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Author: etherdude Number: of 29797
Subject: Yes John Chambers, the lights ARE out ! Date: 3/24/01 6:08 PM
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Dear Smartguy, Bruce Brown, AbleAblesonIII and readers,
We are focused on the Wrong Topic
Yes, there was massive "overspending" and "overcapacity" by the carriers, ISPs, ILECs, LECs, CLECs, IXC's, you name it. There also was vast misallocation of capital in previously efficient markets such as Venture Capital, regular Capital Markets (that's us shareholders), and by the network equipment vendors as well. INTEREST RATES AND TAXES HAD NOTHING TO DO WITH ANY OF THIS!!!
BUT....I contend that this network overcapacity is primarily at the core of the Optical/SONET/IP network and is at most transitory.
It's MORE than the Economy, Stupid!
Further, (and far more importantly) I contend that the economic and political ramifications of the current domestic AND worldwide economic cycle, precipitated by the demise of the high-tech bubble of 2000, are enormous. I assert that the ONLY real solution to re-energize the national economy will be for this administration, Congress, AND private business (semi-regulated carriers as well as equipment providers) to view ubiquitous broadband Internet access as a national problem EXACTLY equivalent to rural electrification in the 1930's, the buildout of the Interstate Highway system in the 1950's, but NOT the same as the space program of the '60's.
(Note: I am not claiming Internet access as a birthright, but in fact an important PROBLEM to be solved that requires national WILL, not just efficient capital markets, so please don't get too religious on me!)
How did we get here?
The REAL BIG issue here is that there is too much BACKBONE capacity (Juniper, OC-192, DWDM and SONET stuff) and not enough EDGE capacity. It is fundamental to network geometry that it is MUCH, MUCH easier to change the core of a network than the edge. This is true whether changing a campus backbone such as the transition from FDDI to Gigabit Ethernet in the late 1990's or in the WAN backbone as we transition from TDM SONET services at T-1/DS-3/OC-3 rates to OC192 POS, GbE, 10GbE, OC768, or pure optical/DWDM.
All of the carriers made HUGE investements in Optical Backbones, etc. etc. BUT NOBODY appears to have been really loooking at how well and how quickly the local loops (either business or residential) were being converetd from low speed analog (up to 56Kbps) or low speed copper digital (up to T1) to higher speed broadband services such as DSL, CATV modem, fiber to the curb, or fiber OC-x to the site.
So E'dude, what went wrong?
Now, in 1999 and 2000 the .COM's hit the information highway before it was done being built. In fact before it was far enough along to really deliver on their promises. Even if they (.COMS) had made no other mistakes, I feel that because of this alone, they would have largely gone bust. But, go bust they did in a REALLY big way and took the available capital markets with them that could have been used to build out the Internet. Of course there were lots of bad business plans, lots of bad judgement, some bad ideas, greed and corruption too! BUT, there was also WAY TOO MUCH capital spent far too quickly ON THE WRONG THINGS!
But why does that mean we have too much capacity?
So now we have some great Interstate IP highways with far too few on-ramps for the kind of Internet it will take to be really economically viable in the long run.
Consider that for every long hual fiber, there needs to be 100's to 1000's (maybe millions) of businesses of residential sites sharing the voice or data capacity of that fiber. For every Terabit Router, there needs to be thousands of individual PC's consuming data voraciously.
So why is the Secretary of Commerce Important to us?
Because of this history and my assesment of our current situation, I think the fact that the new Secretary of Commerce is focusing his interests and department on ubiquitous broadband access (see post #29671) makes him arguably more important to us (certainly to me and to the networkers such as Cisco/LU/NT) than everyone's fixation on Greenspan for interest rate cuts or Congress and the President for tax cuts.
The problem of capitalizing and completing the deployment of ubiquitous broadband Internet access (and by that I mean performance above 1Mb/s at less than $50/month) is so totally fouled up now, and is so far beyond the scope of even the largest private enterprises such as LECs and CATV companies to resolve quickly, that I assert fixing it is now a problem of national policy and economics.
IMPORTANT AND ONLY INVESTMENT ADVICE: Lacking the WILL to fix this problem, I expect the Networkers to languish FAR longer than the 6-12 months that their CEOs will currently say they have no visinbility in to!
Tax and Interest Rate Cuts aren't enough!
Further, even as John Chambers continues to lobby for tax and interest rate cuts, this will provide only marginal relief, since in the near term, only the "big" businesses will be able to take advantage of these cuts in a way that increases spending for "Networker" kinds of equipment. It will take a change in consumer behavior and usage of the Internet to substantially impact the high-tech economy. One can roughly conclude this from the fact that high-tech represents something close to 25% of GDP (or so) and consumer spending is something like 2/3rs of GDP. Thus, I believe my assertion regarding marginal impact of tax and interest relief on the high-tech economy without commensurate substantial increases in consumer usage is true.
In the mean time, while improving capital markets by lowering taxes and interest rates might help large businesses, it CANNOT provide enough relief to those trying to drive ubiquitous access (largely LEC's and CATV comapnies) to solve the problem in a timely fashion.
LEC's screwed the pooch and should have their toes held to the fire!
I might also add that LEC's and DSL are high on my sh!t list. DSL is TOO hard to install and typical Bell LECs (Verizon, etc.) are so hide bound with work rules and poor technology and implementation choices that they are unlikely to pull their fat (or anyone elses) out of the fire quickly. <RANT ON> Verizon deserves a special place in "H_LL" for creating a portion of this problem. I can attest that Verizon in New England has helped to put at least several alternative DSL carriers out of business, has NEVER opened up their wires to competitors in ANY meaningful way, and yet is STILL lobbying for the ability to provide competitive Long Distance service. I don't get it!!! <RANT OFF>
Is there a market?
Today, the most recent studies show that we have less than 10% (yes ten-percent) penetration of the potential available market of around 100 Million (give or take) North American residential and small business customers. This, even after DSL and CATV based access has been technically viable at historically low capital cost for several (at least 2) years!. The current "drive by" coverage is just around 7 or so million potential consumers with CATV having a 2 to 1 advantage over DSL.
Answer? Yes Ableson, there is a market. But we (as an industry) need to find out how to more quickly support, deliver, and tap into that market.
Can Technology Help?
Maybe. A little. As stated a few weeks earlier, my credentials are as a CTO in high tech with 28 years in the business. Surpisingly, despite having been at or near the "bleeding" edge for every technology cycle over that period, for the first time I am absolutely certain that "new technology" (that is stuff on the near horizon but not quite mature, stable, or cost effective) is REALLY not the cause of, or the solution to, this cycle.
The only technical solutioon I see is the work being done by the IEEE 802.3 in what is called "Ethernet in the First Mile" (last mile to you telco types). Ethernet is now SOOOO cheap and SOOOO easy to install, that it has the potential (as yet unproven) to lower the deployment costs of fiber to the curb or DSL-like copper broadband systems. This could improve the economic model of broadband deployment for the LEC, reduce install times, get rid of mostof the need to go iside the house (A BIG DEAL!) and provide for future scaling into 10's and 100's of Mbps per home or business.
What else will help?
Policy and legislation. - FCC - The "make your wires available to your competitors" approach has been shown not to work. Former Bell LEC's such as Verizon should be REQUIRED to insure much higher percentage penetration of residential and small business broadband services (well over 25%+ range) before applications for Long Distance service will be considered.
Standardization - There are too many solutions to the problem today. I don't believe in regulating technology or innovation but, on the other hand, capital markets have shown themselves to be fairly inefficient in the face of the rapid technological change of the last 2-3 years (what technology really is the RIGHT one?). We squandered our opportunity to cover ALL bets.
I DO think that the industry and government need to consider using tangible regulatory RELIEF for certain standardized approaches to solving residential and small business broadband access. Anything that provides a larger market for fewer solutions with better economies for the carriers and the consumers will be a winning solution.
Summary
I still conclude that the future effectiveness of the Internet itself will be more a challenege of national WILL than technological capability.
Sincerely,
E'dude |
