by Dana Blankenhorn
Volume VI, No. X
For the Week of March 11, 2001

This Week's Clue: Michael Powell is a Big Fat Idiot

You read it here first.

This conclusion is inescapable after the FCC chairman moved to lock competing ISPs off Bell lines, and force wireless broadband providers to subsidize wired competitors.

The evidence came out of his own mouth, his own press release, words he gleefully repeated to any TV microphone within earshot. "Our greatest challenge in promoting broadband is deciding how best to stimulate enormous private sector investment," he said in his formal statement on the proposed ISP lock-out. "Regulatory costs can be just as significant a barrier to deployment as the challenge of raising capital in the dark of a recession."

This is truly Clueless on several counts. We don't need billions for broadband. He's using "reducing regulatory costs" as a code word for taking cops off the streets where they're needed. And he's parroting the Bell-cable line that got us into this mess in the first place.

So some elementary history for you, Mikey.

Bells and cable companies are regulated because they are monopolies. The creation of all their assets was subsidized by both the taxpayers and the market. Eliminating regulations from subsidized assets so monopolies can destroy competitors is subsidizing monopoly power. It doesn't take a rocket scientist to see this.

Besides, the cable operators have had the powers the Bells seek for many years, and they have found them to be burdensome. AOL-Time Warner  and Comcast aren't opening their lines to competitors because they're nice guys. They're doing it to gain market share that would otherwise be lost to DSL and satellite.

It's fashionable in Washington these days for the Administration to look down on Europe. But Europe is moving to unbundle its local loop and the broadband Internet will become more European as a result .

Most important, Powell is ignorant of the trends we identified last week. I don't expect Michael Powell to read a-clue.com, but I do expect the chairman of the FCC to have a Clue.

It's obvious that Michael Powell does not, even when having a Clue would fit in best with what he claims is his ideology. Once you understand how Moore's Law will make copper worthless (and in short order) conservative policy answers become obvious. You don't need a "universal service fund" (something Republicans campaigned against through the 1990s). You can also see the foolishness of pushing wire owners into investing more heavily in wires.

All the moves to improve American education by subsidizing the purchase of PCs failed, not because of socialism, but because of Moore's Law. The PCs were constantly becoming obsolete, and so was the top-down effort geared to them. American families have done much better by buying these machines themselves. Libraries and short-term loans would have done far more to narrow the digital divide than any amount of subsidy to America's monopoly education providers. That's not an ideological argument. It's based on the fact that machines depreciate to worthless every 18 months. It's based on Moore's Law.

The same thing that happened with PCs in the 1990s is happening with broadband today. Depreciation schedules can't keep up with the pace of change. Sending out 100 million 802.11 LAN kits is unnecessary - just encourage folks to buy 'em themselves at $500 each. Government doesn't need to open its checkbook to push this change, just its mouth.

If the FCC chairman doesn't understand Moore's Law, which has been coursing through the economy for 35 years, by 2002 there is only one conclusion you can draw. He's a big fat idiot, and if he lost 60 pounds he'd just be a big thin idiot. (General, is he too big for a spanking?)

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You may have noticed that I've increased my coverage of 802.11 and wireless broadband technology lately. It's the coming thing. The markets for e-commerce, e-advertising and e-content won't boom again until we get massive acceptance of broadband. Wireless technologies offer the promise of cheap, universal (indoors and outdoor) broadband, with huge implications for every technology market. So you'll see more of this from me in the future - a lot more.

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This month I opened a new market for my articles with Ray Fix of Wildwood Marketing. The first one appeared here . More exciting deals are on the way. You can join the A-Clue.Com discussion at I-Strategy , our shared e-mail digest produced with Adventive.Com. You can also read me at ClickZ , BtoB , and Boardwatch . I'm also on the mast-head at Bottom Line Personal , a great print newsletter.

Remember that it's journalism that keeps the Clues coming...

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Takes on the News

The Wi-Fi Market

Paul Boutin wrote a long article in Salon which managed to summarize quite neatly what the telcos don't get about 802.11, or Wi-Fi.

Wi-Fi is not about sitting in Starbucks and "surfing the Net." Boingo is not Ricochet, and whether it works or not (as a business proposition) has nothing to do with Wi-Fi's future. Wi-Fi, right now, is a DSL alternative. In thousands of places across America entrepreneurs with T-1s (or a few of them) are putting antennae on poles, buildings, and water towers, pointing them at subscribers' buildings, and collecting DSL rates from them.

John Markoff came closer to the truth in his New York Times piece. The 802.11 schema itself isn't that important. What's important is "wireless mesh routing," a low-cost method for quickly building network infrastructure.

The wireless DSL market today is relatively small, it's quite anarchic, it's prone to interference (and petty squabbling), but the service works. It works because radios get better all the time, as do antenna networks, while wires are just wires. Boutin writes, "the telcos still have a previous legacy of spending to recoup." But then he goes on to talk about 3G networks. That's not their problem. Their problem is copper. The whole copper infrastructure is obsolete, nearly impossible to upgrade, and it will be proven worthless long before the telcos can write off even a fraction of its cost. Wi-Fi, meanwhile, just keeps getting better-and-better.

The telcos don't get it, the government doesn't get it, and Paul Boutin doesn't get it. It's not about entrepreneurship. It's not about "surfing." It's about Moore's Law. We just happen to be at a tipping-point right now, a place where the cost-and-benefit of wireless and wired DSL seem to be about equal. This is where we were in the competition between cable-and-satellite a few years ago. But now satellite costs less than cable - a lot less. And that difference is only going to grow with time. By the time the telcos figure this out there will be so many people happy with their wireless DSL that the government won't be able to do much about it, just as it can't do much about the Internet in general.

Perhaps Some Smart Folks Are Left (With Money)

A bidding war has broken out over the assets of Global Crossing.

All I can say is thank god. While fiber T-1s are as worthless as kittens, there are going to be only a few undersea Internet links whose capacity is capable of growing over time (because they weren't built with repeaters that make it hideously expensive to upgrade capacity). Global Crossing owns most of these links.

Allowing the Chinese and Singaporeans to control Internet access across the oceans, given their human rights' records, would be far beyond the bounds of normal idiocy. Letting them steal it (and $750 million for this network is highway robbery) would be worse.

The difference between Enron and Global Crossing is not that the latter gave its largesse to Democrats. It's that the latter had real assets (and until Moore's Law kicked in) a valid business model. It's still a choke-point in the world's mass Internet capacity, one whose value will grow over time, not as a bit-per-second value but as a scarce good.

A number of telecom companies were listed as potential buyers for Global Crossing, but I can think of some other names. Georges Soros. Warren Buffett. Bill Gates. Paul Allen. Craig McCaw. Even Ted Turner. Beating a $750 million bid isn't hard at all.

Some Assets Are Worthless

VNU's decision to abandon its NetRatings' merger with Jupiter Media Metrix will probably mean the death of the latter.

The difference between Global Crossing and Jupiter is that Global has real assets whose value (due to their rarity) will increase with time. Media Metrix' rating system requires continuous investment to be worth anything, they're a year or two behind on those investments, and thus (right now) it's nearly worthless. Take that away and you have a rather Clueless market research outfit (their latest "forum" is headlined "the death of free content"  - give me a break).

Gene DeRose and his partner Josh Harris got lucky in the mid-90s. They had a nice little business tucked in a nice little corner of SoHo, and a tsunami of money washed over them. Harris pissed his away  in rather baroque fashion. (Maybe someone will do a movie about it one day, and maybe Burt Reynolds will still be around then to play Pat McGovern.) Gene is doing a quieter, more corporate fade-out, one that (hopefully) will leave him with enough to sit on a beach somewhere for as long as he wants. Theirs was a 1990s story with 1990s choices. The 1990s are over.

Clued-in, Clueless

Clued-in (for once) is Bill Clinton. You win a war of ideas by building bridges, at home and abroad. Trying to bomb millions of people into submission (and waiting for them to do the same to you) is just mutual genocide.

Clueless is the way the Financial Times is trying to extract money from subscribers Charging for what was free is wrong. Charging for enhanced service can work. Chris Cramer of CNN doesn't get it either.

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