Worth a read is George Gilder’s testimony to the US Senate (via /.). In a nutshell, he argues that horizontal regulation of the communications industry (into open access pipes, network services and applications) is unnecessary and counter-productive. It precludes useful (indeed inevitable) localized vertical integration of the industry. In George’s own words:
Layering proponents, however, make a fundamental error. They ignore ever changing trade-offs between integration and modularization that are among the most profound and strategic decisions any company in any industry makes. They disavow Harvard Business professor Clayton Christensen’s theorems that dictate when modularization, or “layering,” is advisable, and when integration is far more likely to yield success. For example, the separation of content and conduit—the notion that bandwidth providers should focus on delivering robust, high-speed connections while allowing hundreds of millions of professionals and amateurs to supply the content—is often a sound strategy. We have supported it from the beginning. But leading edge undershoot products (ones that are not yet good enough for the demands of the marketplace) like video-conferencing often require integration.
Such a horizonal re-regulation is being proposed by MCI. Personally, I too believe this is really, really, stupid. It’s stupid at the semantic level, because they try to make false distinctions between applications and content. Is an ActiveX control in a web page content or code (cue another 10,000 lawyers)? It’s stupid at the technical level, as Gilder points out, because sometimes there are good architectural reasons to integrate. And it’s stupid at the economic level, because it presumes to define an outcome (horizontally layered industry) in preference to enforcing the full operation of the free market. Free markets are our way of experimenting, eliminating dumb ideas and identifying bright ones. If you don’t like it, you’ll be pleased to know that tourist visas to North Korea are now available. Or in George’s more gentlemanly language…
Proponents of “layering”, or “Net neutrality,” or a free Internet “commons,” assume there is one network, that it is sufficient and timeless, that no new networks are possible or needed. They want innovation on the edge, in the form of software apps and Wi-Fi attachments. Innovation in the core is either assumed or ignored. The logical conclusion, however, is that since the “best network”—the free commons—cannot make any money, there will be no network. And just how much innovation at the edge will there be if there is no innovation—no bandwidth—in the core?
Gilder’s view is that end-to-end optically-switched fiber is the future for all fixed networks in most situations. The last word in dumb pipes is when the same photon you stuck in one end zips out the other, pristine and unmolested. The only value-add is an occasional gentle nudge in the general geographic direction of the desired end point.
Misguided regulation may be worse than no regulation. (As a thought experiment, what would have happened if Ma Bell hadn’t been broken up? Where would the US be now?) Over to George…
The real threat to monopolize and paralyze the Internet is not the communications industry and its suppliers, but the premature modularizers and commoditizers, the proponents of the dream of some final government solution for the uncertainties of all life and commerce.
Fundamentally it’s hard to truly gain market power in telecom when exposed to open competition. At the physical level, the transfer of electrical signals into photons and back again is a concept beyond ownership. Yes, you can patent specific ways of doing it. But unlike, say, Windows, the basic protocol came free with every copy of Universe 1.0. No matter how clever you are, you can’t ultimately own the idea of popping a photon out of one fiber or radio receiver and stuffing a similar one down another output to get it closer to its destination. Most of the protocols at the next few layers — IP, BGP, MPLS, TCP, Ethernet, etc. — are de facto public domain.
There are only two ways to gain true market power in bit haulage. One is to come up with an innovative new (patented, proprietary) physical media access technology like CDMA, FLASH-OFDM or DWDM. The other is to legislate away competition.
As I’ve argued previously, what telecom needs is less regulation, not more. And what regulation that there is needs to be focused on rigorous enforcement of competition policy. To the point where you might spice the mix with some pro-active rules to encourage new entrants and discourage predatory pricing. The victims of dominant incumbents wielding below-cost pricing are not likely to be in much of a position to complain when they’re dead or dying. Justice delayed, etc.
Notwithstanding the above, Gilder has garnered himself a reputation of being the false prophet of false profit, as this Slashdot comment shows:
George Gilder seems to have succeeded solely on the basis of his belief in his own power as a prophet of the future. As those who subscribed to his stock market newsletter found, he was a legend in his own mind, not in reality.
[…] So Gilder reinvented himself as a technology guru. The fact that he has no background what-so-ever in science or technology did not stop him. He interviewed those who did and wrote up his impressions in breathless terms.
The peak of Gilder’s trajectory was his stock market newsletter which had thousands of subscribers who were willing to pay thousands of dollars for the privilege of reading the thoughts of the master. […]
Then there was the fall. As the 2000 stock market crash erased the value of many of the stocks that Gilder touted, his subscribers deserted him in droves, much poorer for the experience. Gilder had invested in the stocks that he hyped and his investments were largely wiped out. Gilder was also making money holding conferences and was left with conference committements and no attendees. In the end he was heavily in debt, his bubble wealth wiped out.
Well, any pundit willing to put his money where his mouth is gets bonus whuffie in my book. It’s far riskier placing bets on individual players and specific timing of events than on general trends. For instance, the general trend has been a great increase in human longevity over the past century. But you’d be hard pressed to put that fact to use standing in downtown Baghdad playing whack-a-mob, where life expectancy has taken a nasty turn for the worse. However, such knowledge could be useful in deciding whether to invest in a portfolio of retirement homes or the music industry. Strategic insight doesn’t necessarily translate directly into tactical brilliance.
By coincidence I recently finished reading Gilder’s Telecosm. It’s a good book, although I suspect George got a bit overexcited buying value packs of Hyperbole at Costco. Once or twice you wish he’d save some face by simply stating “I didn’t do so well at physics in school”, and drop a page or two of literary arm-waving. But the central thesis holds. We’re moving from connectivity malnutrition to gluttonous data obesity; fiber and wirless broadband are the drivers; and there’s a lot of money to be made and lost in the change. To save you from the effort of reading (or thinking too hard), here’s some juicy quotes.
Firstly, the physics of an industry ripple all the way up to influence its macroeconomic structure.
Explained Chris Harder, cief of R&D at Uniphase in Switzerland, “In semiconductors, you get more and more transistors on one chip and everything improves. But in telecom, you don’t necessarily want more lasers on one chip. You want more light pulses emitted into the fiber. integration may not help at all.”
In this view, photonics and electronics are inorexably different. At the heart of integrated circuitry is the phenomenon of voltage fanout — a voltage divider. You can divide a voltage many times without reducing it. Thus millions of transistors can be activated across the surface of a chip without attenuating the voltage. But divide photonic energy and you attenuate it. Each time you split it you have less. Thus integration is more difficult.
Unfortunately, George immediately puffs JDS as being the future Intel of telecom, without getting it himself: there fundamentally isn’t an integration interface that can be “owned” in the same way as in electonics. There never will be an “Intel of telecom”.
Next, on photonics vs. electronics:
Traffic on cable coax runs at radio frequencies. When it moves into glowing silica threads, it leaps upward in the spectrum. The lasers of fiber optics emit waves that cycle a million times faster than do oscillators in a cable TV system. […] If [the Internet] were a rainbow, the center of intensity would move up [over time] from red through green toward violet. If it were a meteor, the Doppler blue shift of the Internet would suggest it is approaching you.
The change in “colors” signals a shift in the nature of the network. Rising toward the terahertz region, colors become more and more difficult to manage electronically. So as the core of the net becomes brighter, it also necessarily becomes dumber.
The take-away here is that “dumb pipe” is not “IP pipe”. The Internet (as currently physically embodied) is too complex and electronic. [I won’t comment further on the confusion between frequency and magnitude in George’s text. He’s a much-needed storyteller, not a scientist.]
On information theory:
In order for a message to be high entropy (full of information) the carrier must be low entropy (empty of information). In the ideal system, the complexity is in the message, not the medium. By eliminating the entropy from networks—moving them onto the pure waves of light—you can increase their ability to bear information. Another word for a low entropy carrier is a dumb network. The dumber the network the more intelligence it can carry.
Amen, brother.
George also has some useful insights in his afterword into peer-to-peer networking, and recaps the “storewidth” arguments of Negroponte. But I think you ought to do George the favor of reading his book if you want to find out more. Don’t you agree?
UPDATE: More George here
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