Jeff you'll like this one if PAC BELL bugs you. Tim McCormick posted it on the AWRE thread.
A sample: "Our industry is driven by Moore's Law," says the Silicon Valley investor
Roger McNamee. "Theirs is driven by Moron's Law--the morons who run
and regulate American's telcos."
Enjoy! <GG>
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To: savolainen (2221 )
From: Tim McCormick Tuesday, Dec 9 1997 1:24AM EST
Reply # of 2223
This is one of the best articles I have read in a long time.
Digital Warriors Want
Baby Bells' Blood
By RICH KARLGAARD
Woody Allen has been overtaken by events. In the digital economy,
showing up isn't enough; speed and brains are 90% of success. Look no
further than mighty Microsoft, a company built on IQ and mental speed.
The company is remorseless about acquiring brains--logical, fast-twitch
brains. Though the courts have virtually banned IQ tests in the workplace,
Microsoft scoots around this restriction, as any dazed job applicant will tell
you. I once spent a week on the road with CEO Bill Gates; always at the
top of his agenda were questions like: Who's smart, who's not? Are our
guys as smart and quick as Netscape's and Sun's? How do we allocate IQ
to the highest use?
And it's not just Microsoft. Talk to digital luminaries like Intel's Andy
Grove or Yahoo!'s Jerry Yang, or to any of the financiers who kindled the
personal-computer and Internet industries, like the venture capitalist John
Doerr. These rich brainiacs may closet it a bit more diplomatically than
Mr. Gates does. But to the grandees of the digital aristocracy, if you want
to be taken seriously, let it be known that you scored an 800 on your math
SAT way back when.
Speed and brains. Do not forget them as you handicap the coming
Armageddon between the PC-Internet industries and America's local
phone companies.
'Stupid Jerks'
Armageddon? Oh, it's coming all right. The digital crowd hates the telcos.
Hates them like ball bearings hate sand, like sailors hate the doldrums.
"They're stupid jerks, and they must be destroyed," says Robert Metcalfe,
the man who invented Ethernet and founded 3Com. Mr. Metcalfe now is
looking into legal measures to break up the local-loop telephone-company
monopoly. He wants the local telcos to compete on one another's turf. "I
want to expose their laziness, their stupidity, and their fraudulent price
structure," Mr. Metcalfe says. He is sure that rivalry in the local loop will
drive down the price of high-speed Internet connections by 90% within a
year.
The digital crowd's withering view of the phone companies is shaped by
the rapid changes of their own industry. The first microprocessor, the Intel
4004, could crunch about 400 instructions a second when it made its
debut, in a calculator made by Busicom, in 1971. The fabled IBM
Personal Computer of 1981 could zip through 330,000 instructions a
second. Today's run-of-the-mill $1,500 PC can handle 200 million
instructions a second. Digital's Alpha processor can tick off some one
billion instructions per second. Computer power on silicon has increased a
million-fold or so in just over a quarter-century.
Contrast that to the telcos. The telegraph wire that transported Samuel
F.B. Morse's first message--"What hath God wrought?"--did so at four
bits per second. It's now 153 years later, and the average PC user is lucky
if his phone line can support 28,800 bits per second. That's a 7,000-fold
increase in bandwidth in 153 years. Piddling, say the digital crowd--hardly
any improvement at all!
On this point, the telco industry will protest vehemently, boasting about its
trillion-bit-per-second laboratory demonstrations over short lengths of
optical fiber, or its proven billion-bit-per-second long-distance backbones,
or its many schemes for digital subscriber lines (known as xDSL), which
promise someday to unleash cheap million-bit-per-second torrents into the
home. Counters the digital crowd: Someday? Precisely the point! Your
underlying technology is improving at the rate of 40% to 60% a year, but
the consumer isn't seeing any of it. You flat-footed monopolists are afraid
to roll it out!
"Our industry is driven by Moore's Law," says the Silicon Valley investor
Roger McNamee. "Theirs is driven by Moron's Law--the morons who run
and regulate American's telcos." In the harsh view of Mr. McNamee, Mr.
Metcalfe and others, the telco chieftains, terrified of rapid change, refuse
to expose their protected T1 line price structure to their own vastly
cheaper (and available) alternatives like xDSL. Their paralysis is holding
up the future of the digital industries, the fastest-growing part of the
American economy. MIT's Charles Ferguson claims telco foot-dragging
accounts for a full percentage point loss to America's gross domestic
product.
Silicon Valley financier Andy Kessler says the root of the problem is the
telcos' zero-sum mentality. "They don't believe that demand for digital
bandwidth will grow with supply. We from the PC industry know it will. . .
. The more people have, the more they will use it. You can safely
cannibalize; the PC industry does it all the time."
Indeed, those in the digital crowd have learned to thrive on rapid change,
elastic demand and product cannibalization. They are accustomed to 20%
to 75% annual growth, producing a virtuous cycle of high market
valuations and risk-loving millionaires. Moore's Law dictates exponential
gains in processing power. Increases in supply create their own demand;
the growth goes on and on.
Microsoft and Intel, for example, have market capitalizations in excess of
$170 billion and $120 billion, respectively. Microsoft's market cap is twice
IBM's, and more than the big three automakers' combined. At those
empyrean numbers, George Gilder estimates, the market is betting on
Microsoft and Intel to grow 25% a year indefinitely. Ask Bill Gates or
Andy Grove what keeps them up at night. Thinking about growth! Growth
drives the nosebleed market caps . . . the stock-option incentive programs
. . . the immense personal fortunes. Anything that gets in the way of these
good things must be destroyed. What is the chief obstacle? Puny
bandwidth, supplied by the local phone companies. If customers can't get
a high-speed Internet connection, they might not upgrade their PCs. These
telco morons aren't keeping up! They must be destroyed!
The digital crowd isn't waiting around. Mr. Metcalfe is out on the
conference trail, behind every microphone, whooping it up for a
class-action suit to break the local phone-company monopoly. Intel,
Microsoft and others are taking a two-pronged approach. The first prong
is to pressure the Federal Communications Commission to drop its
universal service requirement for any new digital services, such as xDSL
switches. Carps one Washington lobbyist for a PC company: "The
RBOCs [regional Bell operating companies] cry poor about the burden of
providing universal service. Fact is, they like it. It's an excuse for not
putting their money at risk on new services. Last year, they asked FCC to
apply universal service to the Internet." Who will prevail before the FCC?
The lobbyist laughs. "I have six people in my office. Bell Atlantic has 60
lawyers in theirs."
That frustration explains the digital crowd's second prong: Finance the
telcos' competition. Microsoft recently invested $1 billion in Comcast, a
cable company, which can provide up to six million bits per second to the
home via cable modem. Venture capitalists John Doerr and William
Randolph Hearst III were behind another cable-Internet scheme, At
Home, with help from TCI's John Malone. Intel's Mr. Grove, famous for
his dictum "Only the paranoid survive," ordered his fellow board member
Les Vadasz to dig deep into Intel's purse and spend up to $1 billion a
year, if need be, on any credible scheme that spurs PC demand. Topping
the list are several nontelco high-speed connections to the Internet.
If you are running a regional Bell operating company or a local exchange
carrier right now, sheer terror is an appropriate response. The head of one
Bell company, sensing the coming battle, recently asked me how he could
"make friends" with the digital crowd. I felt for him. He is a Bell system
lifer, having joined his company in 1962 and piled up enough telephone
merit badges to reach the top. The genial sentiment, the desire to "make
friends," is built into the psyche of career telephone executives. Friends
with the FCC and the state public utility commissions, friends with
long-distance carriers, unions, activists, environmentalists, diversity hustlers
. . . it matters not. Shake hands and lift a glass. Nobody's survival is at
stake. So relax. We're a monopoly! We can pass on our costs.
Smooth and Superb
The affable local telco chief is smooth and superb at this game. But the
digital crowd couldn't care less about being friends. Theirs is a blood
sport.
To be in the digital crowd's cross hairs is a horrible thing. Arrayed against
you is the greatest collection of brains and money in the history of
business. Your opponents in this battle, up and down the management
ladder, have 10 or 20 IQ points on you and your people. Your opponent
is quicker to execute a business plan by orders of magnitude. And your
opponent harbors a far greater motivation than you do--for he owns piles
of shares in his company, and you do not.
It's a new era. This one favors IQ and speed and a supply-side
mentality--not exactly your long suits. Barbarians, extremely rich ones, are
at the gate. God help you.
Mr. Karlgaard is editor of Forbes ASAP.
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