The Boundaries
of the Network

Session 2: Holy halibut! What happened to the Communications Revolution?

Wednesday evening, September 5, 2001

David Isenberg: Roxane, you have five reward-minutes for being right last year.

Roxane Googin: Last year I was very politically incorrect in my fairishness. I learned a lot from this meeting last year. I run a strategy advisory service for portfolio managers. I've listened with great interest because people were talking about the core of the Internet. I spoke earlier about the hourglass [model] and how the best network is one that is totally generic so that you can't tell one bit from the next. That is the beauty of how this network works. You can project on to it what you need to do. Also the network is infinitely extensible, [because] we have DWDM. I walked out of this conference [in 2000] and told all of my clients to sell every stock that they owned as fast as they could.

Isenberg: How come you didn't tell me?

[laughter]

Googin: And raise cash. The reason for that is . . . a system that behaves like that is an economic horror show. It is going to repel capital because any system that is totally generic has no barrier to competitive entry. You can't differentiate yourself. One that is infinitively extensible means that you are going to be stuck in a Malthusian swamp, where your cost of selling will be one inch above the marginal cost of production.

Both of those scenarios are going to repel capital. I knew that, so the goodness of it on one hand was a nightmare economically on the other. It is a paradox. And just like oil, society is going to benefit the most if bandwidth is the cheapest because then we can project all of this stuff on to it. But if bandwidth is the cheapest, no one is going to be there to build the bandwidth. So what I saw happening is that the cat had been let out of the bag, the genie was out of the bottle, and people were building these networks and we were headed for this huge train wreck whereby capital would start pulling away from this industry once they realized that this was going to happen.

So the attackers with the new technology were going to starve to death because they weren't suppose to be cash-flow positive yet, cause they've gotta build this huge network. As prices come down your network has to be bigger before you are profitable so it was working against them.

And then on the other side, the incumbents (and I'm going to be a little general here and you can disagree with me but this is how I see it) are slowing going bankrupt on their own, some quicker than others, and I'm talking not only the BTs and the DTs and the FTs and the NTTs and the ATTs and the Worldcoms and the Global Crossings but the RBOCs too because their SONET-based networks have a cost of provisioning up here [high].

But even though the attackers are starving, they are forcing the marginal bandwidth prices below the RBOCs' cost of provisioning -- not only replacement but provisioning. So the RBOCs are going to get squeezed because they have this complex labor intensive infrastructure that is no longer supported by the economic base. So you have this kind of nightmare scenario where nobody wins and it is just a big mess because the attackers are going under but they have crippled the incumbents.

What we are witnessing is the perfectly predictable outcome which is no equipment sales, and no more progress. No one planned this, but it is too late to turn back.

The other problem is the phone companies don't own their gear -- it is leveraged. That is, they bought it forward in time. These guys have 20/30 years bonds outstanding against their SONET gear, because this was never suppose to happen.

We are looking at the worlds largest single businesses, I think. (I don't know if they oil business or car businesses is bigger, but it is one of the three.) The business has been rendered economically dead because of a real important piece of progress that has come out that acted differently than anyone planned.

Those 30 year bonds that were funded on the continued operation of this SONET gear will never be paid back. Those insurance companies, those orphans owning those bonds, the asset that they were buying against will not be economically viable in 20 years much less two.

So not only is their capital base being rendered useless, but now they are supposed to reinvest in a bunch of new gear. They are obviously not doing it because they can't.

This is what I envisioned when I walked out of here last year. I got kind of freaked out. But it is manifesting. If you listen to what is going on in Europe, DT just fell below its offering price in 1996 for the first time. NT&T continues to slide, France Telecom, British Telecom, they're at multi year lows. And it continues to get worse.

We live in interesting times. I don't want to call it a problem but it is certainly is something that is . . .

[laughter]

Man: Do you have any bad news?

Isenberg: What happens next?

Googin: Well and that is really interesting cause I would like everyone to join in on that one. One thing that I do for my clients is I predict trends. I never predict the future, OK? There is a difference. And I'm just trying to think if I had a big idea that slipped out here.

Man: You mean parts of the twelve you have already given us?

Googin: So what do we need to do, we need to restructure the entire industry but how.

Man: We socialize the risk.

Googin: I agree because . . .[somebody boos] . . . but I've got to finish.

Man: That is a sure way to loose.

Googin: Yeah, well they did pretty good with the interstate system and . . .

Man: They subsidized all of the truckers at the expense of the railroads. Why was that good?

Roxane: That was a good point.

Man: Why in the world would you subsidize the risk? I don't want the damn risk. I didn't buy the bonds.

Man: . . . in your IRA . . .

Man: No I don't.

Man: Yes you do.

Isenberg: Roxane, finish.

Googin: The last paradox is that we want it dirt-cheap. We can talk about what we are going to do. It sounds like you have some good ideas so I want to hear.

We want it dirt cheap because then it can be as good as it can be for all the other economic things that it is suppose to do. But it can't be so cheap that it repels capital. OK people keep asking me well what do I do with my stocks? My answer is stay in cash, until . . . but when will things get better? They will get better when we fix the problem, OK?

Everyone is watching Greenspan cut rates. If interest rates have been 22% and he took them down to 3, then you could say interest rates caused this. But interest rates have nothing to do with this. This is technology problem, so interest rates aren't going to fix it or impact it one way or another.

You can go to Japan and see 11 years of decline with 0-percent interest rates. So we have to fix the problem. This means restructuring the debt and owning up to what the real issues are. This owning-up hasn't been done yet.

Then we have to reallocate the assets to the right parties. Unfortunately some markets don't behave in a traditional market way. This is something to think about. Typically common good markets, like transportation systems, tend to be regulated markets, because the capital outlay upfront is associated with an unknown return in the future. This regulation is rather contentious, whether it is the old telecom, the airlines, or even trucking. There are just some markets that don't behave well, and I'm afraid that this is one of them. So we have a lot to think about.

Man: I would infer that you're saying there has to be a re-regulatory impulse.

Googin: We should debate that here. That is out of my area of expertise.

Man: I'm just asking you whether or not the inference that I'm drawing is correct that there has to be a re-regulatory impulse because the private market is not going to get there fast enough.

Googin: I don't know if the market will ever get there. I think . . . regulation -- my limited imagination could come up with that.

David Reed: I have a suggestion for 2 reasons. One is, I wrote an article four years ago called, "Accounting in the Age of Moore's Law," which said, until we fix this we are building something that is equivalent of the savings and loan crisis.

I came out with a different answer about what is going to turn it around. The point was that in the age of Moore's law, if you just think in terms of depreciation, that is the right way to think about it, what is the depreciation life time of something where technology is doubling every 3 years, 1 year, or whatever it is, in capability? The depreciation should be based not on how long the equipment lasts but on how long the equipment is competitive.

Googin: The economic life.

Reed: The economic life. It is clear that we now have history in the communications industry that the economic life is very short. So you cannot issue a bond that is any longer than 3 years. And that doesn't make economic sense.

Man: Not true.

Man: Well hold on. You have to recognize that you are arbitraging long and short, if you are going to do that.

Man: Or you are betting that you can change the rules, what 'legal' means?

Reed: Two things have happened. One, for a long time the telecom industry has lived in a regulatory environment that has forced it to use long depreciation lifetimes and assume that it is will get pay back on equipment. It can't live in that environment anymore; there are too many ways to solve the same problem.

Googin: And thank heaven equipment is cheaper.

Reed: And second, we expense software, except software's economic life time is much longer. So my argument was that, for a long time, this was OK because software and hardware bundled and it sort of came out right. We were depreciating the wrong thing and not depreciating the right thing but they were in the same place. So nothing really mattered.

Then we unbundled the two. We had protocols and applications, and we had connectivity. That destroyed the world. The only way out is to stop assuming the value is in the hardware and start capitalizing the software, the infrastructure, the applications, the way that they should be as a lifetime asset.

Tim Denton: When you speak of regulation you engage a zone . . .

Reed: I was not saying regulation; by the way, I was proposing accounting rule changes that are consensual agreements analysts have with companies, right?

Denton: I would like to speak of regulation and the difference between regulation and the rule of law. This is a general discussion point about these things.

When you play hockey there is competition between the players within a bounded rink on a certain ice with blue lines that are drawn. And the net is a certain size. That is the rule of law. There's also regulation, which is enforced by the referees, to determine whether high sticking or elbowing is going on.

One of the things that makes markets work, and what an obsession with markets fails to understand, is that they work in a context of a rule of law, whereby you simply just can't take out the head of the grocer because you disagree with his pricing decisions. So we all live in a zone which is determined by a rule of law.

When you speak of re-regulation, you may very frequently be thinking about something, which is actually a rule of law issue rather than a regulation issue. When I think of a regulation, I think of a bureaucrat or functionary of the state setting a price, determining output, or something like that.

Now here we have a situation where the problem is that there ain't no money in it so but it is manifestly good that [e.g.] we get clean water. So we have taken clean water and we have put it in to the domain of something that is delivered. We have taken a function, we have made it so simple and so cheap that everybody gets it. So perhaps what may happen is that when we get bandwidth, which is, there is just no money in bandwidth and yet it is so manifestedly good for everybody to have tons of it, that we may socialize the risk.

We may just turn it into water delivery. So in a true Internet fashion the transport is just taken care of, like the interstate highway system, [while] the applications continue to be totally competitive.

So I've changed my topic in a sense, but what I wanted to say is before we talk about regulation, let us just be clear that we are not talking necessarily about someone's setting a price, we are talking about somebody creating a legal framework in which investment can take place in a rational and orderly way. And my panic meter goes into the red when I hear re-regulation if we assume that what we are really doing is taking a private sector of monopolies and setting prices and outputs in the old fashioned way.

Man: We did a great job re-regulating Amtrack in the United States˜

Man: California did a great job of reregulating electric power.

Man: So maybe some issues are settled by a framework of a rule of law as which competition proceeds rather than that a bureaucrat determines prices and output.

Reed: There is border crossing. Somebody explained to me that Louis Brandeis, when he was serving on the Supreme Court, wrote a decision about regulation that basically said, in considering economic questions you are not allowed to consider economic extranalities. That was the way it was explained to me. So network externalities, like scaling laws or whatever, could explicitly not be considered in the context of either set of rules.

Denton: David, I didn't understand a word that you said. Your point would be?

Reed: My point would be that driving these fine distinctions about what's regulation and what is not is not really so simple. Because judges are perfectly happy to rule on meta-points as well as what kinds of rules are allowed to be made.

Denton: I'm just saying that society might set up laws that might permit the solution of this problem that would not involve constant price adjustment by bureaucrats, lawyers . . .

Man: In time the industry will work its way through to earn return on invested capital. It is just a matter of time. Michael Porter's five forces generally determined profitability of an industry. It is not so much what a regulator is going to do about the industry -- how many competitors do you have in an industry? And over time this industry will consolidate its way down eventually it has to because it will not get any more increases in capital until it starves itself

Man: Which is the other option. There are only 2 options, either you reregulate the industry or you completely deregulate the industry. We are kind of in the mid-way point, no one really knows, we kind of want to deregulate, but we don't really.

Man: Tim when you say "reregulate" would you please unpack what you mean by that term.

Isenberg: In which dimensions?

Man: [I think he means] socialize and build out fibers to everybody's homes. Everybody shares the fiber plant.

Man: Private companies can do it. Public companies can do it. The point is that there is a framework of law in which a bulk commodity is delivered very cheaply for a lot people.

Victor Blake: First of all, communications is [governed by] interstate law. I'll remind you that a very small fraction of the global population of the world actually gets municipal water, including me. I get private water.

Isenberg: And you are going for a civil engineering degree . . .

Blake: Civil engineering degree, right. Communications law, particularly in the United States, would make a very interesting. comparative study with other countries. A lot of the problems that we have are probably related to that. There are functions that appear to be legislative law -- by the people, for the people. But most of the law is actually administrative law with a very poor history of case law. If you understand how case law works, particularly with administrative law, the best analogy for telecommunications regulation in the United States is actually immigration law. It is horrible because of the way that you establish a single incident by a decision of a judge. This does not involve public oversight or public decision making. It is essentially private decision making. That is in fact how telecommunications law has been proceeding over the United States over the last 70 years.

Adina Levin: I just wanted to say if Roxane had any more suggestions I wanted to hear them.

Googin: I would like to hear what every one else thinks. I think it is urgent. Our network economy is not going to manifest until we figure this out.

Isenberg: That is why we are here.

Googin: Time is of the essence. The reason that sales are down, blah, blah, blah, is because this is just draining the vitality of the entire economy. On the margin this is where our growth [has been] coming from, and it has stopped. It would be helpful if someone in Washington knew the problem, and could actually say it rationally. Then I think the more ideas the better. I can identify the problem, but I don't think I'm qualified to solve it.

Peter Ekelund: I want to say I wholeheartedly agree with your conclusions. I think all of us here might be academically right. [But] we have created a completely impossible business to invest in. Unless we are figuring out a way that makes economic sense, unless we want to re-introduce socialism, we better figure out a way to make economic sense of investing in this business.

I think that that should be our strong focus, not how to create these wonderful ideas. But a very, very stringent laser focus on how to make money on what we have created. Otherwise people will all die. I'm very optimistic about doing that but frankly, to listen to people around here, it has not sunk in yet how serious it is.

Jonathan Thatcher: Yeah, I certainly underscore all of the above. When I hear about legalities and regulation law and communism and all these other things being thrown in˜.

Man: No one has said communism.

Thatcher: I would like to go back and use water as an example. In my own mind that makes a really lousy metaphor for one simple reason, and that is the delivery of water over the last 2000 years has not technologically improved dramatically at all. Decisions on what is good for society [regarding] something that does not move and is not inherently chaotic in its advancement, is a simple process that has significantly low risk.

But [we are discussing] something that we don't really know and understand, and we don't know where it is going to go, or what we can we predict in 20 to 30 years. To say that any group of people can get together and can noodle out the right way to create the environment that is the optimal solution for the technology -- this just doesn't make sense to me.

The only thing I know of in the history of the world that has been successful at making any sense out of chaos, unfortunately, is capitalism. And capitalism given enough time will in one way or another refine the chaos into something that may not be ideal but at least has order and has benefit.

Man: I want to go back the idea of repelling capital because of the price of provisioning is so close to the price of resale. It seems to me that there are businesses that have high capital investment cost but are nevertheless sold on very narrow margins, like the cooper business. Take any commodity market.

Googin: DRAMs.

Man: DRAMs, red winter wheat, light sweet crude oil -- the kind of market where when the price goes up competitors come in, and when the price goes down, competitors exit without causing these cataclysms we are seeing. Can we get from here to there or are there aspects of this market that keeps this from being a commodity market, a spot market for bandwidth?

Googin: We could do that, but I think that the infinite extensibility that we apparently have with DWDM . . . it takes you a little while to dig up the coal and you do have different people's cost of recovery . . . I have a whole other theory but this isn't the right time about the post-Newtonian economy . . .

Man: You keep saying that there is something unique about bandwidth, that theoretic demand for is infinite.

Googin: No.

Man: How is that any different than the business of making Pentium processors? The supply of computer processing power is infinite, and increases at roughly the same pace, and it is incredibly capitally intensive, yet Intel has made more net profits than any other company in the world since 1971.

Man: They had 70% market share.

Man: Yeah, but they don't have any government involvement or any socialization . . .

Man: We won't have 11 networks in the United States from 5 years from now, one way or another, we will be down to 3.

Man: I would like to point out that your characterization for the bandwidth market is not at all unique. There is no difference between that commodity and any other commodity.

Steve Kamman: Adam Smith, the father of capitalism, said the government exists for 2 reasons -- national defense and the regulation of natural monopolies. If you are going to look me in the eye and tell me that this is the fixed line network, not the wireless network which is another natural monopoly cause there is only so much spectrum.

Isenberg: Steve's 5 minutes have now started.

Kamman: I'm an ex-telecom guy who switched to being an equipment guy. I was at MCI and I am older than I look. I start with sort of 3 base line points. First, it is a natural monopoly.

Man: What is?

Kamman: The network. At the absolute last mile, when you get down to it, it makes more sense to have 1 wire to have 2 wires. Now we can talk about wireless. We can also talk about how we get access. We can also say from a societal point of view, I would prefer a society to invest in one wire. Now the nice thing about it is that if I just have that one wire it is a 30 year asset. Maybe it is only a 15 year asset, maybe it is only a 10 year asset, but it is an asset I can finance with debt with some certainty. Talk to the Worldwide Packets guys.

Man: Only if you block other initiatives.

Kamman: Before you say no, keep the mind open for a little longer . . . The fiber is a 15-year asset. What you light it with, how you light it, what you send down that pipe, who owns it, is not a 15 year asset. What you have here is a fundamental shift where in the good old days the network and the application were tied to each other. It was a network and it carried voice. Today the physical asset is still something that you did a trench for and you shove it in the ground and it sits there.

Man: You have been reading me.

Kamman: If I put a fiber in there, I can stick whatever I want on it. I can finance that fiber with, say, 15 year debt, say, 10 year debt. I can go out and legitimately say I can deliver X dollars a month by selling a fiber to somebody else. They take on 2 additional risks: [First,] technology risk. What am I going to light it with? That is going to change every 3 years. I've got to take on a risk -- I need to relight the network every 3 years in order to stay competitive. Then the other risk, which everybody wants to bundle in to that same network, is the content. Well, I don't want to take the content risk if I am taking on the lighting risk. Somebody else has to figure out what is going down that pipe.

So we disaggregate the industry. And somebody owns the boring 10 year asset that they finance with boring old debt. Somebody else owns the middle part -- maybe that is just the plain customer. If I'm going to light my fiber into my home with something really old and slow because I don't want to upgrade, that is my problem. Nobody comes in and tells me that I have to upgrade my bloody refrigerator. Whenever I want to buy a new frig . . .

Then, the last item, somebody else takes the risk of what am I going to put in the frig. Well that is my problem. Number 3 is marginal pricing. The reason marginal pricing is so bad is that the traditional network cycle (and this is where it is different from cooper) when I first build a network, it has a potential capacity of, say, 100. But I only sell 10% of it. And then over time I sell more. The marginal cost of the next bit is almost zero, so that is how I make my money. Somewhere in the middle I cross over and suddenly every additional bit is pure gravy. The big problem is right at the end, when the marginal cost per bit goes through the roof because the fundamental architecture of my network wasn't designed for that many bits. So I'm throwing a lot of capital to get that next marginal bit out.

Man: ADSL

Kamman: That is ADSL, that is SONET. OC-48 was suppose to be a core backbone product, and we are selling it on the edge. The problem is that if I build an asset with a 10 year life and, I price it on a 10 year life, and it turns out to be a 5 year asset. I'm screwed! So the problem is that you are dealing with these screaming marginal costs curves. We as a society would argue that there is a societal interest.

You have to walk up to that guy who is saying, "I don't want to sell you more bits because it costs me too much money, I loose money on every bit that I sell." And you've got to kick them off the cliff.

So the debt holders finance the network, and then the equity holders get the returns at the end. [The solution is that] right at the end you have to kick the equity holders back off and put it right back to the debt guys who get the next 10 years worth of spending.

When I am e.g., driving my fully depreciated taxi cab, the last thing that I want to do is to buy a new cab. In New York, every 5 years you have to buy a new cab. I don't really care whether the old cab is working or not working. Every 5 years, new cab, finished. You can do that or you can go to Washington D.C. and the cabs never˜.

How is this going to change? And I'm just convinced of this: we are so bandwidth centric in this world. Remember there is bandwidth, there is processing, and there is storage and they are effectively substitutes for each other. If I have all the bandwidth in the world, I don't need processing, and I don't need storage. All the storage in the world and da, da, da . . . If I had all the processing in the world, I could compress the Internet into one 8 kilobit thing. Send [???] like zen.

Remember this, because right now what we have is a bandwidth bottleneck. That is not going away, because there is no way to finance it. Now you'll have some stuff on the edge, and have some stuff on the margins. But people will take advantage of the fact that processing and storage are still hammering forward according to Moore's law. Particularly the storage out there is going to get so bloody cheap that I'm going to replace storage for bandwidth.

How do I do that? I will just tell them it is a critical mass of residential broadband. If you get enough users out there . . .

Man: What is the cheapest way to do it?

Kamman: Storage right now, without a doubt. The point is, I am going to need a lot of megabits to do streaming, or I need a lot of hours to pull that thing down, dump it in the thing and then pull it out of local cache. To an end user it is the same problem, same result, same solution. I'll take the cheapest solution -- water finds the lowest level [e.g.] big Tivo boxes. Even better, a friend of mine just downloaded his whole CD collection on to a hard disk simply because it allowed him to play random play. The day that I get broadband and the day that he has broadband is the day that I ask him to email it to me.

[laughter]

Man: This is your answer to Napster.

Kamman: Absolutely but here is where it goes back to the network. So you start see to see groundswells. If you get enough people using ADSL, they'll use it in ways that they never thought. That's how they do Napster. You come in at 11 o'clock at night, you tic, tic, tic, I want all these songs and then it downloads all night long. That is how people do Napster. Eighteed hours a day, while you are asleep or at work, that your little DSL modem is going to be sucking stuff out of the network.

The network is not built for everybody's DSL modem turning on when everybody is away at work trying to suck down vast quantities of content. It blows up the networks. How do we know that? It is exactly what Napster did to the campus LAN. It is going to happen all over again. What happens then?

Then the consumer comes into the equation. Why can I shut off all the Northpoint? Because it is a bunch of geeks. Hey Northpoint, click you are gone, you guys don't vote, I don't care. I know, it is 150,000 geeks but the senate doesn't care. When AOL went to flat-rate pricing the whole network browned out. Suddenly AOL had 2 choices, number 1 tell its users to go pound sand -- over time, we will get to it -- typical Telco response. Number 2, you nearly go bankrupt throwing capital at the network and then run away from it as fast as possible and outsource it to everybody else. Why did they choose option 2? Because, remember it was on the cover of Time magazine. The FTC was about to fine it. It had senate holding hearings. Cause you had enough people who were started to depend on the Internet . . .

I'm not saying this is good for the telecom industry. I'm saying that broadband is going to get dragged kicking and screaming out of the national economy one way or another because if you get enough people out there that want it, then the demand is going to increase, then it is going to become irrational, then the best hope is regulation. It is the only way we will get a decent return on that asset.

Isenberg: Hang on here. We have two more panelists. Thank you.

[applause]

Tom Freeburg: I used to work with a guy who pointed out that every problem, no matter how complex, there is a solution that's appealing, simple, easy to understand, which is not exactly the same way as simple, elegant, and wrong.

That suggests that too many of us are falling into the simple thing.

By the way, there is a stock market in bandwidth, as a lot of us here probably know and a few of us that have even played in. We keep thinking about bandwidth as a natural monopoly just like the railroad barrens thought about transportation as a natural monopoly. Hey guess what guys? Technology has outstripped that. It is too blooming late. You can't make that stick much longer. I have a 2-hour speech I like to give on economic models and how that it affects telecommunications.

Man: Please give it now!

Freeburg: It is when the world changes the people that owned the world before, go nuts and they try everything that they can to change it, FUD, uncertainty and doubt, legislation, all sorts of things like that. We are in the FUD arena of telecommunications moving from a natural monopoly into something where entirely different laws apply. By laws I mean natural laws, not written-down laws. And as we all know, as the whole Napster thing clearly illustrates, the world is changing and the legal system can't possibly keep up with it.

History tells us you can't pit law against technology and expect law to win. At best law can sweep the tide back for a very short period. That is all that is gone on right now. It can't possibly come out any other way. Technology is going to win. There are just too many ways to deliver bandwidth. And people are using bandwidth in too many new ways. By the way they are going to use it in ways that we haven't even thought of yet. It is all over, it really is.

I spent a lot of effort explaining to my bosses that broadband cable was going to win over DSL because broadband cable allows a number of different companies, different entities, to use the same cable to transport [???] without having it look exactly the same and without having to thread through even the same business organization. It allows entrepreneurship but DSL doesn't.

Isenberg: Let me point out that the very definition of natural monopoly has technology in it. So if the technology changes then than the natural monopoly changes. Larry quick comment?

Larry Lessig: Just a quick disagreement with this. In the long run it doesn't matter, but nobody wins in the long run. In the long run we are all dead. You could have said the technology of radio would not have admitted of this -- commercial control of radio was produced by the FCC when the FCC was captured by radio in the 1930's and 40's and 50's. You could have said that technology would not allow that and eventually radio will be liberated. Well maybe if Dewane gets his way in 20 years, that will happen. But still we had a 100 years of the technology being distorted by the legal process being captured by special interests that had an interest in stopping the progress of technology. So this is a happy story about how technology wins in the end. But where we are right now is in a world where strong interests are trying to stop the progress of technology in a way which is hampering [???].

Isenberg: Now, let's get back into the panel. Porter Stansberry is a free marketeer to beat all free marketeers -- take it away!

Porter Stansberry: I'm going to try to be very succinct. I write a newsletter and you can all find my newsletters. I publish 4 different newsletters, one of which I write . . .

Isenberg: No commercials!

Stansberry: pirateinvestor.com,

Isenberg: No commercials!

Stansberry: I've got 5 minutes to say whatever I want.

Isenberg: Free marketeer, bullshit!

[laughter]

Stansberry: Anyway the password that you will need is Big Hook.

Isenberg: Hey, no commercials!

Stansberry: Well, the user id is BigHook and the password is 2001, so go priinvestor.com and enter Big Hook, 2001. And in one minute I am going to summarize what happens to all the networks in the world. The bottom line is that it was very, very bad business. Between 1998 and 1999 capital expenditures for telecom companies doubled, but revenues didn't come close to doubling. That was a sure sign of that we were in the midst . . . [Tape turns over]

. . . The other thing that people should have noticed was in 1994 AT&T's revenues peaked. So you have the leader of the industry suffering declining revenues 6 years into it, it is a sign that piling on is not necessarily the best idea. The real problem is the narrow pipes to the user, because what you are building was not supply but capacity, and there is a difference. So there is an over-capacity problem. There is no such thing in economics as a problem of over supply. Supply drives demand, price change. So in the future what is going to happen is optics will come into the local loop, and finally supply will come on line. Over capacity will solved. All that won't happen if you socialize the risks. They socialized the risks of Japan's banking system in 1990 and it didn't get us anywhere. If you go back all through history, socializing the risk in any industry freezes it in time, and nothing ever changes. Going back to the railroad analogy, the first private railroad in the United States was James Hills Northern Railroad. It was wildly profitable and it didn't receive any government subsidies in an arrow when, supposedly, the costs of running a railroad were below the price of [???]. So these problems have all happened before and the answers were never social. The answers were always entrepreneurial.

Man: Rent control in New York City.

Stansberry: Another great example. And there is no such thing as a natural monopoly, that is just total crap. If there would be, government would regulate real estate, they don't, so forget about it.

Isenberg: Except for rent control in New York City . . .

Stansberry: Right -- it doesn't work. I have something more interesting to talk about with my remaining 2 ½ minutes. It is much more valuable re: the signal to noise problem, and that is the treatment of cancer. I have been spending a lot more time on that this year because there is no money to be made in telecom. Anyway, briefly, there is a great company that you guys should all take a look called Antigenics, out of New York. The symbol is AGEN and it trades for $16.50. The market cap is 500 million dollars. They have an extremely successful, well proven vaccine, a therapeutic vaccine for cancer. The technology is called heatshock protein and the signal-to-noise problem is that in cancer your body has a tumor that grows that is made out of your own cells, so it does not trigger your immune system. Your immune system does not detect cancer is being a foreign invader so it does not react. Antigenics takes a sample of your cancer tumor, you specifically, extracts something called the heatshock protein, which is a signal of your immune system and then delivers that signal directly to your immune system over a 2-day process using Federal Express.

Man: Oh, that is hot.

Stansberry: This is first commercialized program of individualized medicine. When people say we wasted all this money on the Human Genome Project, it is an example of people not understanding the difference between a technology and a killer application. I made a point earlier about the combustion engine beating the technology carving the application. In this case, genomics is the technology, but the application will be individualized medicine. It is going to happen in a lot of forms. The first one will be treatments for cancer because cancer is unique to the individual.

So a phase 3 trial is going right now for kidney cancer, should be finished in 2003, approval in 2004. It will be a $20,000 treatment and it replaces chemotherapy and radiation. As soon as it is approved for one cancer, it can be used off label for any cancer. The technology is not cancer specific but patient specific.

The second trial they have going on right now is in pancreatic cancer. They get 40% success rates. Kidney and pancreatic cancer are both 99% fatal, pancreatic cancer within 12 months. So the testing process can be very quick, the burn rate right now for the company is between 6 and 10 million dollars a year. They have 80 million dollars in cash. Garo Armen, CEO, took Imunex public and had a 12 year career at Goldman Sachs. When he discovered the technology in 1994, he resigned his job, became CEO. The first doctor that they employed to run the first clinical trail left his practice and became Chief Medical Officer. I have about 10% of my net worth in this stock.

Woman: And what was this company name again?

Stansberry: Antigenics, AGEN.

Man: What entrepreneur funded all the basic research that went to that genetic information?

[laughter, applause]

Stansberry: The government spent 3.5 million dollars on the human genome project over a 10-year period and another company named Celera, in 6 months beat all that with less than a 300 million dollar investment. And now nobody is using the public database because it is no good.

Isenberg: You know, there is summer tradition in Woods Hole called the Friday Night Lecture at MBL. They invite the people who are gonna win the Nobel Prize in the decade to come and talk. Or in rare instances they are late and they have Nobel Prize winners. Craig Venter spoke 2 weeks ago and he was awesome. I went because of [Porter Stansberry]. What do you say about the average employee at Celera? There are 24 year old math Ph.D's from the top of their class who ride skateboards down the hall and . . .

Stansberry: I was doing a comparion between Amazon.com's average employee and Celera's -- at the time they were roughly valued the same.

Isenberg: Anyway, so somebody whispered in my ear this is the first time I've seen a corporate logo at one of these Friday night lectures -- because, in general, they are all academics. Venter was awesome. Thank you very much for that.

Stansberry: Sure. I bought my stock for $11 in January.

Man: Why are you telling us this?

Stansberry: I'm telling you because I thought it was a much more profitable example of the signal-to-noise problem.

Man: If he's right, he gets twice as much time next year.

Isenberg: Now, that is the real commodity.

Stansberry: And I think that the problems of the network are pretty well understood and I think that they will be solved, hopefully in market ways over the next 5 years.

Victor Blake: Can I ask a question? One thing that nobody has really discussed yet is privatization of networks. We've talked about network operators and service providers with the vision that that is how networks should be built. It you were to take a look at transportation as an example, one can conclude that cars are simply the privatization of transportation -- as opposed to railroads.

One point of information: you probably don't know that AOL runs a huge number of private networks that are not on public carrier networks that carry approximately 75% of AOL's gross traffic volume between data centers. They are on 3 year depreciation schedules for capital equipment and 10 years for the fiber. It is very agressive --these are privately owned and privately capitalized by AOL.

Kamman[?]: Regarding transportation there is another way to look at it if you think about marginal costs. For example, in L.A. they stopped building new freeways because the next freeway doesn't really change traffic patterns. The problem is that the individual still wants to own his car, but looking at the collective cost, in 200 years we will have to do something. I don't know what that is. But at some point you have to scrap the system and either build different cars, or force everyone to buy motorcycles, or force everybody into trains, or do something different, because otherwise L.A. starves.

Blake: In D.C. we call it the toll road. It is a private enterprise investment and it is actually profitable, as I understand it.

David Weinberger: I don't really understand any of this. But since I am standing I will continue. Did you just see a blinding light of fear washing over me? I was going to talk about the telecommunications revolution and why it hasn't done what we have expected it to do.

The first thing is that I don't look at this as a telecommunications revolution at all because it is just not my area of interest. What I care about is not so much the questions of provisioning bandwidth, which I understand is a crucial question. I don't look at this as telecommunications at all. Telecommunications is communicating over a distance and I don't think that the Internet or the Web is really about communicating over distances.

What's remarkable about it is that it is a persistent space. It is a space that accretes value over time. Every page that is put up and every discussion that gets added to adds to the value of the web. That is really different than what the telecommunications infrastructure was built for -- telephone calls -- it has nothing to do with that.

So I think of the Internet as a persistent space that accretes value over time. I, like Jerry, just turned in a book draft a week ago, so I'm in this nervous state of waiting to hear what my editor says about whether it is done or not. So I would like to talk about this by talking about a book that I was co-author a couple of years ago, and then tell you what the theme of the new book is. Is that a plug? Oh well, too late!

Man: David, just tell us what you have to say. Stop apologizing.

Weinberger: I will apologize as long as I want. Back off! [laughter].

Well the first point was persistent space accretes value. The second point is that what The Cluetrain Manifesto said to me is still basically right. It came out during the height of the positive hysteria about dot.coms. The reason why the Internet jangled our cultural nerves is not that it is a big opportunity for some 25 year olds to make a lot of money (but that's nice too). What we think is exciting about it is that it is a conversation medium that enables people to have conversations in the literal sense, and then in the extended sense.

Conversation, in this case, is people who are talking voluntarily, because they are interested in the same thing. They are speaking in their own voice with some passion, about something they care about. That is the characteristic of the web that has made it such an object of interest and passion. It is not really that we move some business functions online, although that too is important. But if that is all it was who would give a shit about the web? Something else was going on, and Cluetrain suggested that conversation is a metaphor [???].

The book I just maybe finished is called, Small Pieces Loosely Joined. I wrote it on the web. I posted drafts. You can read it, in its unfinished entirety at smallpieces.com. I haven't talked about this in public before.

What it tries to say is that what's important about the Web, the biggest effect that the Web will have will be on ideas, in fact, better ideas of our culture, things as basic as space and time and matter over reality and knowledge and public and groups and self and morality. In fact, those are all chapters in the book.

As I was writing I realized the chapters are getting repetitive so I decided that that must be a theme. The theme seems to be . . . let me give you an example of how I think this works. So we have a theory of time that says -- I'm not saying that this is a well worked out theory -- but if you ask most people what time is, if you really push them on it, like in a Philosophy 101 class, they tell you about moments of time and the march of a string across the knife edge of the now, little tiny quantum, moments of time.

We know that the more you think of that the less sense it makes; the more paradoxes, the more contradictions. The most important thing is that it has nothing to do with how we experience time in our own lives in the real world. We don't live a series of moments. Our lived experience of time is not of discreet moments, it is of events. It is 5 minute stretches of our turn to talk. Or our College years. We have a complex of stories that we view time in -- threads if you want.

That is not in accord with our every day philosophy about time, which is of discreet moments, so we live with some alienation. Now you go to the Web or the Internet, there are explicitly called threads. The Internet has this threaded nature. It feels like a set of complex rivers that are going by, like Heraclitus' Rivers, which were always changing, but there is a river there, you can step into it.

So there are email threads, there are discussion threads. My 16 year old daughter has 6 IM sessions opened at the same time. Each of those is threaded within itself and there maybe some weaving of threads. Even on Ebay, when you are bidding on an auction that is a story, that is a thread -- you can go back to it, it has an end that you can reread later on, if you are really bored.

So web time turns out to be a lot like our normal everyday experience of time, which is very different from our abstract explanation of time. That may be one reason why our experience of the web feels both alien and new, but also very familiar and very comfortable. [It explains] why hundreds of millions of people can step into this radical new technology that is disruptive and it doesn't feel disruptive at all. They feel completely at home. It is because the experience of time and space and other things on the web is, in fact, so much like our everyday experience and so unlike what we have been telling ourselves that experience is about.

So if it is true that the big effect of the web is on ideas, that the web should be viewed not just as a technology, not just as an infrastructure, not just as an economic vehicle but as an idea, the way that democracy is an idea, it arose as an idea, it had its effect as an idea. If the most important thing about the web is in terms of an idea, of course the revolution hasn't happened yet. It takes a long time for ideas to work their way into our lives and to have practical affects on our lives.

[applause]

David Reed: David, I would like to offer you an alternative title, which is that there is many stories in the naked Internet.

[laughter]

Isenberg: Well, do you want to keep going for another half hour?

Jerry Michalski: David, it sounds really wonderful. Thank you. That was a great first talk. It was really excellent.

I want to tie what you said back to where Roxane's started ask an open question. There is implicit assumption about capitalism that I've been making for a long time that I'm beginning to question: that there is no business without barriers to entry. [Roxane] said that nobody will invest in a business that doesn't have barriers to entry, because it gets competed down to nothing, and who wants to make nothing on nothing.

Basically, capital will flee a market where there is no clear lock, where you don't have a lock on a patent or a barrier to somebody getting into your business, where commodity isn't profitable. Maybe it is worse than that -- that the commodity will never get built if something is instantaneously commoditized.

Also let me tie it to what Tom was saying earlier -- if Motorola suddenly started building Metricom-style devices that everybody could buy and install in their home, that wirelessly connected to one another and created a high speed Internet, no carrier would own the Internet. No carrier would have the last mile. We would just provide it for one another and it would heal itself if the software were good enough. It would be essentially free. Whether bandwidth or storage or processing was the cheapest, it wouldn't matter, because those things would chase each other over time. Motorola would make a bunch of dough from that, just no carrier.

Anders Fernstedt, who I met through David, made me realize that what 3G means to carriers is a return to the advanced intelligent network. They plan on corralling location information about me and selling that to advertisers. They plan on having control over a lot of info about me that I have no desire for them to have. And it is not just 3G, it is a whole bunch of old business models about scarcity and barriers are [still operative].

I've been hunting on the web and everywhere else, for post-scarcity economics. What happens when there is abundance? What happens when things are inexpensive and available and there are few barriers. And what happens when companies build loyalty because they've done good work and they are just closer to you and they get what you do better. You don't want to leave them. It is not because they made it really hard to export your data from Yahoo groups, or some other strange reason. They are perfectly happy for you to go someplace else but they are doing stuff better for you than anything else is.

Forget branding. I'm not talking about branding at all, because branding is indirect, expensive marketing.

Levin: A lot of the discussion in this room has been about how do we pay for bandwidth when telecom companies are trying to depreciate 30-year equipment. Right now, capital markets have stop funding bandwidth. This is a big problem because this has stopped innovation. If we're in the bandwidth business, it is a tragedy.

But if we are talking about the changes caused by the industry, email is already a killer application. Tim Gray, one of the guys who invented XML has a great quote on his website saying that knowledge is a text based application. So we are talking about the killer applications and people that are providing bandwidth wanted it to be true that radio is the killer application. But a lot of what is interesting doesn't necessarily require high bandwidth. If you have a network and it connects large numbers of people who can talk to each other, that is already a heck of a lot. I think that this is going to be an unpopular opinion in this crowd, but I think that there is an amazing amount of innovation you can do on narrowband. That is point one.

Point two is that when we talk about having a space that is based around conversation, that is based around archiving conversation and sharing thought based on editing conversation, it was done once before, it is called the Talmud. And the rabbis whose accounted what we now know of Judaism had conversations over long periods of time and took them down and edited them into these fundamentals documents. This record is very different from the linear organized way of thinking that we get from the Greeks. I think we are going back to a paradigm that people did without technology that now could be easier.

Isenberg: Good.

Freeburg: Just a few real simple points. I will submit that the killer application for the Internet is awareness. What people really want is expanding their sphere of personal awareness, expanding it geographically, expanding it in terms of social content, expanding it in terms of knowledge. All such applications are increasing in their demands for bandwidth. The telegraph took a lot less bandwidth than the telephone, and the things that we are using today take a lot more.

Second is that all attempts by governments or quasi-governmental organizations to control the spread of new technology have in the end failed.

I like your argument that in the end it may not matter because we are living in the now, except that remember, the Internet didn't exist as a public phenomenon 10 years ago. I'm sorry. We have to live out the eventuality. It is happening too fast in comparison to previously technological changes for it to make any difference. The automobile, by the way once it took off, absolutely changed the life inside of a single generation. This is going to be that much faster.

I have a couple more pretty simple points. We are having a discussion that leads me to think about the differences in the way that the French and the Germans approach the evolution of language. For those of you who don't know it, the French have a state committee for the preservation of the French language that is very careful. Whenever a foreign word they don't like gets into the language they invent a French phrase using existing French words to substitute, and make it the legally required [language]. The Germans, on the other hand, have a committee for the extension of the German language that adopts new words very happily.

We have to be careful about the difference between teaching the old paradigm and being sure that for heaven sakes we don't break out of the box, and being aware that we have unleashed the genie, he is really out of the bottle all together, but the genie we've unleashed doesn't come in terms of bandwidth or in terms of fiber, it comes in terms of humans communicating with humans. By the way, not in real time necessarily.

Remember this sphere of awareness includes not only other people, it also includes events in near real time and a tremendous amount of human knowledge, and unfortunately, a lot that pretends to be knowledge and really isn't. One of the speeches that I have given in the past in my role as Chief Futurist, I talk about how we are going to have to develop critical thinking, which is something that they used to teach in school, so that we are very careful to not allow our real belief system to be mislead by something just because we read it on the Internet or in a newspaper. By the way, this exact phenomenon happen back when the publication of newspaper was first invented. All of the same stuff that we are talking about happened then.

Eric Best: I will give you my coupon. To this point about old economy, old economics, scarcity and barriers, were the models based on abundance? Just briefly, in 1981-2 I was writing editorials in California and I got really obsessed with the idea that the centrally-planned economies were doomed in the face of information technology. What would become of them? They would just collapse around an internal contradiction.

A couple of years [later], stimulated by Reagonomics, I thought there must be a internal contradiction in capitalism if we could only figure out what it was. Then I had a fellowship year and I spent time going through the Harvard Library trying to find anything between socialism and capitalism. So I was looking for something called communal capitalism, but it wasn't in the card catalogues in the Kennedy School or the Harvard Library, or the Business School.

Actually you really didn't hear about it until Clinton started using the phrase, which was kind of interesting -- what was he talking about? I've been on this journey for a while in the company of Napier [Collyns]. We were in a meeting in London at one point in '92, '93,'94, talking about the restructuring of Europe and what was going to be happening with the technology. I found myself thinking, 'Oh I'm still in this same kind of quest to understand is there a contradiction in the capitalist model.'. Now I think, 'Yes there is', and I think I know what it is.

It's how do you protect proprietary models in an open information architecture in the knowledge economy, where you are moving from scarcity of physical objects to the infinitude of ideas. If you have a knowledge economy where ideas are essentially unlimited, and they are stimulated by the fact that everybody has access . . . In fact if you believe that the economy is driven by supply, is in your interest that more and more people get connected in order to have more and more ideas, so that those ideas and those derivatives will produce economic stuff. Therefore, it is in the public interest that access ubiquity matters. Connectivity matters. So do you think that connectivity and awareness will be extended fast enough to enough people to produce this abundance if there is no intervention in the free market? I think, and I would like to be seen as somebody speaking personally not as a Morgan Stanley representative . . .

Best: We know that the free market doesn't do a really good job allocating education to everyone who needs it, or healthcare to everybody who needs it. So if everybody needs connectivity the way they decided that everybody needs a toilet, I suggest we should consider that some intervention might be needed, if you think the knowledge economy requires connectivity and that the free market is not actually providing it fast enough because the margins aren't there, or for whatever reason.

Kamman: As much as I was passionate before, I am going to get cynical again here. I remember what Adina said, we were taught a lot more about whether or not we needed some government action last year. And I would say the mood in the room when you mention government was much more negative then it is this year.

What has been interesting for me to watch, now that I'm an equipment analyst, is that Motorola can make a lot of money by selling that device, which by the way Robert Berger is actually building. The equipment guy can make a lot of money by selling that device. The guy who sells the services on it may not. If you want to talk cynically, my guys, the equipment stocks, probably won't come back until broadband comes back. When broadband is something that the telecoms resist, those guys start to say, "Hmmm our customers and us are headed down different paths."

Man: Where is the broadband coming from if the demand isn't there> And how does the demand get there if the last mile isn't there?

Kamman: Talk to B2. The point is that you have to make the last mile happen. At some point in time B2 will . . . the Koreans have 60% DSL penetration. It does come, but what is the social force that will come in and speak for it. Intel's stock doesn't come back up until broadband kicks off. So how does Intel make more money? They start lobbying, because Intel worked it out. Microsoft is going to work out that the only way they make money is in broadband.

Man: By the way, Intel said that gigabit Ethernet is their highest priority.

Kamman: That is another way to look at it. You get another force in society that starts going out there and starts throwing money at a party.

Man: How does that play to your assertion that bandwidth and processing power are interchangeable?

Kamman: I think what happens is the consumer is going to find a way to suck down stuff. When enough consumers start sucking down enough stuff, I think it just breaks the network, period. The beauty of a broken network is that consumers get angry. The lesson of AOL's problems a couple of years ago is that 15 to 20 million angry consumers get listened to. 10 million angry consumers, 7 million angry consumers don't get listened to. But if I get another angry consumers out there, then I tip the balance. Then we will solve this problem.

Ekelund: Can I give you an argument why I think the U.S. will start deploying fiber very quickly? It is probably the only argument that actually will beat the shit out of all of you. You are the biggest country and the most powerful country that controls the world. Let's assume now I said to you that Stockholm has 100,000 users using 10 to 100 megabits all the time sending videos to everyone all the time. And we decide to say here is Atlanta, Bell South, a shit network. Let's try it out, let's send 10,000 Pearl Harbor movies to them and see what happens. Do you know what is going to happen? It is dead. If you were the Security Advisor of the United States . . . are you going to be an isolated world power?

I think this is the simplest arguement for you to start -- that you are not a world power if you don't have the biggest broadband network in the world.

Man: I am the Democrat running against George Bush 4 years from now and it is the debate.

Isenberg: I hope so!

Man [putting on southern accent]: Mr. Bush, why is it that an American child doesn't have the same access to DSL as a Korean, as a German, as Swede? Why is our nation behind? Is it because of you?

[laughter, applause]

Man: Why are you from the South?

[laughter]

Jonathan Thatcher: I just want to let everybody know that I think that there is a glimmer of silver lining in this cloud. This is going to sound really bizarre, especially to the investors in the world. As I look out at the last couple of years that we have spent working with customers what I have seen is hundreds of potential customers. They are not all real customers. There are hundreds of potential customers with hundreds of different business plans. They run the entire gamut of pure capitalism to pure communism including Red China. I've seen every combination and permutation that I can imagine of ways to bolt together a business proposition to go forward and be successful for a community, for a business, for a -- you pick the entity.

Somewhere in that morass there are going to be a couple of successful models. I don't know which ones that they are. As we architect our systems and we go sell, we don't try to pick which they are. We try to pick the ones that seem the most reasonable. But there will be a number of them. And we can speculate what they are going to be, and we probably should. It would be helpful if we had an idea. But I'm confident, I'm incredibly bullish on the idea that the inherent competitive environment that we have created on a worldwide basis [???] the midst of this chaos to find out that winning set of propositions that are going to be successful. Maybe it just takes patience. I believe that if we wait three to five years, we are going to see those things bubbling to the top.

Man: Can you just answer a question, maybe with a pie chart. What percentage of the business plans you have seen are financed by long term junk bonds? What percentage is financed by equipment-vendor financing? And what percentage is financed by equity?

Isenberg: A generic answer will suffice; a pie chart is not necessary.

Man: I think that it is different from country to country.

Thatcher: I would say that on a global basis, the ones that are going to step forward and put the money on the line are communities and municipalities who are tired of waiting for broadband connectivity.

Man: It is really government bonds?

Thatcher: It is happening outside of Tier 1 cities, it is happening on the other side of the digital divide and that is the momentum is coming from in this country.

Man: Technically, municipalities are corporations. [???] telecom municipal bonds.

Scott Bradner: I would like to tie together a couple of the last conversations. We were told that we needed to be scared into doing the right thing, and that would be the only way that it would work. Well it happens that we are being scared right now˜

Isenberg: I'm scared!

Bradner: In Congress this week the regional telephone companies are scaring Congress. They are scaring Congress by saying that broadband will not be deployed (and their definition of broadband, of course, is a straw not a fire hose). It will not be deployed unless they are ridded of the onerous task of opening up their networks. Congress is not unlikely to pass this, so what we are being scared into is not fiber, it is not municipal deployment of fiber, it is codifying the monopolies of the regional telephone company. The regional telephone companies have spent hundreds of millions of dollars fighting against municipal fiber deployment and municipal networks. They have been successful in most cases, so we are being scared, but we are being scared into a rabbit hole, not out into the great outdoors. It is not a particularly pleasant view, but that is what is happening now. I don't think that scaring is the right thing. And of course talking about Congress and talking about logic is an interesting paradigm.

Isenberg: Paradox!

Bradner: There are a fixed number of clues in the world and the population going up, the density goes down. No clue ever visits Washington or any other capital. This is a perfect example of it. What we are seeing now going on there is this, Bush what did you do to make the kids bandwidth? And the answer is, we asked the telephone companies to help.

Man: Nicely!

Bradner: No, we begged the telephone companies

Isenberg: Right up the road there is a boat yard called, Quissett Boat Yard, and they have T-shirts that say, "We are all here because we are not all there." I think that applies to Congress. I would like to give Roxane the last word once again because she has been so insightful in the past but first Frank caught 2 stripers and a bluefish tonight, a big blue fish 10 pounds. Did anybody else catch any?

Man: Seaweed -- a couple of stripers and some seaweed.

Isenberg: Somebody caught salad. A striper. I think that everybody threw them back, right? Did anybody catch any over 28 inches? No. Oh, the bluefish, yeah but you threw it back. Fresh bluefish is good! Anyway, so there are more fish to be caught at first light tomorrow morning. Anyway, Roxane, then music, and then we will see you in the morning. Roxane, hit it!

Googin: Well I hope everyone sleeps on this. I hope it doesn't take 3 to 5 year to fix, cause we are all going to be living on our cash balances in the meantime.

I, for one, am convinced that our capital markets aren't going to recover until we figure out what to do. And optimistically enough, I think as soon as we do figure out what to do, they will jump up a lot, because they are a discounting mechanism. But their immunity to these tax cuts tells me, on the down side, that this is something that everyone might benefit from putting their heads together to figure out.

I do think that our esteemed government is going to have a very hard time, and I think that they will get involved, and I am afraid that they might side with the wrong people. It is up to all of us to try to think about how we can pull together to make some sub-optimal solution come out of this, since there is no optimal solution.

I would just make the observation that this move toward unlimited supply is moving beyond bandwidth. Think about the symbiotic relationship between open source software and the Internet, and how they work together, and how the Internet helps foster the open source movement, and what economics this [synergy] starts to impact. The software business is a very large business, and it could be very negatively impacted by open source software. I'm not passing a judgment on open source software. I happen to like some of it. But it is a fact that it will be impacting our markets. Not as big as the telecom issue because the business is smaller, it is not leveraged, but it will redefine economics well beyond the bandwidth sector. So maybe we can all sleep on it and pick this up tomorrow.

Man: And feel better in the morning.

Isenberg: Well thank you very much.

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