SMART Letter #76
Gilder's Worst Mistake Ever
October 5, 2002
!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()
------------------------------------------------------------
SMART Letter #76 -- October 5, 2002
Copyright 2002 by David S. Isenberg
isen.com - "undeterrable"
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
------------------------------------------------------------
!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()!@#$%^&*()
CONTENTS
> Announcing isen.com Trans-Pacific Tour
> Quote of Note: Peter Kirstein on networking problems
> George Gilder's Worst Mistake Ever
> Partial Truth, the Last Mile, but Whose Shoes?
> More Notes from Telecosm 2002
+ from "The Blast" by Porter Stansberry
+ from Phil Becker's Digital ID World blog
+ from Shel Israel's Conferenza report on Telecosm
+ a note on Carver Mead's closing speech by David I
> Quote of Note: Jenifer 8.Lee on '2 Much 4 Teachers'
> If it's Funny it Must be True, by Scatt Oddams
> Conferences on my Calendar
> Copyright Notice, Administrivia
-------
ANNOUNCING isen.com TRANS-PACIFIC TOUR
[Note: Even though the route is now stable and the timing
is probably stable, not all of these dates or engagements
are confirmed at press time. I'd like to meet as many
SMART People as possible enroute -- if you're free to visit
(and especially if you have something constructive for me
to help with!) please send email -- David I]
+ WED 13 NOV TO SUN 17 NOV: India (schedule starts in
Madras, but mostly TBD)
+ TUE 19 NOV TO SAT 23 NOV: Tokyo (Glocom conference on
21 Nov, other events TBD).
+ MON 25 NOV AND TUE 26 NOV: Singapore, talk at Nanyang
Technological University.
+ WED 27 NOV AND THU 28 NOV: Melbourne, talk at Monash
University
+ FRI 29 NOV: Wellington NZ: CityLink.
+ SAT 30 NOV TO SUNDAY DEC 8: New Zealand, TBD.
-------
QUOTE OF NOTE: Peter Kirstein
"It used to be thought that the serious questions of
computer networks were technical. It is now clear that
most of the technical problems can be resolved, the
difficult ones are managerial. Computer networks permit
technically the connection of different geographical
locations, different organizations and different
countries. In principle, they permit separate groups to
collaborate on the same problems. In practice, the very
flexibility which becomes possible is combated by
administrative restraints . . ."
P.T. Kirstein, "Management Questions in Relationship to the
University College London Node of the ARPA Computer
Network", ICCC'76, Toronto, p.279.
-------
GEORGE GILDER'S WORST MISTAKE EVER
by David S. Isenberg
George Gilder is one of the most exciting expositors of our
age. He is often right, often wrong, always courageous and
always provocative. His Telecosm concepts, formulated in
Forbes Magazine over the last decade, are still
directionally correct, never mind the hordes of investors-
turned-detractors who lost billions on stocks Gilder
touted. I've learned more from Gilder's mistakes than from
lesser men's truths, even potentially disastrous mistakes
like his support of re-monopolization of the Incumbent
Local Exchange Companies.
George Gilder's elegant, passionate, logical story of how
Michael Milken created junk bonds, the financial innovation
that funded MCI, TCI and the entire first wave of
Communications Revolution storm troopers
(http://tinyurl.com/1sh9), is a reprise of Buckminster
Fuller's well-developed thesis that pirates cause progress.
To Bucky Fuller, doing-more-with-less remains humanity's
highest purpose. According to Fuller, the original dagger
toting, grog swilling, eye-patched pirates were
intelligent, independent sailormen who found contrarian
success in an era when a castle's power came from thick
walls, vile moats, and superior position in a static
landscape.
The ships of Europe's royal navies, said Fuller, followed
the land-based bigger-is-better royal power model. They
were floating castles. Swedish King Gustaf Adolph carried
this strategy to maladaptive extremes when, in 1627 he
insisted on adding a third gun deck to the war ship Wasa,
then under construction. The ship's architects dared not
contradict The King. As a result, on August 10, 1628,
minutes into her maiden voyage, the top-heavy Wasa was hove
down by an unexpected puff and sank in Stockholm harbor,
drowning 50. Today the Wasa, recovered in 1961 and now
fully restored, sits in a Stockholm museum as a monument to
the failure of patrimonial authority.
In disruptive contrast, pirates sailed lighter, faster
vessels, ships that could sail to windward with increasing
efficiently. They could sail up behind a ship of war and
climb on deck to slit the throats of its well-disciplined
crew with box cutters, even as its cannons remained
carefully aimed at the horizon. Pirates traded mass for
maneuverability and speed. Intelligence, not capital
equipment, is why pirates could do more with less.
When the bigger-is-better boys make the law, it is
difficult to be light, fast, dynamic and maneuverable
without breaking it. According to Gilder, Milken was among
the first to use computers to deduce strategic direction
and tactical advantage from data-driven financial
scenarios. Milken's ability to sail against the economic
wind ran afoul of the guys in the thick-walled financial
castles. As a result, Milken did dungeon time.
So here's an enigma: How can George Gilder be such a
effective friend of the future, advocate of upstarts and
defender of disruption, yet still be a source of
inspiration for thick-wall folks like Ronald Reagan and
Steve Forbes. (I'm pretty sure I know where Steve Forbes
is coming from -- he believes that the best way to create
wealth is to keep what you have.) I got a hint one day
when George told me he was off to see Bill Gates because
despite the Gilder-bashing of Microsoft, he and Bill were
on the same wavelength when it came to getting the U.S.
Government off of business's back.
My best guess is that Gilder believes that big government
is always bad and that business success is somehow, de
facto, always morally correct.
Now Gilder has a problem; he's just been to China and he
loves it. With good reason! There's no telecom recession
in China. In fact, telecom is booming. Shanghai's new
skyscrapers have almost as much glass inside for
communications as they do outside for windows. China is
adding the equivalent of one ILEC worth of telephone
landlines per year. As the Chinese middle class grows, 100
million current cell-phone subscribers will grow to 300
million by 2005.
China is the future of the Telecosm, Gilder told the
assembled faithful at Telecosm 2002 last week. Jiang Zemin
is a visionary, a genius, he said. Shanghai and Shenzen
were Telecosmic miracles.
Gilder's problem is that the Chinese government owns 70% of
China's telecom businesses. That's right -- they're not
only the regulators, they own the networks. (I wonder how
Gilder would react if the U.S. FCC proposed to own 70% of
U.S. telcos!)
If you distrust big government, the Chinese Ministry of
Information Industry (MII, formerly the Ministry of Post
and Telecommunications) is scary. Not only does it
administer government telco ownership, its charter
[http://tinyurl.com/1t1t] subsumes all of what the U.S. FCC
does and much, much more -- including regulating the
computer industry and operating the Great Firewall that
supposedly protects the Chinese Internet from subversive
foreign content. The MII can accept or reject outside
telecom investors arbitrarily. It's charter includes,
"adjusting the product mix, reorganizing the relevant
state-owned enterprises, preventing redundant construction
and rationally allocating industry resources" -- functions
that competitive markets seem to do quite well, thank you!
Gilder has resolved the friction between China's telecosmic
progress and its big government control with a fiction --
that the Chinese economy is really a capitalist economy.
He's serious; he said China and capitalism in the same
sentence half a dozen times in his Telecosm speech. My
kindest interpretation is that George is confusing
entrepreneurialism with capitalism. And while it is true
that China is moving towards a form of weird Chinese-
flavored capitalism, in this long journey China has taken
but a few small steps.
Gilder touched on a second enigmatic theme in his Telecosm
address -- that the United States government is to blame
for incumbent telco intransigence. He's been harping on
this for the last year. The U.S. should free the Bells
from their copper cage, he says. As if the Bells would
know what to do without copper (and its associated business
model). As if the Bells would start innovating as soon as
the courts somehow made it legal. He seems to have
forgotten The Innovator's Dilemma, the well-established
Drucker-like wisdom that incumbents can't deal with
technologies that disrupt their business model.
Furthermore, Gilder seems to have abandoned his formerly
oft-repeated calls for the separation of conduit from
content. To Gilder, conduit used to be the most elemental
sacred physical property of the channel -- the light, the
copper, the spectrum -- the stupid network. But now he and
his thick-walled Discovery Institute cronies seem to think
that it is OK to link stream and significance. They oppose
FCC attempts to separate elements of Incumbent Local
Exchange Carrier (ILEC) networks from the services that
telephone companies carry. They lament U.S. Supreme Court
rulings upholding TELRIC (Total Element Long Run
Incremental Cost), the bumbling FCC-mandated scheme for how
to charge for these elements. And they can't wait to
revive Tauzin-Dingell, the proposed U.S. law (currently
dormant) that would weld ILEC wire to ILEC service to
ensure ILEC monopoly for any service more advanced than
voice-over-copper.
Now, don't get me wrong. I do not take the opposite
position, because I do not believe that TELRIC or the
defeat of Tauzin-Dingell will bring on the Telecosm. But
I am afraid that the absence of TELRIC and the passage of
Tauzin-Dingell will artifically prop up and re-entrench
the ILECs, in a kind of big government bailout that will
prevent the United States from leading the Communications
Revolution.
History will show George Gilder's support of a stronger
ILEC monopoly to be his worst mistake ever. If the ILECs
win, the Telecosm loses. We don't need thicker walls in
government or in business; we need lighter, more weatherly
craft. It is just that simple.
If you were not at Telecosm 2002, I hope you'll get a
chance to read, hear or watch Gilder's opening speech.
(I'll post a pointer as soon as one becomes available.)
His description of China's progress was shimmeringly
observant and up-to-the-minute. The talk was a Gilder gem
that sparkled despite its flaws.
I crafted my Telecosm talk, given as part of the Last Mile
panel about 24 hours after Gilder's talk, as a reply. Here
it is:
-------
PARTIAL TRUTH, THE LAST MILE, BUT WHOSE SHOES?
[A lightly edited version of a talk presented at Telecosm
2002, October 1, 2002, Squaw Valley CA]
by David S. Isenberg
George thrives on controversy. So do I. And I am proud,
delighted, to report that George called me and my friend
Roxane Googin futilitarians in his last newsletter. Did
you see that? He really has a way with words. I think
futilitarian stands for fabulous utility millenarian.
He called us futilitarians because we observed that it is
difficult to make money running a Stupid Network. George
was writing about Stupid Networks back when I was still a
Bellhead at Bell Labs, about how you get the most
innovation, the most openness, the least centralized
control, and the most freedom, when you separate the
conduit from the content. George Gilder discovered how
stupid networks push wealth creation to the edge of the
network.
Fred Briggs, today's lunch speaker (WorldCom's current
CTO), drove the idea home without meaning to. He told us
that there is no business model at WorldCom for the
Internet, that the Internet is simply a tool for service
delivery. Touche! If the Stupid Network moves the
services, the wealth creation, to the edge of the network,
how is WorldCom going to make money?
So I predict, with 20-20 hindsight, that WorldCom will have
money trouble. And I predict that the Incumbent Telcos
will have trouble in the near future too. This is not
futilitarian. It is a realistic fact that we need to deal
with if the Telecosm is to boom again.
Then last night George was talking about the ideas of
Roxane Googin, Susan Kalla and myself when he declared that
partial truths were multiplicative, so that if you put the
partial truths about the telecom crash all together, you
get one big lie.
I think this is partially true.
George may not have considered that the value of a partial
truth can be greater than one. Furthermore, maybe
sometimes partial truths are additive.
In other words, partial truths can combine to create larger
truths. One partial truth does not necessarily diminish
another.
Scientific progress is built on partial truths -- each good
experiment yields a bit more knowledge, but each experiment
alone is only a partial truth.
And partial truth is why a free, diverse, competitive
marketplace is so important -- mistakes in a competitive
marketplace are self-correcting.
Furthermore partial truth is a major source of America's
strength. E Pluribus Unum. Partial truth is the reason we
have checks and balances.
When you devalue "partial truth", and imply that there is
only one "whole" truth, that's fundamentalism.
I find myself humbled by the 2001 and 2002 markets. I
thought I had the truth -- but I was wrong. Let whoever
had the whole truth about the markets cast the first stone.
Today I'm grateful for partial truth whenever I find it --
in science, in technology, in the marketplace, in politics,
at Telecosm, and even in government. There's some partial
truth in China, and there's even a little truth at the FCC.
So let me offer a few observations about the last mile that
I believe to be partially true.
First, the main barrier to the Telecosm is political, not
technological. The 1996 Telecom Act was a lame attempt to
get a competitive marketplace -- but that does not mean we
need to abandon competitive marketplaces. We need to try
again, and keep trying until we get it right.
Second, fiber to the home -- fiber to every room in the
world -- is still the endgame of the Telecosm. But this
will not happen in any scale until the current crop of
incumbent telephone companies stops fighting it.
There's no way that the ILECs will lead the telecom
revolution. If you "free them from their copper cage"
they'll bring optical -- or wireless -- mediocrity. If we
want the Telecosm, the ILECs have to go.
Third, networks are getting easier and easier to build and
operate. By analogy, computers used to be mysterious
machines in special glass rooms. Today networks are losing
their mystery -- we've solved the last hundred-foot problem
with wired and wireless Ethernet. The next mile won't be
so hard either -- technologically speaking. The entire
network will become as simple as a LAN. Ethernet will be
the any-distance protocol. Customers will connect their
own networks to the competitive, networked, global economy.
However, if customers are to own their own networks, we
need to get the politics right -- we need to solve the
right of way problem. We can't have the same monopoly
controlling the services AND the pipe. We need to separate
content from conduit. So we have to solve the right of way
problem.
Perhaps the competitive marketplace holds the opportunity.
That'd be my first choice. But the Internet breaks the
telco business model, and it is hard for telephone
companies to make money without their vertical monopoly.
And we have not discovered what the new business models for
the Stupid Network are yet. [So the first solutions are
not likely to arise from the marketplace.]
But I don't care how we get more access to right of way --
we can do it via big government like in China, or via
little government like in Sweden and Canada, or via
municipal government, like they do in Spokane Washington,
and Provo, Utah, and Glasgow, Kentucky, and Dalton,
Georgia. I don't care, as long as the barriers between the
technology and the marketplace fall away.
Digital radio -- beginning with Wi-Fi -- will help topple
the barriers. But Wi-Fi is in danger of becoming so
crowded that nobody goes there anymore. Realizing this,
the U.S. FCC is leading an effort to completely rethink the
regulation of radio spectrum, to allow us to use it as
flexibly as today's technology affords. Will the FCC [and
Congress] screw it up? Count on it. But will some partial
truth, and significant marketplace opportunity, emerge from
the effort? I'm counting on that too.
George, I hate big government as much as you do. Except in
China, where big government works. And I love Capitalism,
except for Enron, WorldCom, Global Double Crossing, and the
telecom bubble. I love what works.
Like you, George, I'm a Cornucopian -- I only hope we can
learn from our mistakes, so we get the politics and
economics of the New Abundance right this time. Thank you
for your support over the years, and thank you for sharing
the wealth of Telecosm.
-------
MORE NOTES FROM TELECOSM 2002
From "The Blast" by Porter Stansberry, October 4, 2002 [for
more info see http://www.pirateinvestor.com/]
"[At Telecosm] I discussed the MCI acquisition
with WorldCom's CTO, Fred Briggs. He told me
interesting things about WorldCom's rebirth. Yes, the
company will come out of bankruptcy intact, debt free
and with a strategy that will, I believe, put AT&T out
of business. WorldCom will continue to build on its
'Neighborhood' plan that, for one monthly flat rate,
gives you both national long distance and local calling.
So far, this strategy has been extremely successful.
Without any advertising and despite the disruption of
bankruptcy, the "Neighborhood" plan garnered over a
million subscribers in the last year. Without its debt
burden, WorldCom will put tremendous pressure on
prices.
"I also met [Dan Reiner] the venture capitalist who
provided the first round of funding for VaxGen a
company that's doubled in share price since I
recommended it in August. We spoke about the company's
management and its leadership in the race for an AIDS
vaccine. On the same day the company landed a major new
research contract to develop a new vaccine for anthrax."
From Phil Becker's Digital ID World blog, October 1, 2002
[http://blog.digitalidworld.com/archives/000045.html]:
"This is a group of real optimists, who are sure that the
next big thing is here somewhere and they want to find
it before everyone else does. The audience seems to be a
combination of VCs looking to see how to recoup their
losses (the grumpy ones), companies trying to show they
have the next new thing (the optimistic energetic ones)
with a few pundits (trying to figure out what's going
on) thrown in. Including the obligatory ex- journalist
working the halls selling his new book. Just like old
times.
"The lunch speaker [Worldcom CTO Fred Briggs] was a bit
sobering to the audience. Got to admire that he showed
up, but everyone left saying some version of "that was
rough" working to get rid of the gray cloud that has no
place here.
"It took about 5 minutes to do that, as Brian Halla, CEO
of National Semi put up the graph of the three major
computer industry boom/bust cycles dated by their peaks
('74 mainframe/timesharing, '84 PCs, '00 connected PCs)
showing how much larger each was than the one before
(based on semiconductor sales numbers.) . . .
"One thing for certain, this group is definitely looking
past the Telechasm and dreaming of getting to the great
things that lie beyond. It reminds me why the high tech
industry has been such a draw for me for over 30 years
. . . failure is seen as just the next step on the road
to success."
From Conferenza's Telecosm Report #1, October 4, 2002, by
Shel Israel [see http://www.conferenza.com for information
on premium reports like this one]:
"Gilder maintains that Moore's law has ended. China now
drives the industry. It's not about more silicon: It's
about leveraging the needs of billions of people. Gilder
labeled Intel's $5 billion Itanium processor a failure,
and an indication that Moore's law is not driving the
economy. In contrast, China creates 700,000 new
engineers per year, 10 times that of the U.S. Gilder
lamented that the structure of U.S. telecom law is
hurting the industry. Clearly, China has limited laws.
"Conferenza found this portion to be the most discussed
point of the conference. Many questioned whether
George's comments demonstrated vision or hallucination.
More than one person noted that before 700 million
Chinese adopted wireless broadband technologies, they
would first need access to electricity, and might even
need discretionary capital to purchase a wireless
device. Others expressed astonishment that the Itanium
could be dismissed with such a cursory comment. Intel's
next-generation microprocessor is several orders of
magnitude more powerful than P4 processors, and
represents a $12 billion investment. Many people we
spoke to maintain that we have not yet begun to dream
the applications for such power. In terms of the
Itanium, most people felt that the jury is not just
still out, it has not even convened. Attendees were
puzzled throughout the conference at an apparent anti-
Intel sub-theme. Dais speakers sometimes referred to the
unquestioned leader as a doomed entity running on
outmoded premises. The audience consensus overwhelmingly
felt the case was not successfully made."
Carver Mead, the intellect behind VLSI brought Telecosm to
a close with the following simple, eloquent thought: That
Metcalfe's Law showed that the value of a network grows
with N squared, but that network owners only bill according
to N, so the extra factor of N is the Telecosm's gift to
the people of the world. Actually, it is even better than
that -- Reed's Law, which is based on Metcalfe's Law and
extends it [see http://tinyurl.com/1t2v] states that the
value of a network with group-forming properties (e.g., the
ability to put multiple addresses on an email) grows as N
to the N. If the financiers bill for but one factor of N,
it is but a tiny fraction of the value such a network
creates. The group-forming Telecosm is virtually free.
-------
QUOTE OF NOTE -- Jenifer 8.Lee
"Almost 60 percent of the [U.S.? -- David I] online
population under age 17 uses instant messaging,
according to Nielsen / NetRatings. In addition to
cellphone text messaging, Weblogs and e-mail, it has
become a popular means of flirting, setting up dates,
asking for help with homework and keeping in contact
with distant friends. The abbreviations are a natural
outgrowth of this rapid-fire style of communication.
Nu Shortcuts in School R 2 Much 4 Teachers, by Jenifer 8.
Lee, NYT, 9/19/02, http://tinyurl.com/1j4n
-------
IF IT'S FUNNY IT MUST BE TRUE
by Scatt Oddams
The last time I heard from the elusive guerilla cartoonist
Scatt Oddams, he *promised* to do a new cartoon for every
SMART Letter. He did exactly one, then vanished. Was I
p**ed!. But just the other day I heard from him, and all
is forgiven -- he'saying that http://tinyurl.com/1t5p is a
cool cartoon. Well, if it is funny, it must be true. On
second thought, maybe it's not funny, but true anyhow.
-- David I
-------
CONFERENCES ON MY CALENDAR
October 8-10, 2002, Atlanta GA. Fall VON. I'll be giving
an Industry Perspective talk at 10:45 AM on Thursday,
October 10, 2002. See http://www.von.com/
October 15-17, 2002, New Orleans LA. Fiber to the Home
Council Annual Conference. I'll be chairing a panel on FTTH
feasibility studies. http://www.ftthcouncil.org for
information.
October 22, 2002, Boulder CO. University of Colorado at
Boulder. I'll be speaking to Dale Hatfield's graduate
telecom seminar and guests, 4:00 to 5:20 PM. Contact
CourtneyCowgill@Earthlink.net for details.
October 23, 2002, Berkeley CA. University of California at
Berkeley. I'll be speaking to John Zysman's and Steve
Weber's class, "Governance of the e-conomy" and guests from
the Berkeley Roundtable on the International Economy.
Contact Genevieve Taylor [genktay@uclink.berkeley.edu] for
more information.
November 7, 2002, New York. Marconi Foundation Award
Conference. Tim Berners-Lee will get the Marconi Award.
I'll be speaking about the infrastructure that makes the
World Wide Web possible. More details soon.
November 11, 2002 to December 8, 2002 -- isen.com trans-
Pacific Tour. See above.
December 9 - 10, Palo Alto CA. Supernova, a Kevin Werbach,
Jeff Pulver collaboration starring Sergey Brin of Google,
Doc Searls, Clay Shirky, and yours truly. No website
yet, but watch for the appearance of supernova2002.com or
contact Kevin Werbach, kwerb@werbach.com for more info.
-------
COPYRIGHT NOTICE: Redistribution of this document, or any
part of it, is permitted for non-commercial purposes,
provided that the two lines below are reproduced with it:
Copyright 2002 by David S. Isenberg
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
-------
[There are two ways to join the SMART List, which gets you
the SMART Letter by email, weeks before it goes up on the
isen.com web site. The PREFERRED METHOD is to click on
http://isen.com/SMARTreqScript.html and supply the info
as indicated. The alternative method is to send a brief,
PERSONAL statement to isen@isen.com (put "SMART" in the
Subject field) saying who you are, what you do, maybe who
you work for, maybe how you see your work connecting to
mine, and why you are interested in joining
the SMART List.]
[to quit the SMART List, send a brief "unsubscribe"
message to isen@isen.com]
[for past SMART Letters, see
http://www.isen.com/archives/index.html]
[Policy on reader contributions: Write to me. I won't quote
you without your explicitly stated permission. If you're
writing to me for inclusion in the SMART Letter, *please*
say so. I'll probably edit your writing for brevity and
clarity. If you ask for anonymity, you'll get it. ]
*--------------------isen.com----------------------*
David S. Isenberg isen@isen.com
isen.com, inc. 888-isen-com
http://isen.com/ 203-661-4798
*--------------------isen.com----------------------*
-- The brains behind the Stupid Network --
*--------------------isen.com----------------------*