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SMART Letter #23 - July 7, 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
> 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
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PLANET IT ON-LINE ROUNDTABLE ON "THE STUPID NETWORK"
I'm currently hosting Planet IT's on-line discussion - see
http://planetit.com/techcenters/advanced_ip_services and
click on my mug. Jump in! Disrupters welcome!!!
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THE MOST IMPORTANT PAPER SINCE 'THE STUPID NETWORK'???
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 http://tmdenton.com/netheads3.htm,
the Cook Report on Internet is at http://cookreport.com
and Steve G. Steinberg is acknowledged for his Netheads & Bellheads coinage
http://steinberg.org/copy/netheads.html
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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
disrupters.
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
quickly").
NEW TECHNOLOGY, OLD MARKETPLACE
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
disrupter.
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
chain.
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).
THE ILLUSION OF ETERNAL INCUMBENCY
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.
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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.
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SMART REMARKS FROM SMART PEOPLE:
W. David Bayless dbayless@origin-group.com 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 (ewan@pc.jaring.my) 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 (bonnie@bestyellow.com) 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 (Zigurd_Mednieks@msn.com) 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
http://www.phonezone.com/telirati . . . 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 (einar.flydal@telenor.com) 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 (Michael_Weingarten@monitor.com)
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 (MediaKat@interport.net) writes to ask that we mention
her July 2 Industry Standard article, "Telco Sites Leave Customers on Hold."
Normally isen.com 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
thestandard.net/articles/display/0,1449,5398,00.html?home.tf
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."
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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.
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CONFERENCES ON MY CALENDAR
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
http://www.gildergroup.com/conference/di/diindex.html
July 28-29, 1999, London UK. "Business Discontinuities within the Ubiquitous
Internet" by TTI/Vanguard. See http://www.ttivanguard.com/ for more
details.
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:
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 1999 by David S. Isenberg
isen@isen.com -- http://www.isen.com/ -- 1-888-isen-com
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Date last modified: 7 July 99