For the Week of May 6, 2002
This may come as news to you, but
will not be the last big telecomm power to go bankrupt. Bernie Ebbers won't
be the last such executive to get
the Ken Lay treatment
The expected bankruptcy of the largest Tier One Internet Service Provider
follows the bankruptcy filing of Global Crossing, and the more-recent filing of
. Sitting in the bankruptcy waiting room are such companies as
Do you notice the pattern? All these filings prove the same point, Moore's Law
applies to fiber. Because fiber capacity can be expanded exponentially using
Wavelength Division Multiplexing, with
capacity increasing by a factor of 1,000
, the billions of dollars invested in the 1990s ringing the globe and every
major city with fiber can't be recouped. Infinite supply and a finite demand
creates a price of near-zero.
Since Internet telephony has also been incorporated into phone switches over
the last few years, turning voice into bits, long distance voice prices too are
plunging toward zero. The latest estimate I read was that it costs 2/10th of a
cent per minute to move a long distance voice call, and 155 Mbps fiber lines
leasing for as little as $15,000 per month
. Those 10-10-220 calls (run by Worldcom) are a major rip-off.
The billions of dollars invested in fiber throughout the 1990s were invested
based on the assumption that the value of fiber bandwidth would rise over time,
due to increased demand. But even if phone companies, cable companies, wireless
providers and ISPs had managed to convince people to buy broadband, even if
sites were free to deliver broadband content, and even if everyone had "last
mile" services at affordable prices, Moore's Law would not have kept bandwidth
prices level. It's not just a matter of having everyone wired to broadband, but
of everyone demanding the services of broadband at once, that fills those fiber
Moore's Law is putting all of the telecommunication industry's big balance
sheets - voice and data, national and international, wired and wireless - in
the dumper. Since it's cheaper to buy an "all you can eat" long distance plan
from a cellular provider than a wire line carrier, AT&T and Sprint are just as
threatened as Worldcom. This competition will eventually put cellular providers
under pressure. Moore's Law operates everywhere, meaning such giants as
Deutsche Telekom, British Telecom, and Cable & Wireless are all under threat.
I've been warning about this for years. But it doesn't really help to be right.
The question is what will we do about it? In Net Paradox
(http://www.netparadox.com/) David Isenberg and David Weinberger propose that
governments take major networks out of bankruptcy and run them as public
utilities. In his latest
Gordon Cook claims the ILECs, or the "Teleban," are succeeding in getting
government policies that force consumers to buy their monopoly services at
But even a government bailout of the ILECs and re-monopolization on behalf of
the "Teleban" would be a short-term fix. Moore's Law is irresistible, and it
applies to radios, not just fiber. Other nations are applying this Moore's Law
of Radios to their own wireless worlds, so American intransigence could mean
Mexico or even South Africa will have better service than Americans within the
next five years. In any case, America's monopoly of telecommunications capacity
is going to end, because it's so cheap to reproduce it.
Even if you're totally "clued-in," Moore's Law means that billions of dollars
in long-term debt, originally rated AAA, won't be repaid. It can't be, because
the customer revenue needed to repay it can't come in.
The first point to be made today is we're just at the start of this crash.
Enron, which was highly leveraged based on rising bandwidth prices (it tried to
make a market in the stuff), was just the tip of the iceberg, the canary in the
mine shaft. These early-year bankruptcies are like the recent calving of the
Ross Ice Shelf
. The actual event is like global warming, only in fast-motion.
The second point is that this doesn't completely sink the telecommunications
equipment sector. Moore's Law means that wireless broadband will continue to
improve, and thus such "last mile" solutions will find a market. New fiber
routing systems and diodes that increase fiber capacity will continue to be
sold, to someone, because they do pay for themselves. But a lot of people
talked in the 1990s about the idea that "bandwidth is free" and as they get
their wish some will find it a nightmare.
How should we deal with this? The first and most important thing to do is go
through the grieving process, starting now. We're still in denial - we need to
reach acceptance. This is a titanic financial event, and given the
inter-relationships between the public sector and telecommunications (financial
interdependencies in many developing countries) it's going to pop to the
top-of-the-stack for real policymakers, not just elites. Left unmanaged (and
it's unmanaged today) we're talking about a reversal of the recent "recovery"
by the third quarter, with many of our very-best jobs disappearing. We're
talking about a deflationary spiral rivaling that of the 1930s.
What's the solution? Government will have to step in and buy this unused
capacity at some point, spinning it out (hopefully at a profit) following a
reorganization. That's what the laws of capitalism demand - stock and
bondholders made mistakes and must pay. It's funny, though, how many "market
conservatives" will be calling for bail-outs in the next few years. When they
do, bring a laugh track.
There's another lesson. Connectivity by itself is worthless. Only services,
content, and software are meaningful. There must be a market negotiation to
value services, content and software, in a world where their delivery costs
nothing. Trying to ban technology turns the economy's chief profit-center into
nothing but a cost-center.
can't be borne.
There's a lesson for you and I in all this as well. Make something unique, then
make something else. This is something folks in the computer business have
accepted for decades. It's the only way out of Moore's Law. And it's coming to
a telephone near you.
SSP (Shameless Self-Promotion)
It's here! Yes, the PDF version of
on the Internet" is finally available for purchase at eBooks.Com
, hyperlinks and all. More outlets are being sought, and the
November update will go to all buyers who notify me (and other
interested members of this list) as soon as it's finished.
You can join the A-Clue.Com discussion at
, our shared e-mail digest produced with Adventive.Com. You can
also read me at
. I'm also on the
, a great print newsletter. Remember that it's
keeps the Clues coming...
said it best. If you don't know what you're doing find someone who does and pay
them what they're worth.
This is as true for Web site design as for anything else. Since 1997 I've been
doing a-clue.com myself, as a labor of love. While I love the labor, there are
some things I'm just no good at.
Fortunately I not only found someone who is good at those things, named
Bill Stocking of WebSiteRevamp.Org
, but I'm able to pay him something less than he's worth, because he's
If you're not a Web site designer and you want better results give
him a call.
Bill's also the person who re-designed this newsletter and he did it with
a few hours notice.
Shameless Non-Profit Promotion
Would you like to make some money for yourself, and a good cause? Bob Adams, a
long-time A-Clue subscriber and friend, heads a very entrepreneurial non-profit
humanitarian agency, the Global Development Center (GDC). GDC has set up a new
on the Internet. This offers a private, inexpensive alternative to phones and
e-mail for maintaining contact with family members and loved ones during a
crisis. It's a response to 9/11, but not just another "victims fund". It's a
service people will sign up for because they want it.
There's an affiliate program, which I have joined. You can get a 30% increase
in your return if you sign up as an affiliate through this ad. Here you'll find
his special offer
. Everyone can profit from this, including people in real need.
Takes on the News
The Internet City
One of the great mistakes made during the Internet Boom was in assuming that
heavier use of the Internet would make people better.
The mistake was made because so many "early adopters" of Internet technology
found their lives much improved. Educated, moneyed people from around the world
were brought together based on shared interests, in an environment where rules
were enforced as in a small town. It was a small town. People who flamed or
spammed or hacked were shunned, and an intelligent person can only scream into
dead air for so long before getting the message.
As the Internet became a megalopolis these social strictures evaporated.
Muggers, molesters and thieves could hide behind their anonymity and prey on
the innocent. Most Internet "scandal" stories, even today, are of the
small-town boy (or girl) goes to big city and gets mugged variety, and
it's much easier to blame the city than the criminal
In the mass market Internet, people are more themselves than in the small town
Internet of the past. They pass their online time in well-trod paths, trying to
recreate the small town feel in their old neighborhoods. They do rely on
brands, even media brands, to tell them what's worthwhile. Thus traditional
"gatekeepers" returned to their roles.
In the wake of the Internet Bust we've seen, not just financial losses, but
what appear to be philosophical ones as well. People have adapted the Internet
to fit their existing patterns and lifestyles. It's an adjunct to TV viewing,
to religious or political faith, or (more and more often) to your job. When
it's part of your job, it's not a lot of fun. As unemployment has grown (and
it's chronic in most countries) spamming and hacking have been transformed from
annoyances into big business (and some allege,
but all this is just another form of work.
When recession hits a city, like my home town of Atlanta, taxes go up and
services decline just as needs increase. We go from an unsustainable height to
a (seemingly) unsustainable low. But the low is sustainable. People re-adjust
their expectations downward.
U.S. information technology salaries are down this year from last
, and people are thrilled to have those jobs. Those who had saved are
sustained, those who didn't lose their homes, but the organic process always
leaves survivors, waiting for new growth and change.
That's what is happening in the Internet city. We've gone from Tombstone to Los
Angeles in five years. What this Internet city needs to get past its present
troubles is what the great American cities have, transparency. Transparent
governance, transparent markets, and a simple coherent statement of our rights
and responsibilities as Netizens. Absent that we'll see mere assertions of
authority, and a growing chance of cyber-violence threatening to tear the
fabric of this online society. Perhaps it will take a cataclysmic event - a
cyber-version of September 11 - to concentrate minds on the needs of this
Internet City. I pray that's not the case.
Rendering ISPs Gutless
Whether you're running a server or a client, on a T-3 or a dial-up, there's one
thing every user needs more than anything else on today's Internet.
That something is a firewall.
The need for universal firewalling has become evident with the rise of
, two new worm programs. These are especially nasty creatures, since
they attack anti-viral programs, insert new viruses
, and appear with random "from" addresses and subject lines
in user mailboxes.
. They not only are impossible to identify easily in an inbox, they can also be
activated when you just mouse-over a message. Even if you have an anti-viral,
in other words, you might become infected.
I got dozens of copies of the Klez bugs yet remained uninfected because the
personal firewall on this line (it happens to be ZoneAlarm Pro) changes the
extension on all incoming attachments. This disables viruses and worms until a
user agrees to load or save them. The same thing happens when friends or
vendors send any attachments, even simple ones like hyperlinks.
Even dial-up customers can acquire free versions of these firewall programs
. If you don't have one, get one now.
The Myth of the Golden Shield
The NetParadox is that the best network is the simplest and least profitable.
The same applies to eBooks.
Moore's Law has kept generations of eBooks down. By the time a $300 design, any
$300 design, could be mass-produced and sold, it was obsolete. There were
things the product couldn't do, there were better parts out there.
What's needed is a format that's cheap, flexible, and disposable. (Maybe
Gillette should make them.)
The latest design to come down the pike
is just one more step along that long road. Samsung's format is more readable
than previous versions, it folds shut, it's power requirements are low, but it
still has a long way to go. It costs too much, for one thing. We need to get
the retail price down to about $20. It also needs to be able to read multiple
formats, downloadable from a PC or server (which are becoming the same thing).
A successful eBook must be cheap enough to be given away at a library, as
readable as today's best flat screens, small enough to fold into a pocket,
rugged enough to be dropped on the floor, or be read on a beach. Some say this
can't be done. Maybe it can't be, today. But Moore's Law says it will be done,
and probably sooner than the pessimists think.
Marketwatch.com buying the Hulbert Digest as the anchor for a new
Cox Enterprises' latest Internet reorganization
. I can make them a success with one word - directories. Journalism organizes
markets better than phone companies. If BellSouth won't get out of the way,
just license the needed data from InfoUSA, then add content to sell against it.
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