The Paradox of the Best Network Logo

This FAQ refers to "A Letter to FCC Chairman Michael Powell." Not all the signers of the letter to Powell may agree with everything in this FAQ; they signed the letter, not this page. And, as with everything except letters already delivered to a government official, this page is under development...

Q: Why do you want the telcos to fail?

A: The letter to Chairman Powell doesn't express a desire but an assessment. The incumbent telecommunications industry is already in the process of failing financially. The letter recommends a course of action given the inevitably of that failure.

Q: Are you saying that Verizon (or whoever) is going to go bankrupt?

A: No, we are not making predictions about particular companies. We are saying that there are structural problems with the telecommunications industry as a whole.

Q: What interests does your group represent?

A: We are in no way an organized group. Generally, we are "net heads" - Internet businesspeople, consultants and analysts - who believe that the future of telecommunications will inevitably be via the Internet. We think it better if we get there sooner rather than later.

Q: Why have some non-Americans signed?

A: Because the 'net erases borders, and because people from other countries benefit when progress occurs in the U.S. Metcalfe's Law states that the 'net gains value as the square of people attached to it. Reed's Law is stronger, N to the N. So if U.S. connections are impoverished, everybody all around the world loses. But more importantly, the U.S. has had the lead since the invention of the Internet, and everybody around the world has benefited -- and there's a strong sentiment among the world's Netheads that this continue.

(More on Reed's Law here.)

Q: We bailed out the airlines, why not the telcos?

A: The airlines were not undergoing industry restructuring. They did that 20 years ago -- People Express, etc., was a response to the advent of the jet plane. Remember Eastern? Pan Am? Dozens of others?

And the jet was just a 10x, or maybe, liberally, a 100x over the DC-3. Now we do 10x every couple of years.

As David S. Isenberg pointed out at the Fiber to the Home Council Annual Meeting in New Orleans, if dial-up Internet is a one-lane road, and DSL is a freeway (with 1 lane to work and 8 lanes home), then one fiber -- a single fiber lit at today's speeds would be a road with 25 million lanes. That road would be 57,000 miles across. You could wrap it around the world width-wise 1 and a half times. That one fiber could carry the busy hour traffic of 1600 towns with 100,000 phones each. If everybody in the U.S. had a telephone, then two fibers could handle the conventional telephony busy-hour traffic. We could handle the entire world's telephony on 40 or 50 fibers (assuming everybody in the world had a telephone). And you can get such a fiber to your home -- an entire fiber, to be lit as fast as necessary -- for $3000.

Q: But if we let the telcos go bankrupt, will there be any telephone service? Won't the communications infrastructure collapse?

A: Of course there will be telephone service, and in fact you won't notice anything when your telephone company goes bankrupt. One of the best things about our economic system is that we have a very efficient mechanism to purge stranded capital without ruining the businesses themselves... it's called chapter 11. If an airline in Chapter 11 can still operate planes and get you safely from one airport to another, a telco operating in Chapter 11 can complete a telephone call. Just look at Worldcom. But of course, failing telcos will howl for government support, claiming that the sky is falling. We musn't give in to their pleas. Their businesses will emerge from chapter with a much lower capitalization and lower cost base, and will be able to charge lower prices.

Q: What will replace the phone system?

A: You'll pick up the handset on your Internet Protocol phone, and make a call, simple as that. Or maybe you'll use a speakerphone program running in your PC. What you won't need is a vast conglomeration of mainframe computer switches to do it, and you won't need to differentiate the service from your internet service.

Take caller ID as an example. The phone company charges you say, eight dollars a month to deliver ten bytes of information: the number that's calling you. The only reason they can get away with it is that they have an antique monopoly. What does it cost you to know who sent you an e-mail? Nothing. What does the internet provider charge you to find out? Nothing. On an internet phone, the caller ID revenue goes to zero. That's just one example of the future the telcos have to deal with.

Q: When the telcos fail, who's going to be left holding the bag?

A: We will all pay. Under the current system, the shareholders and bondholders will take the biggest hit. This is as it should be; people forget that risk/reward has two terms. The "no bailouts" plea is directed at keeping the cost of telco failures out of our tax base. Of course, this will not be totally effective. But we will pay much, much more in economic malaise if we prop up obsolete dinosaurs while the rest of the world is rapidly evolving into a telecom nirvana.

Q: What about the Internet bubble? If the Internet is taking over telecommunications, how come all those dot coms went down?

A: Distinguish between dot coms (companies that own websites) and Internet technology. We're talking about what happens once the Internet protocol is used for all telecommunications, including voice. It brings the cost of telecom vastly below current telco rates. The Internet bubble inflated because people speculatedin website companies like theglobe.com, drkoop.com, and pets.com. That's just tulip mania updated to the year 2000. And remember, the amounts lost in the Internet bubble, by comparison with the telecom debacle, were tiny.

This is not to say that worthy companies that presage the future did not also fail. Many did. But even when we understand a sector's business model perfectly, there can be failures -- for example, 90% of restaurants fail in their first year. We are in early stages; experimentation is important. Many of the companies that failed deserved to fail -- fast failure is important even for small, young companies. But we do not know which business models will work in the future post-communications-revolution world that we envision, and the best way we know to find out is the Darwinian process of trial and error in an open, competitive marketplace.


Q: If internet protocol telephony will rule, then why did companies like Global Crossing and 360 Networks go belly up?

A: Besides simple speculation excess, those companies were premised on the end use of their fiber getting to homes and businesses and driving demand much faster than it did. The obsolete telco industry still controls the last mile, and until that control is less absolute, too much backbone capacity equals bankruptcy. But, rest assured, the business model of the
last mile is due to change dramatically.

Q: When the telcos fail, won't a lot of highly skilled employees suffer?

A: Yes, there will be unemployment among highly skilled network engineers. But necessity is the mother of invention, and these people, freed from the old tech base and the old business model will become much more productive sources of networked value than they were when they were shackled to the old circuit-switched technology and old, vertically-integrated business plan.

If there is to be government assistance, let it be aimed at providing ways for unemployed, talented, highly trained network engineers to continue to create wealth, national advantage and benefit for humanity by doing research and exploratory development on even newer network technologies and architectures. Remember, the Internet began with a $150 million DARPA project, and even today many Internet pioneers can write a check for that on available funds. Many important network improvements and useful applications remain undiscovered - the nation's communications engineers could discover them.

Also, Bell Labs is a shadow of its former self. Remember the transistor, the DSP, stereo recording, speech coding, etc., etc., came from Bell Labs. Bell Labs was a national treasure. Perhaps we can find new ways to catalyze the industry's talent.

Q: If the telcos have the last mile sewn up, how can they ever lose?

A: They're losing now. They're losing access lines for the first time since the great depression. Large and medium size businesses can already bypass the last mile entirely with internet based telephony. That capability is going to go downstream right into the residence in just a few years.

Q: Is there any good news in this?

A: There's plenty:

  • The movement of telecommunications to the Internet infrastructure will enable an outburst of innovation; anyone with an idea and some capital will be able to enter the market, rather than having to wait for a telecommunications company to decide to build it into its aging network. A group of reactionary companies will no longer keep innovation trapped in a copper cage.
  • Telecommunications will become less expensive, more mobile, more personal, more customizable.
  • Vast amounts of bandwidth will become available. High bandwidth connections will become almost ubiquitous.
  • Since scheduling programs is really a way of managing insufficient bandwidth, television and other entertainment media will become more available and responsive to customer desires.
  • As price-performance continues to improve, more and more of the world's peoples will gain access to the network. This will put them in touch with a world of new customers, suppliers, employers, employees, and new ideas that could spur growth in economies everywhere.




Written by D. Isenberg, M. Oristano, D. Weinberger
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Last updated: Oct. 21 '02 8:25am