SMART Letter #57
June 18, 2001

!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()              SMART Letter #57 -- June 18, 2001 Copyright 2001 by David S. Isenberg -- "innovative as an orthodox undertaker" -- -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > There's No Fiber Glut in My Neighborhood! > If It's Broke, Don't Fix It > Smart Remarks from SMART People > Mike Davey on Fiber Depreciation > Steve Goldstein on interconnecting Customer-Owned Networks > Robert Berger on Microsoft's plan for Info-Dominance > Conferences on my Calendar > Copyright Notice, Administrivia ------- THERE'S NO FIBER GLUT IN MY NEIGHBORHOOD! The articles in today's Wall Street Journal ("How the Fiber Barons Plunged the U.S. Into a Telecom Glut") and today's New York Times ("Once Bright Future of Optical Fiber Dims") almost sound as if they were written by the same person. Oh, woe, woe, woe, the future of telecommunications is dark, dark indeed, the reader is led to conclude. These tales remind me of the Great Depression story of dairy farmers dumping their milk in the gutters while people starved. The problem is how to get all that bandwidth to us bandwidth- starved regular folks. The people that need it will gladly pay for it -- at the right price, of course. If it is really available, of course. Last I checked, 100 million U.S. households times 12 months was a multiplier of 1.2 billion. Last I checked, people were still buying DSL and cable modems at record rates, even though these half-fast decade-old technologies have serious deployment and performance problems. At AT&T, around the time when the Telecom Act of 1996 was being debated, dealt, whelt and finally passed, there was talk of "rational competition". Rational competition was genteel -- it was small-club insider competition, incremental competition, compete-and-then-have-a-round-of-golf competition. "Irrational competition", by extension, was the kind of competition where some companies actually lose and go out of business. The problem is not fiber optic technology. It has nothing to do with the fact that only 2.5% of the fiber is lit. The problem is that the incumbent telcos can't keep up. Yesterday's leading-edge technology is today's stranded asset. Yesterday the telecom incumbents could charge $4.95 a month for Caller ID. Today, caller ID is just ten free bytes of all-you-can-eat data. Yesterday Phil Anschutz and Joe Nacchio built a brand new long distance network that collapsed the price of long distance. Today metropolitan fiber threatens to give every house more bandwidth than a Central Office for a few hundred bucks a month -- or less. "Slooooowww dowwwwwnnnn," the telcos say. The New York Times and the Wall Street Journal put the story on Page One. What's good for SBC and Verizon is good for the country. The United States of America can't afford to let The Tried And True Telephone Network fail. The problem is hurtin-puppy investors. Not just the little puppies, big dogs too. Markets move in boom-and-bust cycles, according to what everybody thinks everybody else is buying -- or selling. Level3's intrinsic value wasn't $130.00 a share in March of 2000 and it isn't $6.00 today. Nortel is no more worth 80 than it is 8. "Owwwwwwww!" say the investors. They're howling at the moon -- and at their congress-critter -- and at any news reporter who'll listen. When we were on the exuberant side of the cycle, it was good to be irrational. It was like being in love -- you can't be in love without being exuberant and irrational. Things were moving towards the new, towards change, towards the future. Small, potentially disruptive companies found it easy to get funding -- perhaps a few too many got funded. Now that we're on the irrationally depressed side of the cycle, it will be hard to advance at a pace commensurate with technological progress. It will be hard for small companies to get a foothold. It will be hard for "irrational" innovation to take root. It is easier for the big old dour established incumbents to hold back -- and control, if not strangle -- the future. To hell with exuberance. The incumbents will insist on genteel, even-keeled, predictable, controllable, rationality. I hope that somebody tells Simon Romero at the New York Times and Rebecca Blumenstein at the Wall Street Journal -- and their editors -- that there ain't no fiber into my house yet. Tell them that I'll be happy to pay for it and invest in the companies that are bringing it to me. ------- IF IT'S BROKE, DON'T FIX IT. by David S. Isenberg Some of the world's best network engineers believe that the Internet is broken. You can show them half a billion users and twenty years of double- and triple-digit growth. You can show them email and ecommerce and eBay. You can show them a million U.S. kids who rush home after school to Instant Message (IM) their friends, or a million Japanese kids who IM on the go. But it doesn't matter. To some people -- really smart people -- the Internet is broken and always has been. In the 1960s, managers of the AT&T Bell System would not cooperate with early work on packet switching, claiming that it would never work. Fast forward twenty-five years. Bob Metcalfe, who invented Ethernet, declared in 1996 that the Internet would crash under its own weight. He was concerned that the Internet had no unified process for circuit inventories, traffic forecasts, or outage reporting. Famously, he ate his words -- and the paper they were written on -- in 1997. To Bob's surprise, the Internet continues to scale. Meanwhile, Bob's baby, Ethernet, looks like the earthquake that will trigger the next tsunami of uncontrolled Internet infrastructure growth. Sven-Christer Nilsson, the former CEO of Ericsson, in 1998 allowed as how the Internet might be useful if it had circuit-like latency and a way to bill by the minute. Perhaps he's still waiting for the Internet to be useful. Larry Roberts did some of the first work on the Internet at MIT for the U.S. Government. Now his company, Caspian Networks, aims to fix the Internet by making switches that are aware of the content they're carrying. He says, "Finally the Internet will get Quality of Service with guaranteed rate service for voice and video plus minimum rate guarantees for interactive data." These guys are right. The Internet *is* broken. But beware the fix! Somehow Tom Evslin has escaped the expert's desire to fix the Internet. Evslin helped build the original Microsoft Network and honchoed AT&T's first public Internet service. Today he heads Internet telephony wholesaler ITXC. He says "The fact that the Internet doesn't 'understand' the content it carries is why it can support applications its designers never envisioned." Fixes aimed at increased efficiency, Evslin explains, "will cost incalculably more in loss of future flexibility and scalability. This isn't just theory; we've seen how fast the Public Switched Telephone Network (PSTN) has ossified, precisely because its applications are embedded in its structure. At ITXC voice on the Internet is how we make our living. But the Internet wasn't designed for voice, and we didn't have to wait for the Internet to be 'enhanced' for voice." In other words, being broken is the Internet's main strength. The very fact that it can be broken (or slow, or traffic-jammed, or . . . ) and still do useful work is the key to its usefulness, success and scalability lo these last decades. 'Fixing' the Internet could kill it. But, then again, maybe that's just what telephone companies want. [This article either has appeared or will appear soon in The Euronet and/or TelePress Latinoamerica. It is probably copyright 2001 Advanstar Communications, and it is (p)re-printed here with the permission of the author.] ------- Smart Remarks from SMART People Mike Davey [] responding to my claim in SMART Letter #56 that fiber is a 20 year asset, writes: "Level 3 believes fiber has a SIX to SEVEN year life. And Level3 thinks this has tremendous implications for those who believe otherwise." Steve Goldstein [] writes: "I do not disagree with the story about customer-owned networks [in SMART Letter #56] at all. But I keep wondering how a process in St. Paul, for example, will be able to communicate with processes in Tsukuba or Capetown or Dortmund without something stable in the middle (analogous to what used to be called the InternetCore). ISP [confederation]s with global reach could provide this. "Customer-owned networks that, like neurons, interconnect dendritically with each other could probably provide regional interconnectivity -- later rather than sooner. Maybe the old UUCP model would even o'erleap oceans, though I cannot envision how self-organized grand scale macro-connects would provide service of sufficient quality for many needs. So I keep coming back to the need for ISPs of global reach and the accompanying control infrastructure (e.g., DNS, inter-provider MPLS, etc.)." Robert Berger [] writes: "In your MICROSOFT DOES TELEPHONY [SMART Letter #56] I think you are giving Microsoft too much slack. Right after I read the SMART Letter #56, I got DaveNet from Dave Winer. "Dave Winer is one of the leaders of P2P software development, a field that is now being co-opted by Microsoft as part of Hailstorm / Passport. In the past, Dave has always given Microsoft the benefit of the doubt. I suspect that Dave has now been 'embraced and extended' by Microsoft. In the latest DaveNet, he called for the 'corporate death penalty' (beyond just a breakup) for Microsoft. "Also see Clay Shirky's overview of Hailstorm and Passport at It is another explanation of how Microsoft is attempting to extend its monopoly over our own data and take control over much of the Internet. "Yes, its true that the ILECs are monopolists that should be taken down, but Microsoft is attempting is to be THE gatekeeper of personal information and content on the Internet. They must be stopped before they can't be stopped. "Microsoft excels at the ability to smooth talk the innocent, then squash them when they are no longer needed. Microsoft is willing to do anything to win. You might want to read "Barbarians Led by Bill Gates: Microsoft from the Inside" ( by Jennifer Edstrom, who worked at Microsoft and is the daughter of Microsoft's main PR person. One of the main things that I found in the book was documentation that Microsoft purposefully obfuscates its APIs, file formats and other interfaces to make it more difficult to interoperate with (and also force upgrades between versions). "Even better is "The Microsoft File : The Secret Case against Bill Gates" ( by Wendy Goldman Rohm.This gives a good historical background on how Gates initialized his monopoly through backstabbing and ultimately sucker punching IBM and their other competitors. The 'common wisdom' is that Microsoft competitors can't just compete and that Microsoft wins fair and square. But the real story is that Microsoft was able to consolodate its monopoly by dirty tricks during the transition from Windows 2 - Windows 3 by using OS/2 as a smoke screen. "During the early OS/2 time period Microsoft was saying publicly that Windows was being wound down and OS/2 was the future, getting all the other independent systems vendors to put their energy into developing their next gen products for OS/2. In reality Microsoft was doing minimal development on OS/2 (guaranteeing it would be late to non-existent). At the same time Microsoft was developing Windows 3.0 and Office apps for Windows 3.0. They then were able to announce Windows 3.0 with a complete set of Office apps, diss OS/2 and watch their competitors go down the drain since they had no development efforts in the pipe for Windows 3. "Today all Microsoft has to do is stall attempts at government control until it has achieved enough ownership/gatekeeping momentum to shape public perception. Then we truely enter a dark ages of not just computing, but of entertainment, news, and public discourse, all mediated by Microsoft. "That is why MS should not be cut any slack for having "cool" technology or "just following the American Dream of success" or "winning fair and square". They are out to win and squash anyone who gets in their way." [Note: Robert Berger is co-founder of UltraDevices and I am on the UltraDevices Advisory Board. There's no question in my mind that Microsoft is a ferocious, winner-take-all er, um, [compet-, pred-]itor. Microsoft is not nice to its enemies, or to companies with technologies it wishes it had. And the recently-reported browser capability that lets Microsoft "improve" websites by marking them up without the owner/author's permission is chillingly scary. But I still think that one Microsoft will bring the future faster than half a dozen telcos. -- David I] ------- CONFERENCES ON MY CALENDAR July 1-2, 2001, London UK. World Technology Summit and Awards. I will be giving a keynote speech on the usual topic(s). Twenty-four awards will be made for technologic contributions in almost every human endeavo(u)r. Find out more at October 18-20, 2001, Sarasota FL. Gilder Fellers technology investor's conference. Gilder and other notables will be there. I'll be Moderator. In other words, I'll be trying to get the participants to hold down the hype, jargon, positioning and techno- babble so the individual investors in the audience will understand. Some might argue that this'd be like the pot calling the kettle . . . For information, contact Joel Srodes []. ------- 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 2001 by David S. Isenberg -- -- 1-888-isen-com ------- [There are two ways to join the SMART List, which gets you the SMART Letter by email, weeks before it goes up on the web site. The PREFERRED METHOD is to click on and supply the info as indicated. 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