SMART Letter #51
January 27, 2001

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------ SMART Letter #51 -- January 27, 2001 Copyright 2000 by David S. Isenberg -- "the incumbent behemoth in our space" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > 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: :-( (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 Carrier). 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 last mile. 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 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 tml). (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 boots. 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 information. 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 marketplace exists. 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 this: "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 three places: and 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 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- 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 ( 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 was there. The Daily Davos, MSNBC's tentacle into the World Economic Forum, published my article, "Big Telco's Last Gasp" 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 paragraphs: " 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 add value." ------- 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 extremely dangerous." 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 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, Inc. ------- 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 ------- 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 -- **