!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() ------------------------------------------------------------ SMART Letter #76 -- October 5, 2002 Copyright 2002 by David S. Isenberg isen.com - "undeterrable" firstname.lastname@example.org -- http://isen.com/ -- 1-888-isen-com ------------------------------------------------------------ !@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*() CONTENTS > Announcing isen.com Trans-Pacific Tour > Quote of Note: Peter Kirstein on networking problems > George Gilder's Worst Mistake Ever > Partial Truth, the Last Mile, but Whose Shoes? > More Notes from Telecosm 2002 + from "The Blast" by Porter Stansberry + from Phil Becker's Digital ID World blog + from Shel Israel's Conferenza report on Telecosm + a note on Carver Mead's closing speech by David I > Quote of Note: Jenifer 8.Lee on '2 Much 4 Teachers' > If it's Funny it Must be True, by Scatt Oddams > Conferences on my Calendar > Copyright Notice, Administrivia ------- ANNOUNCING isen.com TRANS-PACIFIC TOUR [Note: Even though the route is now stable and the timing is probably stable, not all of these dates or engagements are confirmed at press time. I'd like to meet as many SMART People as possible enroute -- if you're free to visit (and especially if you have something constructive for me to help with!) please send email -- David I] + WED 13 NOV TO SUN 17 NOV: India (schedule starts in Madras, but mostly TBD) + TUE 19 NOV TO SAT 23 NOV: Tokyo (Glocom conference on 21 Nov, other events TBD). + MON 25 NOV AND TUE 26 NOV: Singapore, talk at Nanyang Technological University. + WED 27 NOV AND THU 28 NOV: Melbourne, talk at Monash University + FRI 29 NOV: Wellington NZ: CityLink. + SAT 30 NOV TO SUNDAY DEC 8: New Zealand, TBD. ------- QUOTE OF NOTE: Peter Kirstein "It used to be thought that the serious questions of computer networks were technical. It is now clear that most of the technical problems can be resolved, the difficult ones are managerial. Computer networks permit technically the connection of different geographical locations, different organizations and different countries. In principle, they permit separate groups to collaborate on the same problems. In practice, the very flexibility which becomes possible is combated by administrative restraints . . ." P.T. Kirstein, "Management Questions in Relationship to the University College London Node of the ARPA Computer Network", ICCC'76, Toronto, p.279. ------- GEORGE GILDER'S WORST MISTAKE EVER by David S. Isenberg George Gilder is one of the most exciting expositors of our age. He is often right, often wrong, always courageous and always provocative. His Telecosm concepts, formulated in Forbes Magazine over the last decade, are still directionally correct, never mind the hordes of investors- turned-detractors who lost billions on stocks Gilder touted. I've learned more from Gilder's mistakes than from lesser men's truths, even potentially disastrous mistakes like his support of re-monopolization of the Incumbent Local Exchange Companies. George Gilder's elegant, passionate, logical story of how Michael Milken created junk bonds, the financial innovation that funded MCI, TCI and the entire first wave of Communications Revolution storm troopers (http://tinyurl.com/1sh9), is a reprise of Buckminster Fuller's well-developed thesis that pirates cause progress. To Bucky Fuller, doing-more-with-less remains humanity's highest purpose. According to Fuller, the original dagger toting, grog swilling, eye-patched pirates were intelligent, independent sailormen who found contrarian success in an era when a castle's power came from thick walls, vile moats, and superior position in a static landscape. The ships of Europe's royal navies, said Fuller, followed the land-based bigger-is-better royal power model. They were floating castles. Swedish King Gustaf Adolph carried this strategy to maladaptive extremes when, in 1627 he insisted on adding a third gun deck to the war ship Wasa, then under construction. The ship's architects dared not contradict The King. As a result, on August 10, 1628, minutes into her maiden voyage, the top-heavy Wasa was hove down by an unexpected puff and sank in Stockholm harbor, drowning 50. Today the Wasa, recovered in 1961 and now fully restored, sits in a Stockholm museum as a monument to the failure of patrimonial authority. In disruptive contrast, pirates sailed lighter, faster vessels, ships that could sail to windward with increasing efficiently. They could sail up behind a ship of war and climb on deck to slit the throats of its well-disciplined crew with box cutters, even as its cannons remained carefully aimed at the horizon. Pirates traded mass for maneuverability and speed. Intelligence, not capital equipment, is why pirates could do more with less. When the bigger-is-better boys make the law, it is difficult to be light, fast, dynamic and maneuverable without breaking it. According to Gilder, Milken was among the first to use computers to deduce strategic direction and tactical advantage from data-driven financial scenarios. Milken's ability to sail against the economic wind ran afoul of the guys in the thick-walled financial castles. As a result, Milken did dungeon time. So here's an enigma: How can George Gilder be such a effective friend of the future, advocate of upstarts and defender of disruption, yet still be a source of inspiration for thick-wall folks like Ronald Reagan and Steve Forbes. (I'm pretty sure I know where Steve Forbes is coming from -- he believes that the best way to create wealth is to keep what you have.) I got a hint one day when George told me he was off to see Bill Gates because despite the Gilder-bashing of Microsoft, he and Bill were on the same wavelength when it came to getting the U.S. Government off of business's back. My best guess is that Gilder believes that big government is always bad and that business success is somehow, de facto, always morally correct. Now Gilder has a problem; he's just been to China and he loves it. With good reason! There's no telecom recession in China. In fact, telecom is booming. Shanghai's new skyscrapers have almost as much glass inside for communications as they do outside for windows. China is adding the equivalent of one ILEC worth of telephone landlines per year. As the Chinese middle class grows, 100 million current cell-phone subscribers will grow to 300 million by 2005. China is the future of the Telecosm, Gilder told the assembled faithful at Telecosm 2002 last week. Jiang Zemin is a visionary, a genius, he said. Shanghai and Shenzen were Telecosmic miracles. Gilder's problem is that the Chinese government owns 70% of China's telecom businesses. That's right -- they're not only the regulators, they own the networks. (I wonder how Gilder would react if the U.S. FCC proposed to own 70% of U.S. telcos!) If you distrust big government, the Chinese Ministry of Information Industry (MII, formerly the Ministry of Post and Telecommunications) is scary. Not only does it administer government telco ownership, its charter [http://tinyurl.com/1t1t] subsumes all of what the U.S. FCC does and much, much more -- including regulating the computer industry and operating the Great Firewall that supposedly protects the Chinese Internet from subversive foreign content. The MII can accept or reject outside telecom investors arbitrarily. It's charter includes, "adjusting the product mix, reorganizing the relevant state-owned enterprises, preventing redundant construction and rationally allocating industry resources" -- functions that competitive markets seem to do quite well, thank you! Gilder has resolved the friction between China's telecosmic progress and its big government control with a fiction -- that the Chinese economy is really a capitalist economy. He's serious; he said China and capitalism in the same sentence half a dozen times in his Telecosm speech. My kindest interpretation is that George is confusing entrepreneurialism with capitalism. And while it is true that China is moving towards a form of weird Chinese- flavored capitalism, in this long journey China has taken but a few small steps. Gilder touched on a second enigmatic theme in his Telecosm address -- that the United States government is to blame for incumbent telco intransigence. He's been harping on this for the last year. The U.S. should free the Bells from their copper cage, he says. As if the Bells would know what to do without copper (and its associated business model). As if the Bells would start innovating as soon as the courts somehow made it legal. He seems to have forgotten The Innovator's Dilemma, the well-established Drucker-like wisdom that incumbents can't deal with technologies that disrupt their business model. Furthermore, Gilder seems to have abandoned his formerly oft-repeated calls for the separation of conduit from content. To Gilder, conduit used to be the most elemental sacred physical property of the channel -- the light, the copper, the spectrum -- the stupid network. But now he and his thick-walled Discovery Institute cronies seem to think that it is OK to link stream and significance. They oppose FCC attempts to separate elements of Incumbent Local Exchange Carrier (ILEC) networks from the services that telephone companies carry. They lament U.S. Supreme Court rulings upholding TELRIC (Total Element Long Run Incremental Cost), the bumbling FCC-mandated scheme for how to charge for these elements. And they can't wait to revive Tauzin-Dingell, the proposed U.S. law (currently dormant) that would weld ILEC wire to ILEC service to ensure ILEC monopoly for any service more advanced than voice-over-copper. Now, don't get me wrong. I do not take the opposite position, because I do not believe that TELRIC or the defeat of Tauzin-Dingell will bring on the Telecosm. But I am afraid that the absence of TELRIC and the passage of Tauzin-Dingell will artifically prop up and re-entrench the ILECs, in a kind of big government bailout that will prevent the United States from leading the Communications Revolution. History will show George Gilder's support of a stronger ILEC monopoly to be his worst mistake ever. If the ILECs win, the Telecosm loses. We don't need thicker walls in government or in business; we need lighter, more weatherly craft. It is just that simple. If you were not at Telecosm 2002, I hope you'll get a chance to read, hear or watch Gilder's opening speech. (I'll post a pointer as soon as one becomes available.) His description of China's progress was shimmeringly observant and up-to-the-minute. The talk was a Gilder gem that sparkled despite its flaws. I crafted my Telecosm talk, given as part of the Last Mile panel about 24 hours after Gilder's talk, as a reply. Here it is: ------- PARTIAL TRUTH, THE LAST MILE, BUT WHOSE SHOES? [A lightly edited version of a talk presented at Telecosm 2002, October 1, 2002, Squaw Valley CA] by David S. Isenberg George thrives on controversy. So do I. And I am proud, delighted, to report that George called me and my friend Roxane Googin futilitarians in his last newsletter. Did you see that? He really has a way with words. I think futilitarian stands for fabulous utility millenarian. He called us futilitarians because we observed that it is difficult to make money running a Stupid Network. George was writing about Stupid Networks back when I was still a Bellhead at Bell Labs, about how you get the most innovation, the most openness, the least centralized control, and the most freedom, when you separate the conduit from the content. George Gilder discovered how stupid networks push wealth creation to the edge of the network. Fred Briggs, today's lunch speaker (WorldCom's current CTO), drove the idea home without meaning to. He told us that there is no business model at WorldCom for the Internet, that the Internet is simply a tool for service delivery. Touche! If the Stupid Network moves the services, the wealth creation, to the edge of the network, how is WorldCom going to make money? So I predict, with 20-20 hindsight, that WorldCom will have money trouble. And I predict that the Incumbent Telcos will have trouble in the near future too. This is not futilitarian. It is a realistic fact that we need to deal with if the Telecosm is to boom again. Then last night George was talking about the ideas of Roxane Googin, Susan Kalla and myself when he declared that partial truths were multiplicative, so that if you put the partial truths about the telecom crash all together, you get one big lie. I think this is partially true. George may not have considered that the value of a partial truth can be greater than one. Furthermore, maybe sometimes partial truths are additive. In other words, partial truths can combine to create larger truths. One partial truth does not necessarily diminish another. Scientific progress is built on partial truths -- each good experiment yields a bit more knowledge, but each experiment alone is only a partial truth. And partial truth is why a free, diverse, competitive marketplace is so important -- mistakes in a competitive marketplace are self-correcting. Furthermore partial truth is a major source of America's strength. E Pluribus Unum. Partial truth is the reason we have checks and balances. When you devalue "partial truth", and imply that there is only one "whole" truth, that's fundamentalism. I find myself humbled by the 2001 and 2002 markets. I thought I had the truth -- but I was wrong. Let whoever had the whole truth about the markets cast the first stone. Today I'm grateful for partial truth whenever I find it -- in science, in technology, in the marketplace, in politics, at Telecosm, and even in government. There's some partial truth in China, and there's even a little truth at the FCC. So let me offer a few observations about the last mile that I believe to be partially true. First, the main barrier to the Telecosm is political, not technological. The 1996 Telecom Act was a lame attempt to get a competitive marketplace -- but that does not mean we need to abandon competitive marketplaces. We need to try again, and keep trying until we get it right. Second, fiber to the home -- fiber to every room in the world -- is still the endgame of the Telecosm. But this will not happen in any scale until the current crop of incumbent telephone companies stops fighting it. There's no way that the ILECs will lead the telecom revolution. If you "free them from their copper cage" they'll bring optical -- or wireless -- mediocrity. If we want the Telecosm, the ILECs have to go. Third, networks are getting easier and easier to build and operate. By analogy, computers used to be mysterious machines in special glass rooms. Today networks are losing their mystery -- we've solved the last hundred-foot problem with wired and wireless Ethernet. The next mile won't be so hard either -- technologically speaking. The entire network will become as simple as a LAN. Ethernet will be the any-distance protocol. Customers will connect their own networks to the competitive, networked, global economy. However, if customers are to own their own networks, we need to get the politics right -- we need to solve the right of way problem. We can't have the same monopoly controlling the services AND the pipe. We need to separate content from conduit. So we have to solve the right of way problem. Perhaps the competitive marketplace holds the opportunity. That'd be my first choice. But the Internet breaks the telco business model, and it is hard for telephone companies to make money without their vertical monopoly. And we have not discovered what the new business models for the Stupid Network are yet. [So the first solutions are not likely to arise from the marketplace.] But I don't care how we get more access to right of way -- we can do it via big government like in China, or via little government like in Sweden and Canada, or via municipal government, like they do in Spokane Washington, and Provo, Utah, and Glasgow, Kentucky, and Dalton, Georgia. I don't care, as long as the barriers between the technology and the marketplace fall away. Digital radio -- beginning with Wi-Fi -- will help topple the barriers. But Wi-Fi is in danger of becoming so crowded that nobody goes there anymore. Realizing this, the U.S. FCC is leading an effort to completely rethink the regulation of radio spectrum, to allow us to use it as flexibly as today's technology affords. Will the FCC [and Congress] screw it up? Count on it. But will some partial truth, and significant marketplace opportunity, emerge from the effort? I'm counting on that too. George, I hate big government as much as you do. Except in China, where big government works. And I love Capitalism, except for Enron, WorldCom, Global Double Crossing, and the telecom bubble. I love what works. Like you, George, I'm a Cornucopian -- I only hope we can learn from our mistakes, so we get the politics and economics of the New Abundance right this time. Thank you for your support over the years, and thank you for sharing the wealth of Telecosm. ------- MORE NOTES FROM TELECOSM 2002 From "The Blast" by Porter Stansberry, October 4, 2002 [for more info see http://www.pirateinvestor.com/] "[At Telecosm] I discussed the MCI acquisition with WorldCom's CTO, Fred Briggs. He told me interesting things about WorldCom's rebirth. Yes, the company will come out of bankruptcy intact, debt free and with a strategy that will, I believe, put AT&T out of business. WorldCom will continue to build on its 'Neighborhood' plan that, for one monthly flat rate, gives you both national long distance and local calling. So far, this strategy has been extremely successful. Without any advertising and despite the disruption of bankruptcy, the "Neighborhood" plan garnered over a million subscribers in the last year. Without its debt burden, WorldCom will put tremendous pressure on prices.
"I also met [Dan Reiner] the venture capitalist who provided the first round of funding for VaxGen a company that's doubled in share price since I recommended it in August. We spoke about the company's management and its leadership in the race for an AIDS vaccine. On the same day the company landed a major new research contract to develop a new vaccine for anthrax." From Phil Becker's Digital ID World blog, October 1, 2002 [http://blog.digitalidworld.com/archives/000045.html]: "This is a group of real optimists, who are sure that the next big thing is here somewhere and they want to find it before everyone else does. The audience seems to be a combination of VCs looking to see how to recoup their losses (the grumpy ones), companies trying to show they have the next new thing (the optimistic energetic ones) with a few pundits (trying to figure out what's going on) thrown in. Including the obligatory ex- journalist working the halls selling his new book. Just like old times. "The lunch speaker [Worldcom CTO Fred Briggs] was a bit sobering to the audience. Got to admire that he showed up, but everyone left saying some version of "that was rough" working to get rid of the gray cloud that has no place here. "It took about 5 minutes to do that, as Brian Halla, CEO of National Semi put up the graph of the three major computer industry boom/bust cycles dated by their peaks ('74 mainframe/timesharing, '84 PCs, '00 connected PCs) showing how much larger each was than the one before (based on semiconductor sales numbers.) . . . "One thing for certain, this group is definitely looking past the Telechasm and dreaming of getting to the great things that lie beyond. It reminds me why the high tech industry has been such a draw for me for over 30 years . . . failure is seen as just the next step on the road to success." From Conferenza's Telecosm Report #1, October 4, 2002, by Shel Israel [see http://www.conferenza.com for information on premium reports like this one]: "Gilder maintains that Moore's law has ended. China now drives the industry. It's not about more silicon: It's about leveraging the needs of billions of people. Gilder labeled Intel's $5 billion Itanium processor a failure, and an indication that Moore's law is not driving the economy. In contrast, China creates 700,000 new engineers per year, 10 times that of the U.S. Gilder lamented that the structure of U.S. telecom law is hurting the industry. Clearly, China has limited laws. "Conferenza found this portion to be the most discussed point of the conference. Many questioned whether George's comments demonstrated vision or hallucination. More than one person noted that before 700 million Chinese adopted wireless broadband technologies, they would first need access to electricity, and might even need discretionary capital to purchase a wireless device. Others expressed astonishment that the Itanium could be dismissed with such a cursory comment. Intel's next-generation microprocessor is several orders of magnitude more powerful than P4 processors, and represents a $12 billion investment. Many people we spoke to maintain that we have not yet begun to dream the applications for such power. In terms of the Itanium, most people felt that the jury is not just still out, it has not even convened. Attendees were puzzled throughout the conference at an apparent anti- Intel sub-theme. Dais speakers sometimes referred to the unquestioned leader as a doomed entity running on outmoded premises. The audience consensus overwhelmingly felt the case was not successfully made." Carver Mead, the intellect behind VLSI brought Telecosm to a close with the following simple, eloquent thought: That Metcalfe's Law showed that the value of a network grows with N squared, but that network owners only bill according to N, so the extra factor of N is the Telecosm's gift to the people of the world. Actually, it is even better than that -- Reed's Law, which is based on Metcalfe's Law and extends it [see http://tinyurl.com/1t2v] states that the value of a network with group-forming properties (e.g., the ability to put multiple addresses on an email) grows as N to the N. If the financiers bill for but one factor of N, it is but a tiny fraction of the value such a network creates. The group-forming Telecosm is virtually free. ------- QUOTE OF NOTE -- Jenifer 8.Lee "Almost 60 percent of the [U.S.? -- David I] online population under age 17 uses instant messaging, according to Nielsen / NetRatings. In addition to cellphone text messaging, Weblogs and e-mail, it has become a popular means of flirting, setting up dates, asking for help with homework and keeping in contact with distant friends. The abbreviations are a natural outgrowth of this rapid-fire style of communication. Nu Shortcuts in School R 2 Much 4 Teachers, by Jenifer 8. Lee, NYT, 9/19/02, http://tinyurl.com/1j4n ------- IF IT'S FUNNY IT MUST BE TRUE by Scatt Oddams The last time I heard from the elusive guerilla cartoonist Scatt Oddams, he *promised* to do a new cartoon for every SMART Letter. He did exactly one, then vanished. Was I p**ed!. But just the other day I heard from him, and all is forgiven -- he'saying that http://tinyurl.com/1t5p is a cool cartoon. Well, if it is funny, it must be true. On second thought, maybe it's not funny, but true anyhow. -- David I ------- CONFERENCES ON MY CALENDAR October 8-10, 2002, Atlanta GA. Fall VON. I'll be giving an Industry Perspective talk at 10:45 AM on Thursday, October 10, 2002. See http://www.von.com/ October 15-17, 2002, New Orleans LA. Fiber to the Home Council Annual Conference. I'll be chairing a panel on FTTH feasibility studies. http://www.ftthcouncil.org for information. October 22, 2002, Boulder CO. University of Colorado at Boulder. I'll be speaking to Dale Hatfield's graduate telecom seminar and guests, 4:00 to 5:20 PM. Contact CourtneyCowgill@Earthlink.net for details. October 23, 2002, Berkeley CA. University of California at Berkeley. I'll be speaking to John Zysman's and Steve Weber's class, "Governance of the e-conomy" and guests from the Berkeley Roundtable on the International Economy. Contact Genevieve Taylor [email@example.com] for more information. November 7, 2002, New York. Marconi Foundation Award Conference. Tim Berners-Lee will get the Marconi Award. I'll be speaking about the infrastructure that makes the World Wide Web possible. More details soon. November 11, 2002 to December 8, 2002 -- isen.com trans- Pacific Tour. See above. December 9 - 10, Palo Alto CA. Supernova, a Kevin Werbach, Jeff Pulver collaboration starring Sergey Brin of Google, Doc Searls, Clay Shirky, and yours truly. No website yet, but watch for the appearance of supernova2002.com or contact Kevin Werbach, firstname.lastname@example.org for more info. ------- 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 2002 by David S. Isenberg email@example.com -- http://isen.com/ -- 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 isen.com web site. The PREFERRED METHOD is to click on http://isen.com/SMARTreqScript.html and supply the info as indicated. 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Isenberg firstname.lastname@example.org isen.com, inc. 888-isen-com http://isen.com/ 203-661-4798 *--------------------isen.com----------------------* -- The brains behind the Stupid Network -- *--------------------isen.com----------------------*