserve an invitation. A couple of
" On the local front, the most robust value is created
by connectivity - via dial-up, DSL, cable modem,
wireless and, best of all, fiber. But many of the
companies in this space, incumbent and competitive,
traditional and new, continue to pursue the old vertical
integration habit. For example, when the telco wants to
put a network interface box on the side of your house,
it is interposing its own service categories (telephony,
TV, on-line service) between the customer and the Internet.
WAP offers a similar example, interposing a proprietary
telco platform between the wireless customer and the
Internet. As yet another example, cable TV companies use
their cable modem service platform to interpose certain
restrictions (e.g., on video clips) while favoring other
'partner' content using preferential caching. These are
all attempts to pull value back from the edge of the
network to its core.
" Vertically integrated business models like this may
look good in the short term, but they are destined to
fail. Their only long-term hope lies in relying on
government regulations and the abuse of monopoly position
to stifle competition. That's hardly a shining - or, one
would hope, sustainable - strategy. But what else is there?
The miraculous success of the Internet is based on clear
separation between commodity bit-carriage and value added
services. And telcos are simply not in the right place to
QUOTE OF NOTE: Clare Short
"The biggest moral issue facing the world is that one
in five of humanity live in desperate poverty in a world
of growing abundance. That's morally repugnant and
Clare Short, UK minister for international development in The
Daily Davos, Jan 25, 2001.
SITE FOR SORE EYES
If you're suffering from a frustrating job at a declining
company, you can reinforce your feelings at
http://www.despair.com/. Instead of working, you can check
out the Demotivation posters (e.g., "Dare to Slack"), wallow
in Pessimistic Visions (e.g., "Futility: You always miss 100%
of the shots you don't take and, statistically speaking, 99%
of the shots you do"), read about their registered trademark
:-(. Legal notice: :-( is a registered trademark of Despair,
CONFERENCES ON MY CALENDAR
February 24 - March 2, 2001, Kuala Lumpur, Malaysia. APRICOT
is the Asia Pacific Regional Internet Conference on Operating
Technologies, and I'll be giving one of the keynotes. The
Asian Internet is on the steepest part of the S-curve these
days! For information, see http://www.apricot2001.net
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Copyright 2000 by David S. Isenberg
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