SMART Letter #23
July 7, 1999



            SMART Letter #23 - July 7, 1999

            Copyright 1999 by David S. Isenberg

      At we accumulate intellectual capital

           the old fashioned way -- we LEARN it. -- -- 1-888-isen-com




>  Announcing "Planet IT Roundtable" on The Stupid Network

>  The Most Important Paper since 'The Stupid Network'???

>  Lead Essay: We're All Incumbents on this Bus

>  Quote of Note: Henry Goldblatt

>  Smart Remarks from SMART People: David Bayless,

     Ewan Mohamed, Randall, Bonnie Engel, Zigurd Mednieks,

     Einar Flyndal, Michael Weingarten, Katherine Cavanaugh,

     a philosopher, and Anonymous

>  Quote of Note: Scott Cleland

>  Conferences on my Calendar, Copyright Notice, Administrivia



I'm currently hosting Planet IT's on-line discussion - see and

click on my mug. Jump in! Disrupters welcome!!!



Gordon Cook, of the Cook Report on Internet, writes:

   "The Most Important Paper . . . since Isenberg's

    Stupid Network . . . Every once in a long while I

    see something so good that it can't wait for a

    regular monthly issue of the COOK Report . . .

    This 45-page policy paper: 'Netheads versus Bellheads

    -- Research into Emerging Policy Issues in the

    Development and Deployment of Internet Protocols'

    authored by Timothy Denton, with Francois Menard and

    David Isenberg, is so cogent that I see it as the

    greatest threat yet to the 43 million tons of buried

    local loop copper."

I have to admit that it turned out nice!  This is due primarily to the hard

work and lucid prose of Tim and Francois, who are, of course, long-time

SMART People.

You can find the paper at,

the Cook Report on Internet is at

and Steve G. Steinberg is acknowledged for his Netheads & Bellheads coinage


WE'RE ALL INCUMBENTS ON THIS BUS: The most potent disrupters might not even

seem relevant to us.

By David S. Isenberg

At Vortex99 last May, Bob Martin, the CTO of Lucent Bell Labs, presented a

sweeping review of technological progress in the telecom infrastructure. He

is a self-described "terrific fan" of The Innovator's Dilemma by Clayton

Christensen (Harvard Business School Press, 1997). Referring to

Christensen's central concept, he said that Lucent was learning to work

differently with incumbent and disruptive customers.

This seemed like an exciting advance, so I arranged a follow-up interview. I

expected that Martin would explain how Lucent's incumbent customers were

driving toward "better-faster-cheaper" - this is my 'looks-like-a-duck,

waddles-like-a-duck' test for sustaining technology. And I thought he'd say

that Lucent's disruptive customers were creating markets that seem

irrelevant to today's telcos but, with Lucent's help, would expand from

below to engulf telephony-classic markets - this is my 'duck' test for


Surprisingly, Martin focused on similarities. He said, "Both the incumbents

and the disrupters see the end game of the market as very much the same.

[They both want] a very high-speed packet backbone, optics at the center, a

variety of broadband access mechanisms [and Internet Protocol (IP) as] the

predominant application protocol." Describing a two-year-old difference

between telcos old and new, he declared, "Cost-effective circuit to packet -

we built it. That debate is over."

As for differences, Martin seemed to be saying that Lucent's incumbent

customers wanted better ("exceedingly high quality of service"), while the

ones he labeled 'disruptive' wanted faster ("getting to market very



The Innovator's Dilemma shows clearly that not every new technology is

disruptive. Most new technologies, in fact, are sustaining. By extension,

not every new market entrant, even one riding on new technology, is a


I began to wonder whether most of Lucent's new customers weren't players in

the old value space. For example, I suspect that dumb-phone to dumb-phone

Internet telephony is a sustaining technology. It serves the same markets as

telephony-classic. To a customer, it works like telephony-classic (that's

the goal, anyway). And the telco (old or new) retains control of the value


Furthermore, telcos immediately recognized that Internet telephony was

relevant. AT&T embraced it because it facilitates telephony-classic via CATV

(better). New entrants embraced it because it makes nonfacility-based entry

easier (faster). And most telcos embraced it because it circumvents

regulatory mechanisms that hold the cost of service high (cheaper).

Martin lists five major disrupters - optics, silicon, wireless, packets and

software. The Internet was not on his list, except by inference. When asked,

Martin identified two ways that it is disruptive; first, because packet

networks have significant efficiencies, and second, because the Internet

gives rapid rise to new applications that can change the nature of business.

To me, the Internet (with intelligent terminals) is telecom's biggest

disrupter, but for an altogether different reason - internetworking makes

underlying details of networks irrelevant. Under IP, the network becomes the

transport component of an application, much like the disk drive becomes its

storage component. When a device at a customer's fingertips terminates IP, a

thousand applications bloom - telephony, every kind of messaging,

multimedia, telepresence etc. - without the necessity of telco ownership (or

telco participation in value creation).


It feels discomforting, disloyal and threatening to consider a disruption of

our own incumbency. I recently did my will. I had a problem imagining a

world in which I didn't exist. Then it occurred to me that if I died first,

my wife would eventually find ways to be happy without me. I did not want to

analyze this too closely! I prefer the illusion of eternal incumbency.

We are all incumbents on this bus. We depend upon telecom-classic - as

suppliers, service-providers, investors, regulators, consultants, writers,

publishers, customers and end-users. Even Christensen makes significant

income advising incumbents, which makes him correspondingly dependent on

sustaining technology. And to the extent we think like incumbents, we might

fail to imagine how the most potent disrupters could even be relevant to us.

There is no shame in sustaining technology. Christensen's book shows that

sustaining technology is often the sophisticated product of lengthy,

expensive and often heroic efforts. There are more circuit switches and more

mainframe computers being made now than at any other time in history.

Telephony-classic could have a long run yet. But it is worth noting that the

absolute pinnacle of the age of sail, the clipper ship era, came a mere

decade before sail fell to steam.

This article appeared in the July 1 issue of America's Network.  Copyright

1999 by Advanstar Communications.


QUOTE OF NOTE: Henry Goldblatt

   "Next time you hear a couple of suits touting a deal to

    become the next supermegaglobal telecom company, think

    about it in three ways:

       + It's about controlling *you*.

       + It's about pleasing Wall Street.

       + It's about fear."

Telecom reporter Henry Goldblatt in "The Telecom Tug of War," Fortune, July

19, 1999, p. 115.



W. David Bayless  writes:

   "After reading SMART Letter #22, I ordered a copy of

    Moral Mazes.  I'm barely into the book, and already I

    don't know whether to laugh or cry.  Either way, I'm

    starting to question whether my firm's objective to

    team with BigCo's is wise ;-) . . ."

Ewan Mohamad ( writes:

   "It is interesting to read your articles on corporate

    culture in the American context.  If you are to look

    at the corporate culture of Asians you will find it

    more difficult to understand where blood relationship

    relation or circular relationship are embedded part of

    the business culture.  In some instance races, religions

    and ethnic belonging can determine your success or

    failure.  Being smart is not good enough.  Know who

    instead of know how is more important to succeed in life.

    Like most corporate culture, there is always somebody to

    take the blame or become the scapegoat to the problem.

    Worst of all they freeze you up till you give up working

    for the organization and they pay you no compensation for

    leaving . . . Count your blessing!"

Later, Ewan Mohamed forwarded me the following:

   "An organization is like a tree full of monkeys - all on

    different levels, some climbing up.  The monkeys on top

    look down and see a tree full of smiling faces.  The mon-

    keys on the bottom look up and see nothing but assholes.

Randall of [big financial services corporation] writes:

   "Part of my job [here] is to get people to re-think their

    current technology values and to introduce disruptive

    technologies - even if it threatens their current role

    and products.  Hard to do.  I think that your "stupid

    network" ideas actually have significant analogs to smart

    vs. stupid services elsewhere.  I've probably re-read your

    original stupid network paper a half a dozen time and to

    its credit, it's one of the few papers I've read which

    holds up to such re-reading (I assume that buttering up

    the author is one way to get on the list :-)

    [He's right! -- David I]


   "For several years now I've been preaching a corollary to

    your stupid network theory, namely that anything too

    complicated to explain is too complicated to succeed. I

    first realized that IP would win over ATM when I tried to

    fully understand LAN emulation in ATM . . . ATM is the

    best argument for KISS."

Bonnie Engel ( writes:

   "Thanks for putting into words what so many of us

    experience everyday in corporate (and civil service)

    cultures . . . What is the alternative to the patrimonial

    bureaucracy model?

   "I see the "garage" start-up high-tech companies who start

    with flat management structures move as soon as they can

    into the traditional, top-down, credit-up model.


   "Why have YAHOO!, Microsoft and other early software and

    Internet companies become corporate marketing giants (and

    perfect targets of the Cluetrain)?  Why do people put up

    with it? Is it a function of the moneypeople?"

Zigurd Mednieks ( writes"

   "[Telirati Newsletter #39 is] on the care and feeding of

    engineers in an entrepreneurial environment. BizFon's new

    management team [] managed to recreate big-company

    stupidity on a smaller scale than I previously thought

    possible . . . Kind of an HO-gauge train wreck."

[You can read Zigurd's deliciously sordid BizFon story at . . . and while you're at it, subscribe -

it is only half the price of the SMART Letter.  Plus in addition to being

SMART, you'll be a member of the Telirati! - David I]

Einar Flyndal ( writes:

   "I work in telecom myself with a degree in social

    anthropology in my back pocket. After having read

    [SMART Letter #22], I cannot resist recommending a

    book named "On a clear day you can see General Motors",

    written by a crown prince who abdicated (named DeLorean).

    Very entertaining and informative as well as demasking! I

    am sure it is not outdated!"

Michael Weingarten (

comments on the comments on Equal Access for Cable:

   "The Fifth Amendment offers no support one way of the

    other for Equal Access.  Getting rid of the double

    negative in the sentence, the Amendment says that

    'private property [can] be taken for public use, [with]

    just compensation.' The real issue is not the Fifth

    Amendment, but rather what is in the "public interest,

    convenience and necessity," per the FCC's mandate laid

    out in the Telecom Act."

Katherine Cavanaugh ( writes to ask that we mention

her July 2 Industry Standard article, "Telco Sites Leave Customers on Hold."

Normally treats such requests with callous disregard, but she

quotes SMART People like Patricia Morreale, Bruce Kushnick, and David

Cooperstein.  Furthermore, it's a well-done piece. Find it at,1449,5398,00.html?

A philosophy Ph.D. who works for a big IXC (hey, sending your kids to a good

college has its place!), writes:

   "I apply Zeno's Stadium paradox to the work place . . .

     (*) In the first half of the work day you work on your

         most important assignment.

     (*) In the first half of what remains of the work day you

         work on your next most important assignment.

     (*) In the first half of what remains of the work day you

         work on your next most important assignment.

     (*) and so on ad infinitum and ad nauseum.


   "I should have also mentioned that I have had a copy of

    Kafka's short stories and Voltaire selections (for

    Candide) in my office since I started at [big IXC].

    (Remember, this IS the best of all possible worlds.)

    I find them much more useful than engineering or

    comp sci texts."

Anonymous, working for an incumbent LEC, writes:

   "That the LECs have a wide-open checkbook, a Byzantine

    means of cost accounting, and the power to levy [Local

    Number Portability] charges [is a] matter of concern.

    That it's done as a 'mandate' beneath the imprimatur of

    the Federal government, infuriating.  That local number

    portability is unavailable to all, the pinnacle of

    corporate hubris.

   "Do the math:  ~21M access lines * $0.41 per month * 60

    months = a very cool $516,600,000.  But, that's only the

    'retail' part of the equation. [The ILEC] levies a

    'wholesale' Local Number Portability (LNP) query charge

    on other carriers' terminating traffic of $0.003102 per

    attempt requiring an LNP database "dip."  Only God knows

    what revenue that throws off."


QUOTE OF NOTE: Scott Cleland

   "While the marketplace was looking at Congress and the FCC,

    the grass roots caught fire."

Legg Mason telecom analyst Scott Cleland, on the Equal Access for Cable

decision of Federal District Court in AT&T vs. Portland OR, quoted in the

New York Times, June 5, 1999.



July 14-16, 1999, Memphis TN. "Disruptive Innovation" with Clayton

Christensen & George Gilder.  I will be on the agenda with Bob Martin and

Clayton Christensen, right after Jack Terry, the inventor of EtherLoop. See

July 28-29, 1999, London UK. "Business Discontinuities within the Ubiquitous

Internet" by TTI/Vanguard.  See for more


September 27-29, 1999, Lake Tahoe CA. George Gilder's

TELECOSM!  Save these dates . . . I'm putting a high-level

panel together on The Stupid Network.  For more information,




Redistribution of this document, or any part of it, is

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the two lines below are reproduced with it:

Copyright 1999 by David S. Isenberg -- -- 1-888-isen-com


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David S. Isenberg, inc.  

1-888-isen-com            1-908-654-0772

** -- the brains behind The Stupid Network











Date last modified: 7 July 99