SMART Letter #88
Is Telecom Competition Dead?
June 20, 2003

SMART Letter #88 -- June 20, 2003
Copyright 2003 by David S. Isenberg - "distorted intelligence" -- -- 1-888-isen-com

> A Word to the SMART
> Quotes of Note
+ The Telecom Act of 1996
+ Antonin Scalia on the Telecom Act of 1996
> Is Competition Dead? by David S. Isenberg
> Smart Remarks from SMART People --
+ Clay Shirky on Regulation & Scarcity
> Amara's Law Strikes Again by David S. Isenberg
> Keep the Public Domain Public
> Conferences on my Calendar
> Copyright Notice, Administrivia

A Word to the SMART
by David S. Isenberg

Would I rather have writer's block or cancer? I don't know;
I've never had cancer. I've been trying to write a SMART
Letter for six weeks. I've stared at the screen until my
eyes felt like dried cranberries. I've deceived myself
transparently and caught myself doing it. Check my email.
Get another cup of tea. Try to write. Surf the web. Mow
the lawn. Try to write. Check email again. Weed the
garden. Too tired to write now. I'd punish myself, but if
pain would motivate me, I'd be writing already. I'd reward
myself, but I'm not performing rewardably. I am running out
of tricks.

I try to do a SMART Letter every month. No promises; I said,

One of the benefits at AT&T was that there was enough slop in
the system to have a bad six weeks. If I wasn't feeling
productive, I just had to keep my head down. I could turn in
a bad deliverable. I could veg. I could play hooky. At
annual review time, really bad grades only cost about $100 a
month the next year. The pressure to conform exceeded the
incentive to perform.

I can't hide in the skirts of Ma Bell anymore. No write, no
eat. If I don't crunch data, find the clever perspective and
gin up outrageous conclusions, why should anybody hire me?

Maybe I should loosen up. It took me twelve years to write,
"Rise of the Stupid Network." You'll wait six weeks between
SMART Letters if you have to, won't you?

Quote of Note: The U.S. Telecommunications Act of 1996

"An act to promote competition and reduce regulation in
order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies."

From the Preamble to the Telecommunications Act.

Quote of Note: Antonin Scalia

"It would be gross understatement to say that the
Telecommunications Act of 1996 is not a model of
clarity. It is in many important respects a model of
ambiguity or indeed even self-contradiction."

Supreme Court Justice Scalia in AT&T v. Iowa Public Utilities
Board, January 25, 1999.

Is Telecom Competition Dead?
by David S. Isenberg

I keep hoping that "The Paradox of the Best Network" has
loopholes. Maybe somebody will find out how four or five
companies can sell unlimited-speed connectivity into the same
marketplace and all make money at the same time.

On the other hand, nobody carried "Competition good,
regulation bad," down from any mountain. In fact, there are
only two sectors in telecom where we find vigorous
competition, cellular and long distance. They're both in
trouble in direct proportion to how competitive they are.
The more competitors, the more trouble they're in.

Then there are the half-fast services; DSL and cable modem.
There's one provider for each flavor in each neighborhood.
It doesn't have to be a duopoly, but a series of court
decisions and FCC orders have made it so. In a duopoly, you
don't need conspiracy to have a collusive, lock-step
situation that's not really a market. Even so, the telcos
continue to lose money on data services, including DSL
(according to Network Conceptions LLC,

The good news in half-fast services is that the U.S. FCC now
counts 11.4 million Internet customers who connect to the
Internet via cable TV and 6.5 million who connect via DSL.
The bad news (if you have an interest in the economic success
of the U.S.) is that the United States is falling behind. A
recent ITU report, , shows that at
the end of 2002 the United States was #11 in penetration of
better-than-dialup connectivity after Korea, Hong Kong,
Canada, Taiwan, Iceland, Denmark, Belgium, Sweden, Austria,
and Netherlands. But even more importantly, the next four
countries after the U.S., (Switzerland, Japan, Singapore and
Finland) have much larger annual growth rates than the U.S.
According to Triangle Technologies "Japan Business and
Technology Update," (May 15, 2003) Japan has now blown past
the U.S. -- with less than half the population of the U.S.,
it has more 9.5 million better-than-dialup Internet
customers, more than half of the U.S. number. Switzerland,
Singapore and Finland probably have blown past the U.S. too,
and the next fifteen countries are not standing still.

Then there's conventional telephony. The last great CLEC,
Allegiance Telecom, turned belly-up last month. But thanks
to the regulatory miracle of UNE-P, I can still buy a
standard bundle of conventional Verizon services from Sprint
or AT&T. I notice that none of the other ILECs (neither SBC
nor Qwest nor BellSouth) is calling me to offer Verizon
services in Verizon's territory. It's probably a complete
coincidence, because covert non-compete agreements among big
monopolistic companies would be flagrantly illegal under
anti-trust laws.

UNE-P. The Unbundled Network Elements Platform. Unbundle
the features of the conventional intelligent telephone
network, then bundle them up again just like they were
bundled before, except that the whole bundle is sold and
branded by Telco B.

The network the ILEC is re-unbundling is the same old
network. The ILEC provides a predetermined bundle of
elements; if we want different elements in our bundle,
hypothetically the ILEC would have to un-reunbundle it, re-
spec the features, then re-reunbundle it. I say
hypothetically because ILEC operations support systems
(OSSs), written when structured knuckle-dragging was the next
new programming technique, don't support nonstandard
rereunbundling. Any rereunbundling you want so long as it's
the same as the original bundle. Woe to the outlier. Fie on
the innovator.

Here's my experience. The day before the FCC handed down its
fractured triennial order, Sprint calls to offer me LD and
local telephone service, billed by the month at a flat rate
with no per-minute charges, and a cornucopia of telecom
delights (call waiting, caller ID, etc. and three or four
others that normally cost 5.95 each per month) all for about
$60.00. My second line would be $20.00 more. Cool! But if
I want that bundle of features on my second line -- woah! No
can do. First I need to get my ILEC, Verizon, to change the
telephone number it labels as my primary line.

So I call Verizon. "Why do I want to switch the primary and
secondary line?" she asks. "So I can get that special Sprint
deal," sez I. "I think it is some kind of UNE-P deal," I
added, just so she'd know I wasn't a backwoods doofus who'd
never heard of unbundling. "It'll cost you a lot to switch
your primary line," sez she. "I don't know how much," she
added, "but I will call my supervisor to find out." She was
right, it did cost a lot -- $80 if I remember correctly --
and it'd take weeks. For changing one database entry? I
didn't pursue it.

Within two weeks Verizon had an even better flat-rate deal
than Sprint's, but they would not re-home my toll-free
number, 888-isen-com, no matter how much I spouted, "800
portability." Today I still pay by the minute.

[At this point, my supergeek friends will excoriate my
cluelessness for not using Vonage. Vonage is cool, but I
won't use it until I can keep my phone number. 888-isen-com
matters. Some day the mapping of semantics into addresses
will be obsolete, or it'll be so hidden it might as well not
exist. Some day your bot will book lunch with my bot. But
not today.]

Back to how UNE-P discourages innovation. CallWave hates
UNE-P. I've been on CallWave's advisory board for years. I
first wrote about CallWave in early 2000 (Kiss Your Second
Line Goodbye -- SMART Letter #33, ).
At that time, CallWave was a high-flying with an ads-
and-eyeballs business model and a market cap of billions.
Today, CallWave is a more modest fee-for-service company, but
still going strong.

If you bought the UNE-P bundle from Telco B, and you become a
CallWave customer, you can't use the best CallWave features.
In the usual case, when a CallWave customer is dialed into
the Internet and somebody tries to call them, call-forward-
on-busy sends the call to CallWave, which shoots the Caller
ID to the customer's screen and sounds like an answering
machine to the caller. Then when the caller leaves a
message, CallWave uses audio streaming to play the message on
the customer's computer in real-ish time.

Clever. SS7 meets IP. But UNE-P customers can't get call-
forward-on-busy. It is not part of the standard reunbundle.
So if 10% of customers in a market are on a UNE-P plan, then
that 10% of the market is denied the best of CallWave.

So I'm ambivalent about UNE-P. I like the original purpose
of UNE-P, which was to give new, competitive telephone
companies a running start, so they would not have to build a
whole new network before their revenue stream would start.
And I like anything that weakens the ILECs that are holding
back progress. On the other hand, I want competitive
telephone service to be just as whizzy as incumbent service,
and I want CallWave (and similar innovations) to thrive.

FCC Chairman Mike Powell wanted to abolish UNE-P in the FCC's
most recent Triennial Order ( ).
Commissioner Martin and the two FCC Democrats trumped
Powell's position, so today UNE-P is regulated by 50 state
Public Utility Commissions. This is good if you're a state
regulatory attorney, or a competitive telco that does
business in one state, or a customer that wants the basic
vanilla package. It is bad if you're AT&T or Sprint or an
ILEC or CallWave.

Powell also said that he wanted to preserve separate
unbundled network elements when he scrapped UNE-P. "Yeah,
right," I thought. Powell's bigco biases make it hard for me
to trust him. Maybe he should have explained the downside of
UNE-P a little better.

UNE-P, schmu-NE-P; regulating our way towards conventional
telephony competition has failed. The basic assumption of
the Telecom Act of 1996, that more competition and less
regulation will bring lower prices, better services and rapid
deployment of new technology seems to be false. Today we
have less competition, more regulation, and slow deployment
of new telecommunications technologies. Prices are not
falling much and quality is hardly increasing.

So if competition does not work, what does? There are well-
established non-competitive models in the capitalist lexicon;
the old-fashioned robber-baron monopoly is one example.
Condominium ownership (e.g. of a fiber optic cable) is
another. Individual ownership of one's own piece of network
infrastructure is a third. Within capitalism there are
productive roles for government in fostering non-competitive
connectivity -- especially at the level of municipality,
utility district and community association.

This much is sure: the gap between what technology makes
possible and what telcos deliver yawns wider every day. We
stand on the threshold of radical abundance.

But scarcity, not abundance, moves the magic hand of the
marketplace. Scarcity is how supply and demand regulate
price. Infinite abundance kills a market as surely as total
absence of supply.

Once fiber reaches a home or business there's the potential
for insurmountable abundance, for more than we need.
Development trajectories are steep enough to guarantee future
abundance, too.

Even with wireless connectivity, there are feasible network
architectures that exhibit what David P. Reed calls
cooperation gain, which means that network capacity grows
faster than the number of users times each one's network
usage. In other words, both wired and wireless networks can
be optimally architected so that supply grows faster than

No scarcity means no marketplace. No marketplace means no
competition. We can't have the best connectivity that
technology can provide and competition too.

At the level of connectivity, below Layer 3, there seem to be
two mutually exclusive choices, (1) sub-optimal networks or
(2) non-competitive business models. Which will it be?

Smart Remarks from SMART People -- Clay Shirky

"I distrust people who call for less regulation unless
they also call for less scarcity."

Clay Shirky, , via email, 6/19/03.

Amara's Law Strikes Again
by David S. Isenberg

The Internet we had five years ago continues to spin off
amazing benefits. It's a perfect example of Amara's Law in

Amara's Law states that, "A consistent pattern in our
response to new technologies is we simultaneously
overestimate the short-term impact and underestimate the
long-term impact." For more on Amara's Law, see SMART Letter
#63, ]

According to Business Week, May 12, 2003, :

"To the surprise of many, the Net is actually delivering
on many of its supposedly discredited promises . . .
Remember those starry-eyed projections in 1999 that had
U.S. e-commerce between businesses reaching a staggering
$1.3 trillion by 2003? Turns out they were too low.
Networked business-to-business transactions now stand at
$2.4 trillion, says Forrester Research, Inc. . . .
Says Gartner Inc. analyst Avivah Litan: 'The hype is
gone, but the numbers are in.' . . . And how about those
Brookings Institution claims a couple of years ago that
productivity gains from e-commerce would pump as much as
$250 billion a year into the economy by 2005? Again,
too low. With overall productivity running higher than
expected last year, gains from businesses using the Net
to sharpen forecasting, keep inventories lean, and
communicate instantaneously with suppliers could reach
$450 billion a year by 2005. . . . Says former Federal
Reserve Vice-Chair Alice M. Rivlin, now a senior fellow
at Brookings: 'We know it's a real business
transformation because it survived the economic

Keep the Public Domain Public

Did you ever catch a fish in the ocean? Or hike in a park?
If so, you were using public domain resources. The public
domain is being whittled away by the RIAA and Disney, Inc.,
every time they extend the term of the copyright and every
time copy protection prevents you from legally listening to
your music.

I hate on-line petitions, but taking back the public domain
is so important, that I've signed the Reclaim the Public
Domain Petition, and I encourage you, as a SMART Person, to
consider signing it too at

If its Funny, it must be True, by Scatt Oddams

Check out the illegal art at -- and
the Internet timeline parody at --
and you've gotta see the Martin Luther King comic by Ho Che
Anderson at .

Did you hear that John Ashcroft wants the death penalty for
suicide bombers? That'll stop them.

Gotta go!

[Scatt Oddams is the increasingly regular cartoon critic here
at The SMART Letter. You can reach him at ]


June 24-25, 2003, San Francisco. World Technology Network
Summit and Awards. Jim Clark's brainchild (the other Jim
Clark) is a deliberate attempt to create serendipity.
Previous WTN Summits have been great!

July 8-9, 2003, Washington DC. Supernova, come together for
decentralization. Vortex tired, Supernova wired.

September 30-October 1, 2003, New York. Reuters Technology
Conference. Only $1300 now through August 15, after that
$2000. Contact for the special discount code.

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 2003 by David S. Isenberg -- -- 1-888-isen-com

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David S. Isenberg, LLC 888-isen-com 203-661-4798
-- The brains behind the Stupid Network --