IP: Empowering the Customer or Empowering the Telco - State of the Internet 2002

[David Farber <dave () farber net>]

> Date: Sun, 6 Jan 2002 14:05:52 -0500
> To: dave () farber net
> From: Gordon Cook <cook () cookreport com>
>
> Hi Dave,
>
> For your IP list-- if you wish --  here  is first publication of the 
> COMPLETE version of my annual 'State of the Internet' essay.  There is an 
> abbreviated version of this essay on my web site and i will post the 
> abbreviated version in a couple of places soon.  Save for your IP list I 
> do not intend to "give away" the full essay.
>
>
> Empowering the Customer or
>                            Empowering the Telco
>
> State of the Internet 2002:  Assessing the Technical, Economic and Policy 
> Consequences Behind the Collapse of 2001
>
>
> In its examination of the impact of Internet technology on global 
> telecommunications during 2001, this report will bring into focus changes 
> that are reshaping one of the world's largest and most critical industries 
> in ways unforeseen only a year ago.  Neither the Internet nor the phone 
> companies are going away.  However, while technology continues to reshape 
> possibilities for industry markets, it is now having economic impacts in 
> 2002 that will increase the risks and opportunities for informed managers, 
> financial planners and policy makers.
>
> As the reverberations from the collision of the tectonic plates of 
> Internet and "telco" seek some new equilibrium the architecture of the 
> Internet is shifting and becoming more complex.  Issues of control seem 
> more and more important.  To the extent that a nethead versus bellhead 
> philosophy is still meaningful the difference between the two is reflected 
> less in the technology being used and more in ideas about where control is 
> to be located.
>
> Trends:  Technology and Economics
>
> The most significant technology trend that we see is one that will present 
> managers, investors and policy makers with a choice pointed out by the 
> title of this report.  Empower the user.  Or empower the telco.  Choices 
> are being made.  The technologists are driving control of lambdas into the 
> hands of end users.  Peer-to-peer, as software and infrastructure, is 
> enabling the formation of communities of users at the network's 
> edges.  Here the goal is generally to make the center and anything 
> associated with it disappear.  Huge fortunes are being wagered on the web 
> based client server model.  The bell heads and walled garden guardians may 
> find out too late that their centralized content control model is not the 
> only way to do business. The impact of technology on network architecture 
> will be the most important trend to watch in 2002.
>
> But, as many have found out to their dismay, we can no longer make 
> intelligent decisions in telecommunications absent a thorough 
> understanding of the industry's economic picture.  Indeed analysis of 
> technology trends done without understand of their economic impact, are, 
> in this climate, of limited use.  Therefore, the remainder of this summary 
> will turn to economic issues.
>
> The COOK Report started publication a decade ago as the Internet was in 
> its early stages of commercialization. Ten years and a trillion dollars in 
> global investment later we have witnessed dramatic changes in global 
> telecommunications.  But what we have now is not what any reasonable 
> person would call "success."  The old technology did not collapse under 
> the onslaught of a triumphant new global packet network bringing vast 
> amounts of inexpensive bandwidth to every home and business.
>
> One reason it did not was that the technologists were so certain of the 
> superiority of their product and were so good at driving the hype that got 
> them their early stage capital investment they were able to sail forward 
> without a long term viable business model for what they were doing.  Build 
> it and you will be saved - somehow.  The provisioning of vast amounts of 
> cheap bandwidth was seen as a sustainable business model for the Internet.
>
> The problem is that ten years on the bandwidth business model has not 
> proven to be a viable one.  The question is whether bandwidth is something 
> on which a business model can be built?  Or is bandwidth, like a highway, 
> just an enabler?  We started out a decade ago talking about the 
> information super highway and then proceeded to try to build multiple 
> global privatized versions.  Imagine if Ford had spent tens of billions 
> building a global interstate for its cars.  While GM. Daimler-Chrysler and 
> Honda and Toyota had each done the same thing.  What has been built are 
> highways with largely identical performance and capable of huge 
> indiscriminate through-put of "vehicles" or packets.  They have lead to an 
> unsustainable business model.  "Become a customer of my commodity 
> system."  "No.  Not his. Mine.  I just doubled the speed and I will sell 
> you access for 20% less.  I only had to borrow another billion dollars 
> against my non existent profits." Yes we have a train wreck.  Any wonder?
>
> But remember after all the investors were being sold a product that moved 
> at 'Internet speed' and hyped as a global, winner-take-all, 
> economy-of-scale, build out where one year in Internet time was said to 
> equal seven ordinary years and where there would be a 'winner" with first 
> mover advantage.  The new Internet world was hyped as one where regulation 
> was unneeded because it would slow the rate of adoption of the new technology.
>
> Consequently, all the big players operated in their own informational 
> vacuums.  Through an informal old boy-girl network, they interconnected 
> where necessary and as fast as they could spend their capital.  They built 
> global commodity systems frosted with a whiff of secret sauce that alleged 
> that one system was better than another. "Trust us," they said as they 
> continued to run full tilt ahead.  The trust that was granted is coming 
> back to haunt us.
>
> Just within the past week we are seeing evidence of a new and potentially 
> very disturbing basket of problems generated by the all the hype about the 
> technology that applied Moore's Law to telecommunications for the first 
> time.  We have been spending much of the past month talking with folk from 
> the financial analyst community.  We heard concerns expressed about sales 
> of 20 year IRUs on dark fiber among Enron and the other large new global 
> Greenfield fiber network players.  It was asserted that it looked as 
> though income from the IRU was booked up front at the time of the sale 
> with the IRU on the same fiber then being resold by the purchaser to 
> another party so that income from the resale could again be booked as 
> profit.  We asked where we could find some documentation on this and were 
> told that there wasn't much.  That the information had been gleaned 
> primarily from listening to quarterly phone briefings of analysts by 
> management.
>
> But suddenly the situation changed.  On January 1, 2002 the Washington 
> Post published a confirming story by Peter Behr.  The headline:  Broadband 
> strategy plunged Enron into trouble.  Behr wrote: "Enron's recent 
> financial disclosures show that its claims of success in broadband 
> included large gains from trades with private partnerships it had set up 
> itself. And using aggressive accounting practices, it assigned exaggerated 
> values to the broadband contracts it traded with others in the industry, 
> greatly inflating its actual revenue and profit, Enron insiders and 
> analysts say." [Snip]
>
> "The [profit] margins were whatever they decided,'' said a former Enron 
> vice president familiar with the broadband trading, who spoke on the 
> condition of anonymity. In many instances ''they were trading with 
> themselves,'' he said. As prices for fiber-optic circuits plummeted, Enron 
> tried and failed to lure telecom giants that used broadband - such as MCI 
> WorldCom Inc. and Verizon Communications Inc. - to trade with it and 
> create a true market. Carol Coale, an analyst at Prudential Securities who 
> heard Enron's repeated claims that its trading operations were growing 
> rapidly, said: ''These guys were great spin doctors. They had the answers. 
> The answers were lies.'' 
> http://www.washingtonpost.com/wp-dyn/articles/A46876-2001Dec31.html The 
> entire article is well worth reading.  As the self regulated industry had 
> been saying:   "trust us."
>
> So What Were We Trusting?
>
> The "stupid network," taken as a concept, captured important differences 
> in the operation of the new Internet companies while it ignored the huge 
> revenues and deeper pockets of the old line telcos. It was propelled by a 
> reality defying arrogance that allowed a Bill Schraeder to build a global 
> company with a billion dollars a year in revenues in a matter of months 
> and then bankrupt it in a matter of a few more months. Remarkably, we are 
> now - a year after the train wreck began - watching a growing string of 
> bankrupt or soon to be bankrupt global super highway builders.  The fall 
> out has left the infrastructure industries that they depend on paralyzed, 
> seen the loss of trillions in market value, hundreds of thousands 
> unemployed in the midst of a global recession and left policy makers with 
> no creative idea of what to do. We are marching toward a denouement 
> designed to allow the ILECs to try to be the last ones standing by 
> allowing them to use their control over the "last mile" to re-monopolize 
> service.  This after all, is what the "free market" has given us.  We owe 
> the great boom of the last 20 years to our faith in the free market so if 
> we just hang on a while longer someone or something will save 
> us.  Indications that the new technology may also bankrupt the ILECs are 
> not yet on the radar screens of most analysts.
>
> This leaves us in a strange situation.  One where we are so smart that we 
> can shove billions more photons down the same thread of glass this year 
> than we could last year.  But it is also one where we are also so 
> ideologically blinded that we remain wedded to the building and 
> maintenance of multiple privately owned systems when experience now shows 
> us that there is no business model that can pay for multiple competing 
> privately owned commodity systems.
>
> A dozen years ago we created a Federal corporation to clean up the savings 
> and loan fiasco.  But in 2002, with a critical global industry on edge, no 
> one can see a large enough picture to understand what to do.  If local and 
> national governments are a public good, and if a freely accessible global 
> commons of locally built highway systems maintained from business and user 
> taxes is also a public good, perhaps the only feasible foundation on which 
> to restructure telecommunications is a nationally maintained blanket of 
> publicly-owned glass threads.
>
> Asking about the Internet's business model is like asking about the 
> Interstate Highway System's business model.  Who owns it?  Who controls 
> it?  And to whose advantage is it used?  How are Ford's interstates better 
> than those of GM?
>
> Of course in the United States we also have the problem of the last 
> mile.  One of the reasons that so many of the new telecom players have 
> failed and so many more will is the power of the ILECs, which have used 
> their strangle hold over local infrastructure and their political clout at 
> the state and national level to make certain that, the 1996 Reform Act not 
> withstanding,, there is no competition.  The players do whatever they 
> think they can get away with.  Having pretty much bought congress and 
> having nothing to fear from a FCC where the new Republican Chairman when 
> asked recently what the words "public interest" mean in the FCC's mission, 
> Powell replied, "I have no ideaŠ I try to make the best judgment I can in 
> ways that benefit consumers. Beyond that I don't know."   (See: 
> http://www.adbusters.org/magazine/38/powell.html )
>
> "Permacession"?
>
> The result certainly looks like Isenbergs 'permacession.'  According to a 
> December 18 Reuters story, headlined "Global telecoms industry in for more 
> static" 
> http://www.totaltele.com/view.asp?ArticleID=47042&pub=tt&categoryid=0 
> "U.S. telecom industry revenues are expected to rise only seven percent 
> this year and six percent in 2002, compared with a jump of 11 percent in 
> 2000, according to J.P. Morgan. Part of the slowdown is due to slower 
> growth in Internet traffic.  The telecom industry's capital spending 
> forecasts are even grimmer. Analysts expect a decline of capital spending 
> in 2002 of anywhere from 10 percent to 25 percent.  Qwest in mid December 
> cut its 2002 capital spending budget by about 24 percent, an action 
> mirrored by others, including local phone company SBC Communications Inc. 
> and long-distance voice and data company WorldCom Inc.  "Demand is lower, 
> so capital spending is lower," Qwest Chairman Joseph Nacchio said.'
>
> Roxane Googin, Editor of the High Tech Observer, in a short essay in David 
> Isenberg's Smart Letter 64 has captured the essential problem: "But even 
> though the attackers are starving, they are forcing marginal bandwidth 
> prices below the ILEC's cost of provisioning -- not only replacement but 
> also provisioning.  So the ILECs are going to get squeezed because they 
> have this complex, labor-intensive infrastructure that is no longer 
> supported by a viable economic base."
>
> "In this kind of nightmare scenario, nobody wins. It is just a big mess 
> because the attackers are [also] going under. Meanwhile, they have 
> crippled the incumbents. We are witnessing the perfectly predictable 
> outcome of this process: no equipment sales, and no more 
> progress."  [Snip] "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. 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."
>
> "Time is of the essence. The reason that we are in this downward spiral is 
> because telecom is draining the vitality of the entire economy. On the 
> margin, this is where our last decade of growth came from, and now it has 
> stopped. It would be helpful if policy-makers knew the problem from this 
> perspective."
>
> We think Googin's analysis is correct and we will soon publish a detailed 
> interview with her showing why.  Interviewing her has led us to wonder if 
> the technology analysts ever talk with the financial analysts?  For years, 
> from the technology side of the fence, we have pointed out what others 
> have said about how the decreasing costs of the Internet Protocol and 
> fiber based technologies mean the "end" of the traditional telco.  The 
> conventional wisdom was that the next generation telco's would succeed and 
> absorb the old circuit-switched incumbent local exchange carriers.  It is 
> beginning to look like the opposite is true.  Furthermore, if Roxane 
> Googin is correct, the carnage won't stop with the bankruptcy of the next 
> gen companies but will spread to the incumbent local carriers 
> themselves.  This is what we mean when we suggest that the Internet has 
> yet to find a successful business model where it can deliver to our homes 
> and businesses low cost bandwidth as an enabling technology without 
> destroying the global telecommunications industry on which it depends.
>
> In our coverage in 2002 we shall look in detail at what Roxane Googin is 
> saying about the phone companies.  Here is a summary of her analysis.
>
> Why the ILECs Are in Trouble as Data Grows and Voice Shrinks
>
> While the general perception is that an over supply of dark fiber is 
> driving bandwidth prices down to the detriment of everyone, reality is a 
> little bit more complex.  The costs of lighting that fiber are very 
> large.  Considering the ILEC investment in SONET, the costs for them to 
> light new fiber are so significant that a recent article in Light Reading 
> pointed out that it is becoming cheaper for them to buy a lightwave from 
> another carrier's lit fiber than to light their own. The point is that all 
> the way up and down the circuit switched telco food chain carriers without 
> the expenses of the first generation SONET infrastructures are able to 
> sell bandwidth at less than the ILEC's cost of production.
>
> A major problem of the ILEC is its huge investment in SONET based networks 
> that bit-for-bit are not as competitive with what can be delivered by the 
> newer players that have built IP based networks that rely on newer, 
> cheaper SONET or on gigabit Ethernet and coarse wave division 
> multiplexing.  But the ILECs are locked in with several hundreds of 
> billions of dollars worth of OSMINE compliant SONET equipment that their 
> balance sheets say they are amortizing at 25 plus years.  As a result they 
> have, and will have long into the future, huge interest payments to 
> meet.  (Of course the new TCP/IP, fiber based greenfield players are also 
> heavily invested in SONET and have themselves large interest payments due.)
>
> The ILEC's ability to meet those payments is contingent on their ability 
> to continue to deliver profitable voice minutes.  Given their enormous 
> investment in local plant and in the people needed to maintain that plant, 
> they need to protect, at any cost, their installed base of voice 
> traffic.  For many years voice traffic has been growing at a few percent a 
> year and data traffic growing two to three times as rapidly.  While data 
> traffic is now a majority on all their networks, voice traffic still 
> accounts for 80% of their income. According to RHK revenue per megabit of 
> voice is seven times that for a T-1 (1.5 megabit) Internet 
> connection.  Clearly efficiencies in the cost of production are to be 
> found on the data side of the equation, given the impact of both dense 
> wave division multiplexing and the efficiency of IP.
>
> The voice minutes on which the ILECs and older carriers depend to pay the 
> costs of running their infrastructure on a month-to-month basis are being 
> siphoned away from the telco's SONET based networks.  The Internet has 
> caused digital to be perceived as "cool."  The ILECs brag about their new 
> digital infrastructures in their quarterly reports.  For example on 
> November 5th 2001 BellSouth bragged that over the preceding decade it had 
> invested in "749 broadband (ATM/Frame Relay) switches and 20,000 SONET 
> rings in service in its network."  BellSouth "expects to end 2001 with 
> approximately $4.5 billion in data revenues."  It "projects to end 2002 
> with 22-25% growth in network data revenues."  But note that there is not 
> a word that we have been able to find in this ILEC statement or in any 
> other that data is profitable for them.
>
> As Googin explains it:  "while they tell us they get 80% of their revenues 
> from voice, they never say they get 80% of their profits from voice.  They 
> simply do not tell us this information.  Given that data represents over 
> 50% of their network traffic and about 20% of their revenues, it is 
> probably not profitable for them at all.  They therefore do get 80% of 
> their revenues on under 50% of their traffic. Since their network is 
> monolithic, and largely of fixed cost, one can assume that data runs at a 
> loss."
>
> The Data Voice Mix Begins to Change
>
> In 2001 the trends in data growth that had long been forecast finally 
> began to hit home.  Softswitch services pioneered by next gen carriers 
> like Level Three digitized vast amounts of voice traffic and sent them 
> over IP networks as data.  Sky rocketing phone card sales at less than two 
> cents for a voice minute siphoned voice data from ILEC networks.  On 
> December 14 in a promotional announcement from Singapore for Cisco's 
> voice-over-IP products Andrew Vlachiotis, Director of New Technologies 
> Group of Cisco quoted a study that stated that for the first time since 
> 1993, the Private Branch Exchange (PBX) market has declined 16.2 percent 
> in the second quarter of 2000 from the same period in 1999. This is 
> remarkable when compared with 10-15 percent growth rates for the previous 
> five years according to Vlachiotis.  [Editor:  the fact that the timing of 
> the change may be Y2K related adds another lever of uncertainty into the 
> process of figuring out what these numbers really mean.] Furthermore, as 
> we have documented in the lead article of our November 2001 issue, the 
> release of Windows XP and the maturation of a whole family of SIP based 
> proxy servers has come together with Softswitch technologies to enable the 
> corporate PC to become a desktop voice phone.  We are beginning to witness 
> what will become a flood of circuit switched voice minutes exiting the 
> ILEC's expensive networks.  But these voice minutes don't evaporate.  What 
> they do is become encapsulated inside inexpensive IP data packets.
>
> Sure enough, examination of ILEC quarterly reports shows that ILEC voice 
> minutes delivered starting with the June 2001 quarter have not only turned 
> flat but have actually started to DECLINE.  Now if each data minute brings 
> in about one cent, each voice minute brings 7 to ten cents in 
> revenues.  Since 80% of their income is from voice under these conditions 
> a 5% decrease in voice minutes could mean a 20% decrease in revenues.  The 
> technology changes being brought on by IP ALTERNATIVES to ILEC circuit 
> switched SONET services are going to deprive the ILECs of the income 
> needed to operate their networks, repay bondholders, and make a profit.
>
> As the ILEC balance sheets implode, companies sitting on fat cash balances 
> like MICROSOFT can buy what's left at pennies on the dollar. They ILECs 
> won't go away but unsustainable balance sheets will. Moreover, the same 
> may happen with ATT, Sprint and MCI/Worldcom -- carriers that are 
> themselves heavily vested in SONET based circuit switched networks.  If 
> Cisco's John Chambers predicts that the amount of voice left inside of 
> telecom networks within 3 to 5 years will have become so small as to be 
> considered a rounding error, the trends we are now seeing bear out his 
> judgment.  What is less broadly understood is that these trends are about 
> to bankrupt companies that provide critical portions of our economic 
> infrastructure.
>
> Another Point of View
>
> We asked a savvy reader who builds large corporate networks in California 
> to comment on a draft of this essay.  He replied: "I'm reluctant to go 
> along with all of the theses and conclusions presented by Roxanne Googin, 
> although her observations are not to be taken lightly. She could be right 
> about the imminence of hard times for the incumbents, but it's too soon to 
> tell, because thus far we've only been witnessing how they've managed 
> competition. What we don't know is how the ILECs, in particular, will 
> adopt new technologies - or not - once most of the competition is 
> vanquished entirely."
>
> "Will the surviving players, in fact, supplant their own SONET framework 
> as readily as they appeared to be prepared to do just a year ago, once 
> there is no further threat presented by the optical Gigabit players (as 
> the thesis suggests)? No one knows how rapidly this might occur, or the 
> absolute answer to this question, today. After re-entrenchment and the 
> move to reverticalization they may solidify their pricing, and then begin 
> raising rates again, while streamlining their operations with more 
> efficient automation, cutting staff, raising rates, cutting staff, raising 
> rates, cutting staff, and raising rates, reversing the troughing that has 
> been engendered by the deflation that we have seen in the industry."
>
> We find that such a scenario could result.  But we suggest that from the 
> point of view presented by Roxane Googin it is unlikely.  Unless the 
> decline in voice and the increase in cheaper data revenues that the ILECs 
> are seeing is stopped, they will be unable to continue to meet their 
> operating expenses and service their debt.  They can try to raise prices 
> all they want.  But unless they can staunch voice revenue declines, they 
> won't accomplish anything.  The attackers here are legion.  For example 
> they include the rumored imminent roll out of an MCI World/Com SIP Centrex 
> product connected to a proxy in the MCI World/Com cloud  in such a way 
> that VoIP local as well as long distance phone calls can avoid the ILEC 
> network.
>
> The upshot certainly seems to be that the technology of the Internet has 
> been too successful. It is cannibalizing everything.  LECs and IXCs 
> competing for declining revenues by trying to grow new markets are 
> continuing to bring out new products that only worsen the process of 
> cannibalization.  A new set of ominous data is emerging.  Wireline phones 
> are no longer increasing.  Total ILEC voice minutes are decreasing.  For 
> the year ended on October 1, 2001 there has been a 5% decrease in the 
> consumption of phone numbers from the North American Numbering Plan.  With 
> the collapse of the CLECs has also come a sizeable collapse in the use of 
> the number portability data base.
>
> Public Policy to join the Technology Economics Mix
>
> Therefore, public policy is about to become as critical to the future of 
> telecommunications and the Internet as the explosion of fiber WDM and the 
> Internet that began a decade ago.  The choices are not going to be 
> pretty.  The choices that we will have to make will also likely show 
> whether any shred of policy based upon the public interest in the United 
> States is still possible.  Sooner or later there will have to be a bail 
> out.  The question will be whether tax payers are required on behalf the 
> "sanctity" of the "free market" to support a re-monopolization of the 
> telecommunications system by a handful of companies like Microsoft with 
> such companies beholden to no one but their shareholders.
>
> Certainly, the game plan in the United States is clear as the Financial 
> Times found out when it talked with FCC Chair Michael Powell on December 21.
>
> Michael Powell, the leading US telecommunications regulator, believes 
> broadband companies will consolidate into "a handful" of national service 
> providers, but competition is not necessarily threatened. [snip]  "If we 
> were honest, we would have to know and admit that network businesses 
> always drive to size, scope and scale," Mr Powell said in an interview 
> with the Financial Times. "To realize, at some level, the kind of 
> extraordinary benefits we keep wanting on a national mass-market scale, 
> there's bigness involved." [snip]
>
> "There's a big difference between big and market power or anti-competitive 
> power, but sometimes we confuse the two."  The FCC chairman said that 
> while the broadband industry would develop into a few "large, vertically 
> integrated full-service providers" there would be "hundreds" of niche 
> companies providing services, such as content, to the big groups, leading 
> to a vibrant market.  "There's going to be an orbit of major global 
> providers who will garner all the attention, but along their value chain 
> there will be hundreds of important companies providing pieces of what the 
> consumer needs," he said. 
> http://globalarchive.ft.com/globalarchive/article.html?id=011221000318&query=michael+powell
>
> Powell utterly misses the point.  Not only about size enabling price 
> reductions for, as the market consolidates into larger players, the 
> players are raising their prices. Powell also has no clue about the 
> technology cost changes that are now building.  A year from now his 
> pronouncements on Internet broadband may seem like a minor blip before the 
> on-set of the whirlwind.  Still, absent major complaints from an educated 
> public and from sectors of the telecom industry that understand there will 
> be no role for them if we allow government to turn voice and data 
> communication over to cash rich Microsoft to charge whatever prices they 
> can extort, we are headed for ugly day of reckoning.  As the current 
> telcos fold what is not yet clear is whether even Microsoft's $35 billion 
> in cash will be enough to pick up the pieces.  Certainly it and Cisco (19 
> billion in cash) can pick up a lot of the carnage.  Others will no doubt 
> step in as well.  Of course it is possible that the Feds may act in time 
> to "save" the ILECs.
>
> What is clear is that our  free market blinders, especially under this 
> Republican administration,  will prolong the impact of the collapse by 
> destroying the last vestages of the public commons on which the Internet 
> was built.  In doing so, it will ensure that the ability of small 
> companies to innovate instead of having to beg for niche roles in the 
> delivery of monopoly services is destroyed.
>
> The COOK Report's On-Going Mission
>
> Whatever happens, we shall follow, as they progress, the continuing 
> technology developments that are reshaping the global telecom 
> industry.  By observing changes in the ability of users to implement their 
> own networks and architectures, we shall help readers identify trends in 
> the changing locus of power during a time of upheaval.  By watching the 
> cash rich players develop new strategies and following varied attempts to 
> build alternative infrastructures, we identify those who will likely be 
> able to pick up the pieces.  Finally, we shall advocate a public policy 
> that sees the Internet as a family of enabling technologies rather that a 
> means of more efficient monopolies for distribution of content. In doing 
> this, we hope to be able to influence an increasing awareness that the 
> quickest end to the troubles of the industry will be found in a path that 
> uses the financial power of the government to create a new foundation that 
> will be open to innovators and not run solely to benefit a new set of 
> would be monopolists.
>
> In trying to figure out how to cope with the problem industry and 
> political leaders would do well to listen to the words of Joeseph 
> Stiglitz, winner of the 2001 Nobel Prize in Economics:
>
> "The unspoken premise is that governments are presumed to be worse than 
> markets. Therefore the smaller the state the better (i.e. less bad) the 
> state. As should be clear from my remarks, I do not believe in blanket 
> statements like "government is worse than markets". I have argued that 
> government has an important role in responding to market failures, which 
> are a general feature of any economy with imperfect information and 
> incomplete markets. The implication of this view is that the task of 
> making the sate more effective is considerably more complex than just 
> shrinking its size. Typically, the state is involved in too many things, 
> in an unfocused manner and as a result is less effective than it might be. 
> The success of an organization depends on focus. Trying to get government 
> better focused on the fundamentals - economic policies, basic education, 
> health, roads, law and order, environmental protection - is a vital step. 
> But, focusing on the fundamentals is not a recipe for minimalist 
> government. The state has an important role to play in appropriate 
> regulation, industrial policy, social protection and welfare."
>
> "The choice should not be whether the state should or should not be 
> involved. Instead, it is often a matter of how it gets involved. More 
> importantly, we should not see the state and market as substitutes. I 
> would like to argue that the government should see itself as a complement 
> to markets, undertaking those actions that make markets fulfill their 
> functions better - as well as correcting market failures." 
> http://www.globalpolicy.org/socecon/bwi-wto/stig.htm
>
> Postscript: One fascinating and intuitively obvious solution was just 
> raised by Peter Cochrane, the former CTO of British Telecom in an article 
> Broadband Won't Happen by Accident.  See the Canarie list on 12/30/: 
> http://www.canarie.ca/MLISTS/news2001/0228.html.  Here Cochrane suggests 
> that as the ILECs collapse those who step into to pick up the pieces could 
> affordably run fiber to neighborhood POPs where 802.11b nodes could enable 
> a wireless local loop.
>
> For complete table of contents and ordering information for this 458 page 
> report, point your browser at http://cookreport.com/empowering.shtml
>
> Gordon Cook, Editor and Publisher
> January 6, 2002
>
> --
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> 882-2572 (phone & fax) cook () cookreport com  Subscription info & prices 
> at   http://cookreport.com/subscriptions.shtml  summary of content for 10 
> years at http://cookreport.com/past_issues.shtml Empowering the 
> Customer  or Empowering
> the Telco?  Information  on new 400 page report at 
> http://cookreport.com/empowering
> ========================================================

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