SMART Letter #47
GURU WONDERS
October 25, 2000
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SMART Letter #47 -- October 25, 2000
Copyright 2000 by David S. Isenberg
isen.com -- "take the work out of network"
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
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CONTENTS
>"Network Guru Wonders" by Scott Moritz, TheStreet.com
> Conferences on my Calendar, Copyright Notice, Administrivia
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"Network Guru Wonders Whether Split Is Enough to Turn AT&T
Around" by Scott Moritz, Senior Writer, thestreet.com, 10/24/00
3:03PM ET, http://www.thestreet.com/tech/telecom/1139750.html
[When people in my business begin believing flattering adjectives
flung by the press they lose their edge. My edge is gone. I'm
proud to own: "Today, probably no one can more fittingly [tell
AT&T], I told you so." But I'm not gloating. Companies die; it
is sad. I just provided an early diagnosis of the fatal
disease. -- David I]
"Now that AT&T (T:NYSE) has reportedly come
to terms with its fate, a four-way breakup, it's
a good time to chat with networking visionary
David Isenberg, of isen.com. After 12 years with
Telephone as lab geek cum in-house provocateur,
Isenberg overstepped his bounds and was shown the
door in 1997.
[Not! Well, maybe. As Bob Lucky says, "Sometimes it is hard
to know when you're fired." -- David I]
"His crime? Confronting Ma Bell with what now
appears quite obvious. In his notorious essay The
Rise of the Stupid Network, Isenberg wrote that
AT&T had engineered itself into obsolescence and
that the rise of the Internet would quickly
reduce its empire to rubble.
"In a conversation with TheStreet.com's Scott
Moritz, Isenberg offers his thoughts on his old
firm and a prescription for its survival.
Isenberg, a longtime advocate of a breakup of the
old phone giant, says AT&T is just now realizing
the world has changed and that its adjustments
may well be too late.
[Well, I don't think I am a "long-time" advocate, but I
did start saying, "break it up" long before last weekend.
-- David I]
"TSC: You got slapped aside for trying to point
out a new networking opportunity to AT&T. Today,
probably no one can more fittingly say, I told
you so. I know there is some sense of vindication
in that, but I also know you have mixed feelings
about the company where you spent 12 years of
your professional life.
"Isenberg: Yes. Increasingly, though, the sadness
fades as the immediacy of the personal relations
I established at AT&T recedes into the
background. And many of those people who I
associated with AT&T have moved onto other
positions outside the company. In fact, the
company is a different company than the one I
quit.
"TSC: Three years later, it looks like AT&T is
failing from the very things that you laid out.
The stock is down to a three-year low, the gold-
plated long distance service is now an anchor
around AT&T's neck, and the pricey entry into
cable is still unproven and one of the most
second-guessed moves in modern corporate
strategy. So if they came to you, now that you
are an established expert guiding new technology
companies in the Internet era,
[That Moritz sure can lay it on thick (and his editors
let him get away with it :-)). -- David I]
and they asked you for advice, what would you
tell them?
"Isenberg: I'd say break it up, spin it out, sell
it off, reorganize it. They've got to face the
fact that the value proposition that built their
company is over.
"They have to figure out what they have that's
relevant to the New World and optimize that and
quit trying to recreate the Old World.
"TSC: For the uninitated, Isenberg's belief, which
will be featured in an upcoming Streetside Chat,
is that the abundance of network capacity
rewrites the rules for network services. The
overmanaged per-minute communications traffic
flow that travels as though through a cocktail
straw will give way to limitless bandwidth, which
in turn opens the door to new network business
models such as peer-to-peer file swapping and the
like.
[Since you SMART People are not "uninitiated", you probably
realize that abundance is not the only thing pushing value
creation to the edge. Internetworking, which makes
network-specific differences irrelevant (even value-added
network-specific differences) also has something
to do with a facility owner's inability to continue
"business as usual". -- David I]
"Isenberg: AT&T is almost literally like a
dinosaur. It's been hit in the tail for years
with this Internet growth thing, and the signals
are finally getting to its brain and it's about
to turn around. But the thing that was wiggling
the tail may be moving on. It may be that there's
yet another market logic that's coming into
place.
[C. Mike never got the culture thing. Middle management's
job is to defend its turf, even when it's not in the best
interests of anyone else in the company. Armstrong is a
product of this culture -- whadaya think of this here
polluted water, Mr. Fish? -- David I]
"TSC: Under C. Michael Armstrong, AT&T took the
approach that it would be the all-communications-
service provider. But as we have seen, AT&T's
offerings are still fractured and it's not even
clear people want all their services from one
provider. Now suddenly, separate is better.
What's going on there?
"Isenberg: AT&T is still chasing that goal of
being an Internet-oriented growth company. They
want to be there. So they're trying to lose the
long distance business because its slow growth is
dragging AT&T's share price down, even though it
has healthy cash flow.
"There's another reason for the company to be
breaking up, because you can't manage for both
cash flow and for growth. So, fundamentally it's
a correct strategy. The problem with it is the
timing.
"They've got to find new businesses, and those are
going to have different profit margins.
Businesses that are associated with owning wires
and switches are going to have much, much lower
profit margins. The ones that have the potential
to create huge value -- at the edge of the
network -- are going to be hobbled by their
association with the company that owns wires and
switches.
"TSC: Can AT&T pull this off?
"Isenberg: With its once heavier cash flow from
long distance, AT&T could literally afford to
make mistakes, or to make nonoptimal purchases.
"Now, once it gets rid of the cash flow, and its
only lifeline to the market is growth, well, then
they're going to have to perform, and I'm not
sure they remember how. Especially when almost
all the good people have already left."
[The article above appeared without my snide comments at this
URL: http://www.thestreet.com/tech/telecom/1139750.html. It is
almost certainly Copyright 2000 by thestreet.com and used here
because I don't think Cramer is gonna sue me. -- David I]
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CONFERENCES ON MY CALENDAR
October 31, 2000. New York City. Merrill Lynch TechBrains,
featuring some of my all-time heros like Gordon Bell, Clayton
Christensen, Phil Neches and Don Norman. (I hear that
unpredictable things can happen when you get Bell and
Christensen in the same room!) I'll beat the drum for IP-
Ethernet-Optics from 1:35 to 2:15. To get in, contact Vanessa
Brown, vbrown@exchange.ml.com and tell her your contact info and
the name of your Merrill Lynch representative.
November 5-9, 2000. Rose Hall, Jamaica. Porter Stansberry's
Pirate Investor's Ball, featuring Eric Raymond, Tom Petzinger,
Porter's impressive research director David Lashmet, and yours
truly. Porter is a big-picture guy, a cross between George
Gilder and Tony Robbins, with a nose for leading edge values
in infotech and biotech. Contact Andrea Shaw,
andrea@pirateinvestor.com, 410-223-2648.
November 13-15, 2000. Hong Kong. Jeff Pulver's VON Asia.
VON stands for Voice on the 'Net. It's the premiere Internet
Telephony show in the U.S. and Europe; this is the first Asian
VON. I'll be doing a panel, subject TBD. (I've suggested to
Jeff that it be called XON with X unknown.) For more, see
http://pulver.com/asia2000.
November 28-29, 2000. Montreal PQ. THE NETWORKED NATION:
CANARIE's 6th Advanced Networks Workshop. I'll be speaking,
and so will Francois Menard, Paul Hoffert and other (mostly
Canadian) folks who are honing Canada's leading edge.
SMART People will remember that last year the word from CANARIE
was Ethernet (see CANARIE Sings -- SMART Letter #30, December 9,
1999). Months later the Ethernet story hit The New York Times and
Business Communications Review. This year I hope to learn
something about grids -- watch this space.
http://www.canarie.ca/advnet/workshop_2000/workshopinfo.html
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Copyright 2000 by David S. Isenberg
isen@isen.com -- http://www.isen.com/ -- 1-888-isen-com
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