Well, we’ve covered a lot of ground, so here’s what I’m going to do. I’ll post up some initial commentary and then just dump my raw notes from the talks. Hope you find this of value. My comments are in italics. There are about a dozen big articles I need to wite now in the next few weeks, so we’ll be right back after these messages.
First off was as short talk by Scott McCollough on regulation:
Layers and the Law – attachment on conference wiki page
Regulation (in US) was based on service definition, not the networks – IP operates independently – crosses all services – can provide services that look like title 2 or title 3 – can move services up and down the protocol stack.
Regulation not necessary until someone has market power
Principles for regulation – respect the integrity of the layers – only regulate what’s causing a problem and only do as much in that layer as we have to.
Assess market power in each layer separately. Can’t allow leverage between layers of protocol stack. Keep interfaces between the layers open
Then David Cohn [DC] of IBM and David Isenberg [DI] introducing Roxane Googin [RG] (an investment analyst):
Telecom is like airplanes. Don’t get faster or bigger any more. Telecom used to be driven by Moore’s law. How IBM makes money? Delivering biz services bigger than delivering machines or code.
And then Roxane Googin’s keynote:
Tracks changes in technology for people with up to $100bn/client at stake. Looks at implications of each transition.
Best network to use is worst one to make money running. Need to collectively decide how important it is but how to allocate capital to benefit ofrisk takers (capitalists) as well as users.
Why don’t I have what I want yet? Because you’ll get it when it pays itself.
Going through 100 year transition. Economics of centralization falling apart. Instead of valuable monopoly you have a valueless commodity. Problems are fundamental to old network. New network is infinitely extensible as a perfect commodity.
Disk drive industry – black hole for money – no pricing power. Airlines – “pricing set by stupidest competitor”.
First biz to disappear is traditional voice – monopolistic and overprices. All RBOCs will go bankrupt. Until they are dead and out of our way the capital won’t be available.
They own the regulators, like most regulatory industries. They’ll get a lot of tax dollars before this happens. Need to be aware when they’re talking about universal service, e911, CALEA [US wiretap law] if just propping up dead unproductive industry.
This is an uneconomic model, but pricing dynamics not cash-flow positive – government ends up funding the operation.
Provider needs to find monopolistic stance to hide behind – e.g. a geography. Other industries with similar economics lose money over time.
Airlines are a pretty good example of what we’re talking about. Similarly layered industry – manufacture, finance, operate. Essential service.
Determine how our future will be as a society. All of our lives are dependent on this working well, but nobody benefits from how it works. Forces at work with a lot of cash behind them want to stop this.
Moving from mainframe to client/server to web – radically new paradigm. Productivity it offers is astounding.
Seven transitions:
#1. Semiconductor: 200mmAl – 300mmCu
#2 big RISC system – blades
#3a Windows to Linux
#3b 3G apps to web services
#4 direct attached to network attached storage
#5 circuit to IP
#6 PC to handhelds
#7 US to global workforce
More profound a change to global economics than could have been predicted at the start. Will change global balance of power. Not only tough economics of the business but also high stakes for you and your children.
DI: How changing global balance of power?
RG: UN trying to get governing body for Internet. Promotes wold peace – unifiying equalizing power. Move to an intellectual meritocracy. In US consume 25% of world’s resources with 5% of people. Used to it, like it, doesn’t make sense. How will that future look, what can we do?
Time to reclaim our heritage: this is scary, need to come up with ideas for us to have this large share: we [US] are the fastest, most innovative? India/Pakistan nuclear war – one reason for standown, outsourcers say to govts that this must stop if you want our business.
Still not clear how to make critical infrastructure sustainable in the new paradigm. Are people familiar with Jeremy Rifkind? “The End of Work” book.
How do you allocate resources [to people].
Roxanne – says capital is pooling up and not being allocated well. Happens in times when allocators are confused or afraid. They are greedy. If one company makes it (eg Vonage?) then the capital rushes that way. Markets are not good at dealing with discontinuities. Some venture capitalists using telemarketers to allocate capital!
Most people may be scared for their jobs and facing diminishing returns. Probably facing period of sustained high unemployment where people find where they fit in the new plan. Says outsourcing will be cramp on domestic employment for about 5 years. Could be “end of empire” for US and historic share of [global] GDP.
When do Bells go bankrupt? When they run out of cash. Impossible to predict because human behavior. Shocked that SBC and BellSouth bought AWE for $41bn. Wrong air interface, wrong spectrum.
Location independence of work is real but painful.
DC: Who is this going to benefit and hurt?
It will impact efficiency of org operations. Will dramatically improve ability to serve them and provide value. Hurts commodity laborers in a high-wage geography, no matter how trained. US – 20m people who work in manufacturiung, in China 20m move to city every year.
Q: Windows to Linux as a trend, lots of open content. Cheap and dirty tools to do things they used to need expensive ones for. Nature abhors a vacuum. Artificial barriers before. Any company doesn’t have an unfair barrier to competition is a capital repellant. Is there a fundamental mismatch between the way me measure success today and the future vehicles to get success (IPOs, stock market, venture)? See VCs throwing money at things mom-n-pop shops are doing. CEOs punished by long-term view.
RG: Don’t underestimate what this will do to economics. Have opened a Pandora’s box. Frictionless economy and high productivity. Freedom to innovate in the ends [of the network]. Bad capital imbalance, few people making a lot a money from making god-knows-what . That is unstable. Indian outsourcing just adds pain. But will get productivity gains. Easy to throw stones at them.
Q: These businesses need to out-compete other business for capital.
RG: People at the top skimming off an ever larger base
DC: Dell has icredible competitive advantage. No secrets. Just doing it better than anyone else, including IBM. Just have to be better. Walmart. Amazon.
Bob Frankston: Sees diagram [7 changes], thinks of linear. Garbage collection may be a better example than airlines. Need bits hauled, but network itself doesn’t need to be a business. During a transition you don’t know where to place the bets. A lot of the market is outside the US, US maybe not be so important. Innovation MUST be badly behaved. VC want to lock in innovators into straightjackets. Real impact is “telco in your basement” – very disruptive. Sewing machine forced us to rethink welface. Age of spiritual machines. Biz is knowing something others don’t know. Always some edge like convenience. Dotcom where only pets website is bad, but could be OL with pizza parlours [lots trying to be the best].
RG: Yes, Pay for garbage locally.
Q: CEO getting over-paid. Does new capital mobility destroy opportunity? NO! But need people to find new ways to build and innovate on now cheap infrastructure. Oh shit! All ideas had. (1900 and physics example.) Wrong! Hard to figure out where change is.
Q: Everyone has heard term utopianism. Parallel is distopianism. Prediction of the end of things. As common as utopianism. Can’t see numbers attached to [RG’s] trends. E.g. offshoring same as immigration. No longer have to bring them here to do the job. Does it affect people. Sure. Did people complain during 20th centuy about immigramts? Yes. Normal process of economics. Why is network we have not capable of being run at a profit. 60% of all email is spam. Nobody getting rid of it. Doesn’t fill pipe. Doesn’t stress network. When there is a scarce resource (more demand) there will be money.
RG Web services bandwidth hog.
DC: 1900 PhDs in comp sci /year in US, 1600 in China. Offshoring ramps up faster than immigration. 900,000 construction workers in Beijing. 14% of world’s cranes in use in Shanghai.
Q: What is the real failure? Is this a failure of the market system? Failing of pricing as a signal to work? Bankler paper. New model of production. Commons based peer production. No market. Linux happened on its own. Paradigm shift. Creates confusion. Don’t have language and tools to discuss it. Isn’t just about price on everything going down. Can make money if companies are competing to provide infrastructure. Roads as an example.
RG: Yes, this is radical, this is real. How will powers than don’t benefit from its existence be able to stymie it.
Q: Lots of bankrupt networks with old operational costs. How will this play out?
RG: Nobody believed prices would go below operational costs, but it did. Chinese restaurant. 1st guy buys stuff, bankrupt, 2nd too much marketing, bankrupt, 3rd makes a good biz out of it. 2nd guy may make it but very random, no causality. Undersea link with taxpayer funding for 2nd link, destroys economics of 1st link.
Q: Undersea cables, very old under Atlantic, new ones often not completed. How will this play out?
Q [Stroh]: “I’m a wireless bigot” – people assume you can’t get around the costs of a fiber network, but you can get around those economics with wireless. Just slap up $20-30k of equip and done. Local infrastructure benefits enormously from Moore’s law applied to wireless. That infrasturtcure IS economical to operate. [“It’s being done”]
Q: System has to re-stablize. Without being distopian, Emannual Walresein [?] – stuff is perfectly clear if you see system has reached a point that can’t be returned to stability. A “good economy” always involved some artificial means to get “extra money” out. Technology is dissolving ways of doing that through increased transparency. An economy not like a natural ecosystem. It’s an artificial social construct. People at the top skimmed off the resources.
RG: Not clear that we do rebound.
Q: have talked about inevitable collapse of incumbents. BT not going away, Verizon moved to Dow 100. Plus ca change – meme ce same old thing.
RG: RBOC will die. Need to look at balance sheets. Have $15-25bn in debt, prices plummeting, huge pension liabilities, high OpEx, and this only goes away if they deepsix their networks. Going to WiFi , cellular. People who lent them money was not based on current biz plan. Big liabilities coming up. Need to be careful with regulators. Look at steel, Chrysler. Money down a rathole. They are friends, political contributions, deep affection there with politicos. Will be a lot of debt they can’t pay.
DC: Did MCI go away? Bankruptcy cleans balance sheets.
Q: When mortgage payments stop, house doesn’t go away, just title. Fiber always useful in absence of global wireless mesh. Are discovering further troubles of big fiber operators. Level 3 and Global Crossing. Peering not working well. Europeans entrenched so GC and L3 pushed out. Optical circuit switching about to go commercial. Optical gateway protocol. People buying cheap firesale fiber. But a couple of strands between major cities. Can use layer 1+2 swicthes. Stats on research and education networks with customer-owned networks. No longer need carriers [APPLAUSE]. They attach gigabit Ethernet to it. When Verizon thinks it will get its market back, it is stuff like this that keeps it from happening. Boeing, Ford, GM global corporate-owned fiber networks. Think there are about 500 corp networks no longer on local exchange, but not even customers of GC and L3. Just as L3 thought it had a stabilized biz, rug is pulled out.
RG: Can be world of haves and have nots. You are outside of that, what do you do? How do we agree to fund that?
DC: Disagree: Corporations and outsourcing everything not essential to making a profit. IBM global network sold to AT&T. Not provide HR service to P&G. Sell on to everyone else as a new business. All these things, including network, will become outsourced. Firesale prices will only last so long. [Stroh – Boeing can’t find anyone to provide them the business.]
Q: Traditional carriers go out of biz, govt. support. Outside of US very different. UK & BT, regulator and public don’t want it to go away. Don’t want to invest in it, but want it to exist. In US, federal govt looking to build own infrastructure, wait 15 years for something already 5 years out of date. There is a big row that the government is building own giant infrastructure without commercial value for carriers. Unlikely that traditional carriers can restructure themselves to be competitive. Won’t be federal govt. Only people with interest in [keeping carriers alive] are regulators! Because regulators controlled by and and exist for traditional carriers. Skype is how stuff propogates, bunch of carriers don’t know what to do about Skype.
Q: Whole question of what a carrier is is up for grabs. Fed govt in business [of telco nets] scary because always inefficient. Raises lots of issues in developing world where govt willing to support. Carriers diminishing in importance. Govt will maybe use too big to fail metaphor. Too large, too many people dependent on them. Dinosaur technologies. In White Plains [near conference center]. What’s that building? Verizon switch center 10% occupied, built for mechanical switches, 5% of floor, 15% of heat.
Q: Backlash on globalization. Traditional American hostility in immigration. Walmart into disintermediation. VoIP is disintermediation.
RG: It hurts, economics beyond our imagination. What’s the “price of world peace”. Technolgoies are more powerful than we can imagine. It’s happening. We benefit in part, but it is painful while we restructure. In 1980s Japanese bought half of Hawaii and Rockerfeller center. I have a Prius, wouldn’t get that from Detroit, happy with it.
Q: Backlash will be huge. Civil war came from black labor vs white labor.
RG: World shrinking fast, can’t stop it.
Q: What are the equivalents to Engelbart and other visionaries?
RG: None come to mind. Unfortunately not my business. I see what is [not what could be]. David said it as good as anyone. Take power to the ends, let people connect. Want people to understand how inevitable this is and the magnitude. Irritates me when that say this is just a cyclical issue.
DC: We routinely overestimate short-term change, underestimate long term. E.g. VoIP 8 years ago. Telcos will go away. Will still be communications companies. Call them carriers or whatever. But we will be in a very different situation.
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