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SMART Letter #21 - May 13, 1999
Copyright 1999 by David S. Isenberg
At isen.com we accumulate intellectual capital
the old fashioned way -- we LEARN it.
isen@isen.com -- http://www.isen.com/ -- 1-888-isen-com
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CONTENTS
> The full impact of The Stupid Network
> Quote of Note: Kevin Werbach
> Lead Essay: Why equal access for cable matters
> Making an Ally of Piracy, by Jaron Lanier
> Quote of Note: Tom Petzinger
> Conferences on my Calendar, Copyright Notice, Administrivia
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PERSPECTIVE: FACING UP TO THE FULL IMPACT OF THE STUPID NETWORK, By David S.
Isenberg
(The article below appeared in Communications Week
International, 10 May 1999, but it was written in early
April, before AT&T's deal with MediaOne/Roadrunner,
and before Microsoft bought 3% of AT&T. So it is
out of date, and probably wrong in a certain
specific sense. See "WHY EQUAL ACCESS FOR CABLE
MATTERS," below.
David I)
NEWS ITEM: "The Stupid Network theory has been vindicated
by the company that long resisted it. AT&T's network
chief Frank Ianna announced in March that all subsequent
network development will be packet oriented . . . "
Communications Week International, 5 April 1999
AT&T's move to cap investment in its circuit-switched network only partially
"vindicates" the Stupid Network idea. Despite this important step, AT&T does
not yet seem to grasp the impact of the Stupid Network on its business
model.
AT&T network czar Frank Ianna says that the post-circuit world will be
"either ATM or Internet Protocol or some combination of those," and he sees
a "huge debate" on this issue. He does not seem to realize that Internet
protocol has won hands down, or that IP is now reducing the need for ATM,
and even SONET, making the network ever more simple and stupid.
Furthermore, Ianna's new emphasis on "Endpoints, endpoints, endpoints," does
not seem to appreciate that IP terminates in a device at the customer's
fingertips. Such "endpoints" are no longer owned or controlled by AT&T.
This simple fact has profound consequences for how AT&T does business.
Because IP is an internetworking protocol, it makes differences between
networks irrelevant. So no matter how much intelligence AT&T's network has,
or how many cool features AT&T adds, in an all-IP network, the only
properties that matter are transport and connectivity.
In an all-IP world, the network becomes the transport device for the
customer's application -- much like a disk drive is the customer's storage
device. This means that new applications, new value, can be created at the
edge of the network, without the permission, control, or involvement of the
network owner.
And when network ownership is de-coupled from value creation, AT&T derives
no benefit from this new value beyond the new traffic it spawns.
In other words, when AT&T thinks of its network as some kind of "crown
jewel," it is misguided. Under IP, AT&T's network is just like any other
network.
AT&T chairman and chief executive C. Michael Armstrong does not seem to
grasp this either. He speaks of a facilities-based strategy whereby which
AT&T would control the interfaces, protocols, standards and platforms of the
network and weave them into a set of seamless services.
In other words, he still sees AT&T's network as somehow involved in value
creation. He does not see that in an all-IP world, the IP interface
de-couples the platforms, standards and protocols from network transport.
Facilities are commodities, and the value is created at the edge.
If AT&T saw this, it would have a different business model. It would stop
trying to make its network special. Instead, it would ride open industry
trajectories and emphasize its compatibility with other networks. It would
build fat, dumb pipes. It would concentrate on delivering the most bits to
the most people at the lowest cost. And it would leave "value added" to the
people who build applications for the smart IP-enabled devices at the new
edge of the network - the customer premises.
(David S. Isenberg, Ph.D., is principal prosultant (sm) at isen.com inc., a
telecoms analysis firm in Westfield, New Jersey. From 1985 to 1999 he served
as a Distinguished Member of Technical Staff at AT&T (Bell) Labs.)
(Prosultant is a service mark of isen.com inc.)
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QUOTE OF NOTE: Kevin Werbach
"We take it for granted that IP networks are open, but that's not
preordained." (from Release 1.0, 19 February 1999, p. 2)
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WHY EQUAL ACCESS FOR CABLE MATTERS, By David S. Isenberg
Perhaps the article above is wrong. Perhaps AT&T's management actually
*does* grasp the business impact of internetworking. Perhaps AT&T's
executives *do* understand how the Internet threatens its business model.
(AT&T's people are not stupid, they're just locked in by their incumbency,
their legacy, and their culture.)
So perhaps AT&T's move into cable TV is a conscious attempt to re-establish
vertical control of the communications industry, to pre-empt competition in
broadband services before anybody notices, before there are even one million
cable modem households.
In an all-IP world, there are only two ways to gain "control." You can write
better code. Or you can establish a dominant, domineering market
position -- a single-provider network.
AT&T now has controlling stakes in both @Home and Roadrunner, the two
dominant Cable Internet Service Providers. And its new 3% solution with
Microsoft could give the duo vertical, monopoly-like control over broadband
networks, operating systems and applications at the household edges of the
newly unified broadband network.
The FCC is in a bind. They are charged with bringing competition to local
phone service under the 1996 Telecom Act. But the Act was written for a
future that never came, a future of strong cable companies and 500
"interactive" channels -- plus telephony over cable. The Act did not
anticipate the strength of new satellite TV services (DBS) or the extent to
which the 1994 re-regulation of cable would weaken the finances of cable
operators.
AT&T knows only high profit-margin businesses. In its new cable-access
initiatives, its numbers work best when AT&T cable customers are locked into
AT&T telephone services and AT&T Internet services. If cable were regulated
like phone service, with equal access to any phone company and any Internet
service the customer wants, AT&T's business case would be weakened.
So C. Mike tells the FCC that AT&T might not create local phone competition
(via IP telephony over cable) if the FCC applies equal access rules to
cable. And the FCC, still under the gun to make local phone competition
happen, feels the pressure of an impatient congress to yield to AT&T.
From today's perspective, the Faustian bargain is a no-brainer: Give AT&T a
big break on something that isn't quite here yet, something that nobody will
notice for a few years. In return, AT&T promises tangible local phone
competition. Politically -- that is to say, in the short term, with the
most immediate good P.R. -- it'd be the right thing to do.
The next winner app is Audio on Demand. The second most searched word on
the Internet these days is MP3. MP3 is warping the traffic patterns on
corporate networks. Yet it is strange that nobody I know has an MP3 player,
but everybody wants one. The last time I went to MP3.com to download it, I
couldn't get in. MP3.com was too crowded.
Audio on demand works -- barely -- at modem speeds. It needs more, so it
works better at DSL/Cable Modem/LAN speeds.
This presages a Video on Demand revolution. As surely as TV followed radio,
Video on Demand will flare as soon as the technology is in place. It has
ignited, but DSL and Cable Modem are inadequate fuel. When truly broad
bandwidth arrives, and when PC interfaces can keep up -- burn, baby, burn!
Nearsighted regulators and politicians (and self-interested business
leaders) will call DSL competition. But DSL is tied to copper circuits.
When there is no copper, there is no DSL. Cable is different -- it's a bus,
and when you get too much traffic for one bus, the economics support two
busses. The fiber gets pushed deeper and deeper into the neighborhood,
until -- theoretically -- there is one fiber per home.
So when bandwidth demands outrun DSL's capacity, there will be cable. And
now we see who the dominant provider of that cable will be.
The dominant cable provider also will be the dominant provider of TV. When
that provider sees the disruptive power of its own broadband
Internet-enabled grassroots Video on Demand revolution upon its own TV
business, it is likely to cripple the former to protect the latter.
(They'll probably say they're improving it.)
Imagine, for a minute, that the big record companies also controlled today's
Internet. How do you think they'd react to today's bottom-up Audio on
Demand revolution? Catch my drift?
Some will say that there is no danger, that AT&T has forgotten how to
execute. This is possible, perhaps even likely, but I do not take any
pleasure in betting against my alma mater and the competence of my friends.
Others will say that the newly dominant AT&T will succumb to the rowdy
feedback of disruptive technology in the marketplace. Yes, I'd agree, but
how long will it take, and at what cost?
The genie is out of the bottle, and if it can't breathe free in the United
States, somebody will give it a friendly home. (The encryption fiasco was
small potatoes compared to this.)
Equal access seems to me cheap insurance against the re-verticalization of
the communications infrastructure. Equal access could be a much-needed
stitch in time that keeps the fabric of the Stupid Network from unraveling
when the giant pulls a thread. Equal access will keep the cauldron of new
applications and technologies bubbling. Equal access will benefit everybody
except AT&T's largest shareholders. And ultimately they will benefit too.
We need the same rules whether two wires twist around each other or one runs
through the center of the other. We need equal access for cable.
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MAKING AN ALLY OF PIRACY, By Jaron Lanier
From the Sunday New York Times, May 9, 1999
[Note: A few weeks ago, Clayton Christensen told me that people seem to
learn more from stories about disruptive technologies in industries other
than their own. I was going to write something about the disruptive effects
of MP3 on the record labels, in hope that we'd learn about telecom from it,
but Jaron explains it so cleanly and compellingly that I pirated his New
York Times article intact. -- David I]
Since January, major labels have been meeting to
develop a system of distributing music on the
Internet to combat what they see as piracy.
Jaron Lanier, a virtual-reality pioneer and a
musician, sees things differently. He is developing
what he considers to be a more sensible plan for the
emerging digital economy, and here is an excerpt from
his manifesto, "Piracy Is Your Friend."
"Piracy is a phony issue that record labels are hyping to rip off artists.
Piracy has always existed. That's why there's a mountain of blank cassettes
in any big electronic store.
"When someone decides to buy your music instead of copying it, they're doing
it for a lot of reasons. Maybe they're ethical. Maybe they like the
convenience of not having to hassle with the uncertainty of copying
something -- Will it come out right? Is it done yet? Maybe it's their way of
expressing good will to you.
"But face it, if your music wasn't available for free in some form, no one
would have a chance to hear it to decide to buy it in the first place. The
old form of "free" music was radio (which is often taped by pirates) and
MTV, but eventually the Internet is going to take over everything. There
will still be TV and radio, but they'll be implemented digitally. Give it 10
years. When that happens, the idea of not giving away music for free will be
exactly the same thing as never promoting music at all.
"The real question should not be, "How can I keep my fans from hearing my
music for free?" It should be, "How can I best make money from my fans?"
Those are two different questions. Sure, you "lose" money to pirates. But
you also lose money to a label that isn't doing anything for you.
"It used to be that a label was needed to finance, manufacture, store, ship
and market your music. That's how they earned their cut. The arrangement
made sense. If the music business wasn't shrinking before our eyes, it would
still make sense.
"But in the digital era, it costs nothing to ship your music over the
Internet to a fan. So the biggest reason for labels just went away.
"As for financing, well, if advances were stacked up against finance deals
in other industries, they'd look a lot like usury -- except that they aren't
even loans: once they're paid back, the label still owns the master. There
is simply no worse conceivable form of financing. We can do better if we
take charge of our own careers.
"But what about marketing? Can labels still do that? Of course they can, for
a few big acts. But once you are established, your own Web site connects
with your fan base better than the label can.
"Even if you are a huge artist, think whether in the course of your whole
career, not just the next couple of years, you lose more money to pirates or
to labels who will be taking most of your money for no reason at all?
"When somebody in a dorm room buys thousands of dollars' worth of gear and
stays up all night hacking MP3's just to get "free" music, that's what you
call an opportunity, not a problem. You have found yourself a new generation
of fanatics. The only problem is that computer companies are making the
money right now instead of musicians.
"Labels can't prevent piracy. No one can. I know computers as well as anyone
on the planet, and I promise you, kids will break whatever copy protection
scheme the labels come up with. And the industry knows it.
"In fact, the easier it is to copy music, the less of a threat piracy will
become. When piracy gets easier, professional pirates have less to offer.
The only pirates left will be fans. And there are lots of ways to make money
from fans.
"The reason the Recording Industry Association of America and the labels are
pushing anti-piracy laws and technologies has nothing to do with preventing
piracy. They're doing it so that they can control the new digital music
channels. To keep anyone else, like you, from sharing the power.
"They're doing it to rip you off. Period.
"You can make more money in the new era of "free" digital music. But only if
you break free of label mind control."
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QUOTE OF NOTE: Tom Petzinger
"All the bandwidth in the world can convey only a fraction of what we are."
(from "The Front Lines," Wall Street Journal, 4/23/99)
CONFERENCES ON MY CALENDAR
May 23-26, 1999, Washington DC. 7x24 EXCHANGE 1999
Spring Conference. 7x24 is a non-profit consortium that
is devoted to always-on facilities of all kinds. Today
they're weighted towards electric power and financial
services industries, but they want and need more telecom
involvement. It could be a great forum for us to
learn about reliability from individuals with similar
practices in different industries. I'll be giving
the keynote, on Tuesday, May 25, on "Reliability and
the Stupid Network." For more information, contact
Joe Paladino, 212-575-2275, axiomny@aol.com, website
forthcoming.
May 26-28, 1999, Laguna Niguel CA. VORTEX!!! By invit-
ation only. If you have not been invited yet, and you
can pay the hefty freight (see www.vortex99.com) write
to Bob Metcalfe [metcalfe@idg.net] and tell him how SMART
you are. Maybe he'll invite you. (It *will* be good!)
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,
watch http://www.forbes.com/conf/Telecosm99/index.html
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COPYRIGHT NOTICE:
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Copyright 1999 by David S. Isenberg
isen@isen.com -- http://www.isen.com/ -- 1-888-isen-com
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Date last modified: 14 May 99