SMART Letter #76
Gilder's Worst Mistake Ever
October 5, 2002

            SMART Letter #76 -- October 5, 2002
            Copyright 2002 by David S. Isenberg
        - "undeterrable" -- -- 1-888-isen-com

>  Announcing 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


[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 
  + 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.

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 
(, 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 

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 
[] 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 

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 

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:

[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 

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 

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 

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.


From "The Blast" by Porter Stansberry, October 4, 2002 [for 
more info see]

  "[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 

  "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 

  "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 

  "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 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] 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,

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 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


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

October 15-17, 2002, New Orleans LA.  Fiber to the Home 
Council Annual Conference.  I'll be chairing a panel on FTTH 
feasibility studies. for 

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 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 [] 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 -- 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 or
contact Kevin Werbach, 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 -- -- 1-888-isen-com 

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David S. Isenberg            , inc.                         888-isen-com                       203-661-4798 
     -- The brains behind the Stupid Network --