For the Week of June 17, 2002

The phone network is dead. That is the important lesson of the recently-concluded Supercomm show in Atlanta.

The so-called phone companies have embarked on a radical overhaul, transforming all wired and wireless lines from circuit to packet. Switches will be soft, and TCP/IP will underlay everything. Voice calls will be just another Internet service.

It will be hard for many to get their arms around this change. Concepts like dial-tone are going away. There will be no real difference between an "ILEC" like BellSouth, a "long distance" carrier like AT&T, and an ISP such as Earthlink. The media will talk a lot about "consolidation," and a lot of very big companies will disappear under the merger-and-acquisition waves (Worldcom being the first, followed quickly by Qwest). But that too misses the point.

For now phone companies are in a race against time. They're re-regulating access through the FCC, trying to give the owners of wires control over what people can do online, and how fast they can do it. But the important point is this is a holding action, in violation of Moore's Law, and it's only a matter of time before it falls apart.

Right now cable has the lead in residential broadband, although cable continues to lose market share in its "home" niche of TV to DirecTv and Dish Network. ILECs figure that with the same "rights" (denying consumers the power to choose another ISP for DSL service on their phone lines) they can "compete." That may be true, in the short term. But both cable and phone networks are burdened by the cost of their own infrastructure - that's why broadband prices are rising, while service levels are declining. They both control cul de sacs, which sounds great until you realize "cul de sac" is a fancy term for "dead end."

The "Wi-Fi Cowboys" building 802.11 networks are just the first signs of what's coming. Sprint CEO William Esrey told me at Supercomm his firm will now build-out MMDS (wireless broadband on licensed frequencies) quickly, because "self-install" equipment is available to users. (Turning on MMDS required truck rolls two years ago, he said.) The FCC decision allowing OFDM modulation on 802.11b means that by next year laptop and PDA makers will be able to support 802.11a, 802.11b and 3G "Bluetooth" systems in a single, standard card.

There's even more competition coming. You know that wire your PC gets its power from? That line can also carry data, and it will. Power companies are now looking for ISPs to partner with, who can run Internet services on the low-power end of their networks. These can be extended through wireless technology, or the ISPs could just plug-into optical fibers when they go by a switch. (Electrical grids go by every switch.) Power companies need ISPs for this job because they have neither the technical nor marketing expertise in-house.

While ILECs may be able to keep data CLECs and ISPs from controlling part of their copper bandwidth, they can't keep out "voice CLECs," competing phone companies seeking to use their basic infrastructure. This was their price for getting into long distance (an industry made obsolete by Internet technology). Already, for instance, Atlanta residents can get voice service from AT&T and MCI, as well as BellSouth. An ISP that runs the paperwork to become a "voice CLEC" has the same rights as those large companies. They can take over lines and (with technology like that of Metalink deliver 17 Mbps of data throughput within 5 miles of a switch, in which the 56 Kbps signals of an uncompressed phone call are trivial. (Oh, that 17 Mbps takes no more frequency than current DSL systems. You can still use the phone while running data at that speed.)

Here's where it gets fun, and fast. Terminate a Metalink line at an antenna rather than a phone. Make that antenna a back-haul for other antennae on an 802.11 system. Now you're delivering full DSL (not the crippled rate the phone giants offer) on a system you can completely write-down in three years. Use that time to link between the phone switch and a competitive (non-Bell) fiber, or a POP housing several competing fiber trunks. Point your antennae and/or back-haul there when it's convenient. Play your back-haul suppliers off against one another.

This is a game a lot of people can play. This is a game a "greenfield" (new) player can play best. They can go through two or three generations of improvements in the eight years Esrey figures it will take for his own digital network to reach "East Podunk," the farthest reaches of his current operations. And Esrey is a forward-thinker for this industry - figure it will take outfits like SBC and BellSouth 15 years to reach that point. They'll be dead long before that, because they're already hemorrhaging market share.

The point is, it's all Internet, and it's all inevitable. You'll read a lot of doom-and-gloom in the next few months from "consumer advocates" claiming "competition is dead," but they're living in a steady-state universe that doesn't exist. Moore's Law is the true dialectic, and Moore was a pessimist.

What does all this mean for you? There's no difference between "Internet Strategy" and "business strategy." There's no difference between "phone" communication and "data" communication. The new network, unlike the phone network, is always-on, from your desk, from your lap, even from your hand on a PDA or cell phone (which will soon be the same thing). The "Web" is just one way to use this capability - e-mail, chat, and IM are also just "channels" on the new network. (Software is yet another, as is text-to-speech, as is voice, as is peer-to-peer, as are databases.) There are, and will be, other channels. Find them, build them, use them.

What we have here is not just evolution in action, but the business equivalent of a meteor strike. When the big meteor hits you don't want to be at the top of the food chain. The dinosaurs are doomed. You have the opportunity, in the next decade, to replace them. Seize it.

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SSP (Shameless Self-Promotion)

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Shameless Promotion

The Great Jerry Pournelle said it best. If you don't know what you're doing find someone who does and pay them what they're worth.

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Takes on the News

It's Not Your Fault

It was a good moment gone bad.

I was at the local coffee shop behind two young dads. The first said he was lucky to get the day off, and asked the second how he did it. The second replied he'd been laid-off six weeks ago from the local bank.

There ensued several minutes of embarrassing chatter from the first man. You'll get another job in a heartbeat. Have you tried monster.com? Are you networking? Can I do anything for you (that won't be any trouble)?

You don't understand, the second man said, this was the only big bank left in town, all the others were sold years ago. What the second man needed was a new career path, something the first man couldn't offer.

I left the first man chattering inanely and left for home, only to learn that lay-offs were continuing at my wife's employer. A man down the hall from her, with a two-month old son, got the axe just that day. His wife had been talking about quitting work herself. Now she's the soul breadwinner.

The sad fact is this recession is longer, deeper, harder, and more general than the media or Washington have let on. Unemployment is grossly under-stated because millions of contingent workers (like me) aren't counted. If you freelance and your income has dropped 90% you're not called unemployed.

It's not just that. The new jobs of the War Economy are grossly inferior to the old jobs of the Net Economy. Computer programmers and mid-level managers at $80k are going out the door, replaced by security guards and Wal-Mart floorwalkers at $15-20k. Big government borrowing-and-spending is no real replacement for technology - it does nothing for future productivity. It takes money from taxpayers - government pays no taxes.

The result is a Potemkin Recovery, and the market isn't fooled. The dollar is falling, the NASDAQ has tanked again, gold is rising in value. No country can go it alone in an interconnected world, and this country is still in denial that this is history's message for us.

Denial, in fact, seems to be the rage. The Bush Administration is in denial. The Catholic Church is in denial. The media are in denial. But more important, the American people are in denial. Denial, however, is just the first step in a grieving process. What happens when we get to the next stage, when "new war" rhetoric fails to sustain us? Will the Administration turn its powers on us, as in previous generations, confusing honest dissent with treason? We've got enough enemies, do we want to create more from within?

What has kept us from seeing our history clearly is our relative prosperity. The gains of the last 50 years are being systematically whittled away, while most Americans cocoon ever-deeper into their homes, their cars, and their toys. A democratic ship doesn't turn without rage, pain and action by those who are impacted by negative change.

How does the Internet relate to this? Quite simply, the Internet is the best tool yet devised for translating pain into action. China can't stop it, although it is trying mightily. We can't stop it, nor should we.

For what it's worth it's been said before, and better. It's time to stop, children, what's that sound, everybody look what's going down.... I even said it better myself. The distance between McCarthy and Vietnam in the 20th century was measured in decades. In Internet Time it may be measured only in months. Here is where the real battle is being fought, over the idea of a "commons" everyone can benefit from, as opposed to walled-off land, content and technology only a few can benefit from. When these trends change the boat is truly turning.

One final note. Wise readers (and some sleepy ones) may claim there's a contradiction between this Clue and the preceding one. Your Clue is, don't be confused between the short term and the long term, between the problems of one country (no matter how large) and the world as a whole. A stupid U.S. can slow progress some, it can toss aside its world leadership by dumping its moral authority. But the Internet Genie is out of the bottle. Intel has major operations in China, Russia and elsewhere. Technology and the market are the true dialectic, the long-term trends that matter from 30,000 feet. Our stupidity is just that - ours.

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The Suits Win Again

Back when Time-Warner bought Turner Broadcasting I mourned. Ted Turner was an entrepreneur, a man who bet his company several times on pure vision. I knew he was no match for the New York suits, and he wasn't. Slowly at first, then more rapidly, they ground him down and destroyed his company.

A big company is bureaucratic by nature. Those who rise within a bureaucracy are beholden not so much to the market as to the internal values, and relationships, they develop in their careers. Success in the market means less than victory in the internal turf wars, where appearance is all and risk a dirty word. The bigger the company, the more this is true. That's why big companies are so often Clueless - without an entrepreneur providing clear direction they easily lose their way.

When Time bought AOL (and that's how the transaction was structured) the media fawned over AOL's leaders, predicting power would gravitate to Virginia. I knew better. Big suit Gerald Levin has been followed by empty suit Richard Parsons. Steve Case has been given the Turner shuffle (ironically, Turner has helped in this by supporting Parsons), and now Case's top lieutenants are being picked-off one-by-one. The pending departure of Bob Pittman, whom Case saw as his best shot at the top job, merely completes an inevitable process. After all no one is irreplaceable. Failed Internet executives are thick on the ground.

What comes next? Just the inevitable realization that Time Warner Cable, the jewel sought by Case in merging with Time Warner, is in fact balance sheet poison. The AOL service has been blamed for the company's woes but it's basically profitable and doesn't chew-up capital. Time Warner Cable is what chews up capital. It will be fun to watch what happens when this realization dawns on someone in New York.

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Media Metrix RIP (Guest Eulogy >From Russell Shaw)

I was prepared to write at length about Comscore's acquisition of Media Metrix for $1.5 million. Then my friend Russell Shaw sent me a note that summarized the matter far better than I ever could. So take it away, Russell:

Oh, and, I see that Jupiter sold off the Media Metrix division for $1.5 million. Sounds like a fire sale to me. Gosh how time flies; it wasn't all that long ago that MM was a frequently cited source for Web traffic count info. But the low price tells me several things, and want to see if you agree:

1. They were based on page views, and few people care about page views any more.
2. Even at the height of page view hysteria, they never did manage to get behind the corporate firewall -- thus opting themselves out of a key measuring constituency especially for news and finance sites that tend to be heavily viewed during the day.
3. They never did succeed in revising their approach to come up with metrics that had and have value to online buyers and sellers.
4. The model was to integrate the Jupiter high-dollar Internet strategy newsletter and consulting business with insight gleaned from MM findings. But the high dollar companies never used Jupiter: instead opting for the KPMGs. Meanwhile the wanna-be's who did use Jupiter either died out, or when strategic insight proved to be non-transforming, decided to go it on their own and do pop-ups, barely concealed spam, and meaningless Flash apps instead of something more strategically sound.
5. Corporate belt-tightening at clients caused many of them to bolt from JMM, and stop paying huge fees, stop attending fun but overpriced conferences where they wound up talking to each other.
6. With the smaller waterhole, only room for one such company, and NetRatings has had more powerful alliances.

You could be, Russell, but not likely.

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Clued-in, Clueless

Clued-in is Earthlink's acquisition of PeoplePC. Read between the lines and they're trying to find a cheap way to compete with such low-priced dial-up offerings as Hawk Communicationsand United Online. Is the $45 million (including liabilities) Earthlink paid here right? Is the market it seeks to serve worthwhile? Everything depends on execution.

Clueless is less Yahoo's redesign than the reaction to it. Yahoo is no longer a search site, it's an advertising aggregator. It's what Excite and Lycos hoped to be. Which is the most cogent criticism I can offer.

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