SMART Letter #5:
Looking Beyond Today's Styles
April 14, 1998



            SMART Letter #5 -- April 14, 1998

        For Friends and Enemies of the Stupid Network

            Copyright 1998 by David S. Isenberg

      This document may be redistributed provided that  

      the 11 lines containing this notice accompany it. -- -- 1-888-isen-com

      It takes SMART people to design a Stupid Network




These days, you can't be too rich, or too young, or have too much

dark fiber buried down by the railroad track.  The new bandwidth

mongers - Qwest and Level3 and Williams and Worldcom's Resurgens

- are the belles of tonight's ball.  Will the FCC spoil the party?

Saturday's New York Times says, "Yes."  Monday's Wall Street Journal

says, "Not just yet."  The White House and the FCC are on opposite

sides, and the industry is clearly split between the old Intelligent

Network crowd and the new Stupids.

Regulation is the biggest uncertainty, but technology marches on.

Struggling against technological advance, especially when it is in

the service of fundamental human needs, seems distracting and

wasteful.  If the captains of the great age of sail could've taxed

the steam ship, they would have.  Wouldn't have changed a thing.

At the Last Mile, the surging, synergistic pseudo-conflict between

DSL and Cable Modems is on every investor's lips.  The winners?

Probably Bill Gates, Rupert Murdoch, Mike Eisner, Barry Diller,

and The Dreamworks Three.  And L.L. Bean and and Fedex.

Oh, yeah . . . you (the SMART telecom provider) and me (the consumer).

SMART people know that you can't predict the future.  Yesterday's

sure thing - Apple Computer, Japanese management, a 500 channel

teleTV utopia - is tomorrow's tailfinned has-been.

Big Bandwidth is coming.  But let's try not to overestimate 

short-term impact, or underestimate long-term impact.  

Below we ask what is driving the demand, and how the 

supply story will evolve.

BANDWIDTH SKEPTICISM:  At least one SMART person, David Charlton,

is a blatant bandwidth skeptic, openly puzzling over where all the

traffic growth is coming from, and whether it will continue.

Skepticism, yes.  Dismissiveness, no.  Where IS it all coming from?

Coming it is.  Mike O'Dell, UUNet's CTO, is adding a DS-3 per day

to the UUNetwork.  He has to, because his bandwidth providers need

45 to 90 days of lead time.  And his network, which merely doubled

in 1994, grew by a factor of 10 in 1997. "Only epidemics grow this

fast," says O'Dell.  

The virulence is contagious.  Vint Cerf, MCI's

Internet Pointman, has said that MCI's data traffic is doubling

twice a year.  And Scott Gorman, sales manager for Exodus 

Communications (and one of the SMART), says that the aggregate 

throughput of Exodus Internet Data Centers has grown by a factor 

of 40 in the last 12 months.  Exodus has adopted a 200% headroom 

policy - a good example of Stupid Network Principle #2, 

Overprovisioning.  That is, Exodus buys twice as much bandwidth 

as it needs.  And keeps doing it, cause it doesn't sit on 

the shelf long at all!

Undeniably, the growth is there, and accelerating, no matter how

much scalp we scratch.  "If you are not scared, you don't understand,"

says Mike O'Dell.  Well, Mike, we're scared, and *we*still*don't*

*understand*.  Where is it coming from?  Like, almost nobody has

anything faster than 56 kbit/s yet.  Like, most PC sales are

replacements, not new users.  Like *what* new killer apps?

SUPPLY CLUB:  Another SMART person, Gordon Cook, does see bandwidth

demand skyrocketing, but thinks that George Gilder and his buddies

(moi?) are all "starry eyed," because there's "not one shred of

evidence" that "vastly growing supply [of bandwidth] will mean the

price will plummet." 

Well here's a shred.  Average per-minute LD

revenue has dropped from 32 cents in 1984 to 16 cents in 1996.

OK, it is a pretty pitiful shred.  

Here's a bigger one - today's global Internet itself.  

In 1956, Ma Bell paid $5.30 per hour for a trans-Atlantic 

voice circuit - there were 89 of them. In those days, would

UUNet have let you suck over hour after hour of BBC via 

Real Audio?  The Internet only works as it does today

because the cost of bandwidth is negligible.  These costs dropped

by a factor of 10 over the 15 years 1956-1970, and another factor

of 10 over the next 15, so in 1993 an hour of voice circuit cost

3 cents.  (See the graph at

One could look at these numbers and ask why an international 

call that costs three cents an hour is priced at around US$30.  

To compare, let's look at a few more mark-ups.  I'd guess there's 

about three cents of sugar and bubbles in a can of Coke, yet we 

don't pay US$30 for it.  On the other hand, there's about - what, 

US$3.00? - worth of chemicals in the human body, and the mark-up, 

measured by wrongful death settlements, is a few hundred thousand 

times.  This mark-up would have you paying US$3000 for an hour-long 

three-cent-cost phone call.

But let's not mistake a short distance for a clear view. Trans-Atlantic

calls are now down to 10 cents a minute (US to UK, off peak) and

falling.  European de-reg is just kicking in, and the WTO telecom

agreement has not yet been felt.  Trans-Oceanic capacity is poised

for another growth spurt, and the cable-opoly knows it won't make

money if it does not fill its pipes.  

On the other hand, the members of this hypothetical cable club 

would be shooting themselves in the demand side if they drop the 

prices so fast that their new pipes are full on the first day.  

They aim to optimize return on their investment.  Don't we all?

In non-carrier sectors, prices are clearly plummeting.  A 10baseT

socket in your pocket costs a few bucks.  You get 1000 chunks of

64 kbit throughput for US$1.00 when you buy an off-the-shelf Gigabit

Ethernet platform.  (When's the last time you paid to log into a

LAN?)  And my cable megabidem costs about what my 300 baud Hayes

did 20 years ago.  No cozy club is damping these price declines.

There are too many players for that.  

New carriers are in a bind.

They have to drop their prices to gain market share, and they want

to join the club.  But the club is exclusive, and it won't admit

price-droppers.  Price wars are soooo unGENtlemanly.  Meanwhile

the current members are busy uping their capacity too.  New and

old chase the same commodity bandwidth market.  

These are ingredients for instability.  

Even with stable, growing markets, the price can

only go one way.  It's Econ 101.  Qwest's Joe Nacchio says that he

chose a 7.5 cent price for voice because he can offer it at the

same (ahem, comfortable) profit margins at which the big guys offer

full priced voice.  There is room for that price to fall.  If the

supply outruns the demand, Nacchio's prices are likely to come down

as fast as necessary.

Let's look at another way you can play the supply-demand game with

improving technology.  For years, Intel and Microsoft played

scratch-my-back - the software got more complex as the chips became

more capable.  The price-per-box hovered at $3000.  Until this

year, when people discovered that they did not need faster computers 

to run the current software.  Then the price fell.  (And now

Microsoft's and Intel's market will expand in new, non-PC-oriented

ways.)  If I were sitting on a pile of new bandwidth, I'd want to

find more things for people to do with it, and drop prices just

enough to make those things happen.

LOCAL BOTTLENECKS: One might observe recent moves by AOL, IBM and

AT&T, and conclude that the cost of Internet connections is going

up, not down. But let's not confuse access with the price/cost of

long haul bandwidth.  Circuit access ties up two modems and a

twisted pair, whether or not there is traffic.  It is a hold-over,

a scarcity-based design.

IBM and AT&T have ended their US$19.95/month unlimited connect-time

plans. They have placed limits on the number of hours of use per

month. "If you ain't using, hang up." IBM seems to have installed

an inactive-logoff program to enforce this.

But IBM and AT&T are getting it wrong. Here's what they're missing.

>From a user's standpoint, there's value in being logged on, even

if inactive.  The barrier to using network services (e.g., checking

email) is lower.  You can get an Internet phone call.  You can know

if a buddy-list buddy logs on.  It is a shorter step to impulse

buying.  This overly intelligent move by IBM and AT&T will send

traffic, customers, and revenues to other providers. These days a 

big installed base is worth a lot more than a big profit margin.  

AOL has a better handle on the circuit access situation.  

They have raised the all-you-can-eat price from $19.95 to $21.95.  

They hardly lost anybody, and the small proportion of customers 

who have discovered the need for always-on can still get it 

painlessly.  AOL's market segment will wind up becoming more 

desirable versus AT&T's and IBM's.  

ALWAYS-ON, THE BUS:  Ultimately, we want to get rid of circuit

access in favor of bus-style access.  Last night, a conversation

with dinner guests hinged on the price of an Audi A4. I seamlessly

slid behind my always-on, Comcast Cable Modem powered Internet

terminal. Metacrawler . . . boom.  "Automobile Price Audi A4," .

. . boom, boom.  And there it was - list price, dealer invoice,

options.  Logging on probably would have been a big enough barrier

to have kept me from doing it.

Bus-architected systems, e.g., cable access, are designed to be

always-on.  Now, for the first time, with my cable modem, when I

click into the audio stream of an Internet radio station,

*I*leave*it*on*.  Soon the InterneTV could be always-on in the

bedroom, Internet Audio could play in the kitchen, the Internet

News Appliance could display a constant stream of information in

the Home Office, and Cyber-Sears would gladly buy me a transactive

shopping appliance about the size of a catalog.  Meanwhile, maybe

they'll finally do some wireless networked thingies right, and

we'll have our own IPCTs for email, vmail, dmail, and real-time

two-way Internet A-V-D.

NECKBREAKERS: Traffic will flood the long-haul lines when the local

access bottleneck breaks.  Today, Cable Modems and DSL are the

in-style bottleneck breakers.  Behind this, a bar-room of belligerent

technologies is tanking up.  At least one of these is virtually

certain to tumble onto the street, broken bottleneck in hand, jagged

and dangerous, pissed at the status quo and ready for mayhem.

Fiber-to-the-home (FTTH) is the clear end-game favorite.  It has

been cost effective in new construction for years - pending affordable

terminal equipment and demonstrated, sure-thing uses.  Bill's

Billion is riding on Hybrid Fiber-Coax, FTTH's poorer, more available

cousin.  Other potential neck-breakers include Data over Electricity,

and a multitude of wireless technologies including LMDS, spread

spectrum e.g., B-CDMA, low-power TV, and Data-From-The-Sky.

Data-From-The-Sky services might be delivered via lighter-than-air

"platform" in the upper atmosphere (Sky Station , Skysat Communications)

or by satellite (ACES, APMT, ASCOM, Celestri, Globalstar, ICO, 

Inmarsat, Intelsat, Iridium, Teledesic - did I miss any?).  But

the higher the platform, the more expensive the equipment - you

need more powerful transmitters, and/or bigger, more effective

antennas and receivers.  So all else equal, the distance to

mass-market equals the height of the platform squared.

GAME CHANGERS?  Iridium, Celestri and Teledesic are more than

"platforms." They are entire Networks in the Sky.  They

surround the Earth with a meshwork of orbiting, wirelessly

interconnected switches. Their transport facilities traverse no

country.  They blur distinctions between local, national and global

service. They make service available everywhere.  They

could well change the game.

Iridium will be first (3Q98?), but it is a circuit-oriented,

voice-based network.  Then it will be a race to 2002 between two

data-oriented systems:  Celestri by Motorola, and Teledesic by

Craig McCaw with Bill Gates and Boeing.  

With Teledesic's total global capacity of about 

50 Gbit/s (when today one fiber can carry

400 Gbit/s), its service will be premium-priced compared to

terrestrial transport. And end user terminals (telephones?) will

start at $3000 - it is unlikely that Networks in the Sky will get

the worlds three billion poorest people hooked on communications.

But if the device price tracks Moore's Law, and falls by a factor

of 10 by 2002, the richest of the unserved poor could own them.

At least two kinds of positive market feedback could result from

Networks in the Sky.  I call them (1) the Hot-Spot Effect, and (2)

the Expensive Chicken Effect.  The Hot-Spot Effect would identify

places on earth with lots of satellite activity and attract more

affordable terrestrial facilities to them.  The Expensive Chicken

Effect would solve the chicken & egg problem by allowing new,

compelling mobile applications to be discovered - first in 

relatively wealthy niches, but spreading to terrestrial 

facilities based markets.  Both would grow the overall 

telecom marketplace.

Networks in the Sky won't be able to be Stupid.  They'll have to

be carefully engineered.  Over-provisioning will be very, very

expensive.  Within those constraints, the simplest networks - with

the fewest assumptions and the most user control - will win.

IN THE LONG RUN . . . Prices will fall, traffic will grow - consumers

and bandwidth providers will benefit.  Regulators will churn and

lawyers will litigate, and all that activity will give way to

unchanging human needs, as modulated by the inexorable advance of

technology.  New applications will appear, and once every blue-moon

leap-year, between 11:45 and quarter to twelve, one of them will

create new ways to communicate and new markets that take advantage

of them.  Let's realize what's temporary and what is inexorable,

and keep a steady hand on the helm.



I will be the luncheon speaker at a NSF-Sponsored Emerging Wireless

Communications Workshop in Washington DC, May 4 & 5.  Wireless is

the Stupid Network in action, an end-run on Control-Central.  See

On May 18, I will be back in Washington DC as lead-off speaker for

a conference called "The Bandwidth Explosion: Understanding New

Technologies That Are Driving Business Opportunities." The website


And on May 19, still in Washington DC, I will address the OIDA

Communications Roadmap Workshop.  OIDA stands for Optoelectronics

Industry Development Association.  The title of my talk will be

"Stupid Optical Networks: A Bright Idea."  No conference website.

Find OIDA contact information on

On June 8-11, I will be at Jeff Pulver's Voice-on-the-Net Europe

Conference.  I don't know what I will talk about.  If it were

tomorrow, I'd talk about capitulating to the government regulationists,

essay above notwithstanding . . .

On the evening of June 11, in London, I will speak at a World

Technology Network roundtable.  A cozy dinner discussion with 

technology leaders from the UK.  SMART people are welcome.  

Contact for more info.

On Thursday, July 9, I have been engaged as Agent Provocateur at

a Washington DC Telestrategies conference entitled "Next Generation

IP Networks." No website yet, but keep checking


SMART Remark of the Month:  "When I read 'Rise of the

Stupid Network,' I was overcome with what I call the moment of DUH! 

You know that moment when you come across something that is so blatantly, 

painfully, beautifully, obvious and your mind is filled with wonder .... 

shortly thereafter followed by 'why didn't I think of that.'"

                                         Martin C. Ahern 


Thank you, SMART people, all 506 of you, for being there!

David I



David S. Isenberg     


18 South Wickom Drive   888-isen-com (anytime)

Westfield NJ 07090 USA  908-875-0772 (direct line)

                                908-654-0772 (home)


     -- Technology Analysis and Strategy --

        Rethinking the value of networks 

      in an era of abundant infrastructure.


Date last modified: 14 Apr 98