TD,
Love is all you need. Tell these two to kiss and make up wouldja:
November 16, 2000
Mr. George Gilder
Gilder Publishing
Monument Mills
174 Front Street
Housatonic, MA 01236
Dear Mr. Gilder:
In your November 9, 2000, edition of the Gilder Technology Report, you
indicated that you had removed Level 3 from your "Telecom Technologies"
list. This is, of course, your prerogative.
However, I do have two reactions to the report, which I wish to share
directly with you.
The first is that I believe that there are a number of serious factual
errors in your report, which you will want to research and if you agree
with me, correct in a future report.
Some of these errors include:
-- You state that 360Networks "has lit 10,000 of its 20,000 route
miles with 160 Nortel/Avanex waves at 10 Gbps per second." We
understand that such equipment will not be available until late
2001 and thus no service provider could have lit a network with
Nortel equipment operating at that capacity.
-- You state that "360 has announced a new system from NKF Kabel
that uses compressed air to insert 'mini ducts' in already filled
fiber conduits." We understand that the product must be installed
in empty conduits. This means companies wishing to use the
product in long haul applications must have empty conduits along
the whole length of their networks.
Today, we believe that there are only twelve empty nationwide
conduits and Level 3 has eleven of them. Neither of the companies
you cite as potential beneficiaries of the technology has
continuous empty conduits along the length of their networks and
thus would, at best, have a "patch quilt" implementation.
-- You state that "Level 3 understood that pricey optical fiber is
cheaper than inexpensive copper. But so far, it has failed to
grasp the new paradigm. That light is cheaper than fiber." This
is incorrect. We have said over and over that optical technology,
i.e. "light," is key to our future success. However, we also
believe that fiber is a key part of optical technology, not a
separate technology, as you seem to imply. In fact, we believe
that the best economics are achieved by the proper combination of
wavelengths of light, bit rate and spacings between expensive
equipment sites.
In order to achieve unit cost reductions for transmission
capacity, we have designed our network with multiple conduits to
deploy successive generations of fiber to exploit improvements in
transmission electronics. Optimizing transmission electronics to
exploit specific generations of fiber optic technology provides
transmission capacity on the new fiber more cost effectively than
deploying new electronics on previous generations of fiber.
Wendell Weeks, Executive VP of Opto-Electronics for Corning, Inc.,
a premier supplier of both fiber and optical components made the
point: "Fiber and opto-electronics are proving to show the
highest price performance improvements in telecommunications.
The lowest unit costs will be achieved by optimally combining
these two technologies.
Similarly, Anil Khatod, President of Optical Internet for Nortel,
Inc., a premier provider of optical systems said: "Both fiber and
opto-electronics are rapidly improving. The lowest unit cost
results from the optimum combination of these two technologies."
This is the reason that we have built a multi-conduit network. We
want to be able to employ the best combination of fiber and opto-
electronics not at just one point in time, but over the long term.
In addition to these points, there are a number of other factual errors in
the report, which we would be happy to work with you to correct.
My second reaction to your report is to challenge you -- as a technology
analyst who I am sure values objectivity and credibility -- to disclose
any economic interest you may have in companies that you pick and pan.
As you know, you invited me to speak at your investor conference held
November 15-17 in South Carolina. At the time you issued the invitation,
you made no mention of any payments to be made. Subsequently your
organization solicited a $100,000 payment to act as a sponsor of the
conference. Based on these discussions, I and my staff believed and still
believe that the payment was a prerequisite to my speaking at the
conference. As a result I withdrew from participating in the event.
However, the larger issue is clearly conflict of interest. I believe that
you, like any credible analyst, should disclose facts, which, if public,
would help your readers to understand any potential conflicts of interest
you may have. You took a preliminary step in this direction by disclosing
in your report that: "Mr. Gilder and other GTR staff may hold positions in
some or all of the stocks listed."
However, I believe that this statement does not go far enough. The full
details of any payments made to your organization by companies about whom
you subsequently make public and putatively objective judgments should
also be disclosed to your readers.
If these payments do not influence your judgment, you should welcome such
disclosure.
This seems to be a clear opportunity to provide the kind of fair
disclosure, which investors deserve. This is especially true for someone
like you who is in a position to influence financial decisions made by a
substantial number of investors.
Mr. Gilder, I urge you to both address the factual errors in your report
and to disclose the details of any payments made to your organization by
companies whose technologies you review and judge. I hope you will agree
that fairness requires no less.
Sincerely,
James Q. Crowe.
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