A Practical Navigator for the Internet Economy

Here Comes Asset Based Telecom


Debt "Restructuring" Is Prerequisite of Industry Recovery --Ownership & Control of Assets Will Become Central Issue


As the Center Goes Chapter 11, Economic Activity and Broadband Progress Moves to Locally Owned Networks at the Edges


We Explore Architectural, Economic, Technology and Policy Issues of FTTH

Find out how to order single copy ($375) or group license ($750) for just the triple issue.

August 1, 2002 -- This combined August September Special Issue of the COOK Report on Internet takes an exhaustive look at what is coming to be known as asset based telecommunications.



Here Comes Asset Based Telecom -- Report from the "Insolvency Zone" pp. 1-5

Dynamics of Industry Collapse p. 6

Contributors to this Issue pp. 7 - 8

Different levels of IT Infrastructure p. 9

The Market for 'Broadband' in the Rural West and Elsewhere pp. 1 0 - 20

Municipal Telecom Networks: an Overview -- Miles Fidelman Describes Current Rational for Spread of Municipally Owned and Operated Networks pp. 21 - 26

The Municipal Network Situation in Texas -- Under What Conditions Should Government Get Involved? pp. 27 - 29

Broadband and Fiber Architecture -- Bill St Arnaud Describes the Over arching Issues pp. 30 - 33

Municipal Networks: Can Local Government be Trusted to Build at the Edges After the Global Corporations Failed at the Center? pp. 34 - 40

Grant County, Washington -- Complexities of Building Fiber in the Rural West pp. 41 - 46

Asset Based Telecom: A Montana Perspective pp. 47 - 49

An Introduction to Research on Fiber to the Home Architectures at Carnegie Mellon University pp. 50

Fiber from the CLEC Point of View-- Fred Goldstein Sees Municipal Fiber Builds as Procedure of Last Resort When all Else Has Failed pp. 51 - 54

Discriminatory Problems Created by Same Company Ownership of Transport and Services pp. 55 - 57

So Where Does Wireless Fit in the Fiber Asset Based Telecom Scheme of Things? pp. 58 - 59

Getting Fiber to Urban (Central City) Areas -- Critical Role of Support Structures, and Rights of Way -- Varied Cost Models Discussed pp. 60 - 64

Blown Fiber - Technology and Cost - Fiber Flow, Future Flex and Others Discussed pp. 65 - 68

Emerging Technologies Impact on Infrastructure Demands --A Report from the O'Reilly Conference p. 69 - 71

The Role of IPv6 Deployment in Architectural Issues p. 72 - 73

Part Two - Architectural Issues --Asset Based Telecom & Customer Control May Lead to Fusion of Packet Switching and Connection Oriented Architecture - Architecture to Be as important as Technology over Next Five Years - A Key Issue: Can Users Control Circuits as Easily as Packets? p. 74 - 76

The Reverse Passive Optical Network -- Debating the Strengths and Weaknesses of the RPON Architecture and Technology pp. 77 - 84

Economics of Fiber Architectures - Issues of Interconnection with the PSTN, pp. 85 - 91

Shaping Regulatory Architecture in Canada -- From Facilities Based Competition to Points of Open Interconnection -- Francois Menard Explains Canadian Efforts to Enable Competition, pp. 92 ­ 96

Facilities Based Competition Means the ILECs "Win" -- The Significance of the Multi Gateway Point of Interconnection Tariff in Canada, pp. 97 ­ 102

Trying to Provide Neutral Access to the PSTN Is a Waste of Regulator's Time Access to Support Structures, Rights-of-Way, Poles and Conduits Governed by Non Service Providing Party Only Economic Way to Provide Benefits of FTTH, pp. 103 ­ 106

IEEE Gigabit Ethernet Over Fiber Buildout Scenario -- Proposed Tripartite Separation Critiqued, pp. 107 -108

Centrex Versus PBX in the Context of VoIP, pp 109 ­ 111

Practicality of Out of Band Signaling with Mems Raised Goal to Support Asset Based Network Designs Pointing Toward Neutral Hubs, pp. 112 ­113

Changing Fortunes of the ILECs --Telecom's Fate to be Determined by Free Market or Shaped as a Public Good? pp. 114 - 122

ICANN in Bucharest A Continuation of Four Years of Lies and Deception pp. 123 - 124

To be concluded with the October issue in late July Bill St Arnaud Up Dates Progress on Ca*Net 4 -Topics Covered Include Web Services, Gig E in Sonet Frames and Reverse PON pp. 123 -125


Susan Kalla and Richard Shockey on the Economic Prospects of the ILECs: Earnings from Capital Can No Longer Cover Cost of Borrowing pp, 126- 128

The Telecom Tulip Mania -- Andrew Odlyzko Lays Responsibility for Backbone Bandwidth Growth Rumors on Shoulders of Ebbers, Sidgmore, and O'Dell pp. 129-131

A Conversation with World Wide Packets' Bernard Daines -- Developing a New Business Model for Asset Based Telecom by Proving Broadband Demand One Municipality at a Time pp. 132 - 137

A Concluding Assessment: Tying Together the Threads in the Industry's Demise and Finding a Small Ray of Hope pp. 138 - 146

ICANN Notes: ICANN in Bucharest A Continuation of Four Years of Lies and Deception- ICANN vs Auerbach pp. 147 - 152

Excerpts pp. 153 - 171

Executive Summary pp. 172- 176

Grant County Appendix (PDF only - map and net block diagram) pp. 177 - 178



Report from the "Insolvency Zone"

We have built the technology and tools by means of which abundant and affordable end user controlled broadband networks are possible. The result of the attempted introduction of these tools into a global, centrally-controlled, scarcity-driven, debt-ridden, legacy telecommunications infrastructure has been and will continue to be a series of bankruptcies. These bankruptcies are cascading across the industry in an unprecedented manner. Individuals institutions and enterprises want the new technologies but are blocked from getting their full benefit by being connected as customers to the legacy companies that lack the cash to replace their old infrastructure and deliver what is now globally possible.

On June 26 WorldCom's 3.9 billion dollars of fraudulent accounting surfaced and marked the likely end of the company as a viable business. This fresh disaster will take billions of dollars from what other network and equipment suppliers have booked as receivables worsening the strains that are ripping at the fabric of many other weakened players in the devastated market place. It is part what the Precursor Group calls the telecom debt spiral where "each telecom companyís financial and competitive troubles tend to negatively pull down other telecom companies, sucking them into the downward spiral." This extremely important two page report was published on May 20 by Scott Cleland who found that 24 of 29 major publicly traded companies are in what he termed the 'insolvency zone'. Namely they have a high likelihood of bankruptcy and are not creating enough new business to pull themselves out of ever increasing debt. [See www.precursorgroup.com.]

Cleland offers three important additional insights into the dynamic confronting the industry. Companies in trouble (in the "insolvency zone") can not control their own destiny by entering new markets or investing in new technologies. They are also "eating their next years seed corn" by having to take funds that should be used for future investment and use them for current operating expenses. Finally time runs against the companies chances as its customers and employees begin to flee to safer havens. Operations consists of fending off fresh disasters.

With the aid of 'hindsight,' we conclude that one thing missing from Cleland's dismal assessment is that companies caught in this "vise" are likely to be tempted to cook their books. The act of surveying the landscape has to leave one with a view that is stripped of trust in a way that only a few months ago would have been unimaginable. How many other WorldComs are out there? Sidgemore's statement a few weeks back in his conference call with analysts that the industry is in the midst of a nuclear winter has turned out to be far more apt than most people could have realized.

Meanwhile we will soon begin to see the current process intensify as the first generation of bankrupt Greenfield players emerges from Chapter 11. Shorn of the burden of interest payments, these companies will be able to cut prices in such a way as to drive those companies not yet in Chapter 11 over the edge. The unknown part of this process of wiping out a trillion dollars of equity and debt is how long it will take. The future of the global telecom and indeed information technology industry is riding on this unknown. The broadband technology that we want in our homes and offices is becoming increasingly affordable. Its current costs are about one tenth those of the copper based local loop and its successor T1- and SONET- based derivatives. Moreover with each passing month, as Moore¹s law continues, they are getting cheaper. Therefore, another key question, is how long will the deconstruction of copper-based last mile require? Guerilla warfare against the copper last mile has been long active at the periphery of the PSTN. As this issue notes it is now growing in serious ways. Indeed we posit that the more quickly it grows in the form of municipally owned networks and in a general move toward asset-based, customer-owned networks, the more quickly the industry can hope to recover.

For the husk of a legacy PSTN that must be replaced is embedded in the LEC owned and controlled local loop. Here, buried in the fate of the LECs, is the question of how long will the industry stay flat on its back and who will control it when it does reemerge. Given the current state of economic analysis and policy making, the forecast is not encouraging. Recovery is likely to be at least five years off. This, however need not be the case. This issue of the COOK Report will look at developments that seem likely eventually to unleash some profound revolutions in the way we communicate.


Asset Control & Ownership is Central Issue

As the dominance of the mainframe computer was finally ended during the 1980s, the dominance of the legacy phone companies will be ended during the first decade of the new century. However, a significant problem facing us is that the industry that must now die is in far more wide spread use as a basic infrastructure of everyday life than mainframe computing could ever dream of being. Therefore, it may take longer to dislodge. Also the greater pervasiveness of the dying industry will mean that public policy is far more involved in the transition. Given their poor understanding of what is at stake, we may be sure that the policy makers will keep the old system on life support for as long as possible. The result will delay and only make worse the ultimate demise.

But, if not the precise timing, we know in broad outline at least a probable outcome. In this issue we will begin to show how it is possible to place the most modern and cost effective high bandwidth asset based and customer owned telecom directly in the hands of enterprise and ultimately SoHo users. The subject of this issue and vehicle to accomplish this is asset-based telecommunications. As far as we know Bill St Arnaud coined the term just over a year ago. He said to the Canarie list on March 31, 2001 http://www.canarie.ca/MLISTS/news2001/0069.html

"Already a few forward looking telcos are starting to realize that treating telecommunications as an marketable asset, rather than as service has many benefits and significant new business opportunities.

In November 2001 in a presentation to the FTTH Council in Dallas Texas he observed: "Telecom is the last bastion of monopoly operation where services and infrastructure are provided by same company." Then on April 2, 2002 in rev 8 of the Ca*Net4 design document, he elaborated in considerable detail on the strategy of giving end users the tools with which to operate their own networks. ³The introduction of the first mini-computers at universities and research centers fundamentally changed that concept of centralized computing. Computing and telecommunications became an asset rather than a service. Now researchers could adapt computers to innovative new applications and processes without being concerned about the complex issues related to resource sharing of a large main frame system. This evolution in computing continued through the 60s and 70s culminating in the introduction of the Personal Computer (PC) in the late 70s and early 80s."

"Current telecommunication network architectures are still built around a concept of a central managed carrier network much like the architecture of main frame computer systems of the 50s and 60s. As with the main frame computers of the 60s, there is considerable research by equipment manufacturers into resource management of wavelengths, developing techniques for users to request and prioritize resources, etc. The underlying assumption for CA*net 4, on the other hand, is that by giving ownership and control of individual wavelengths to end users, many of these issues [encountered by] a centralized managed facility will disappear.² April 4, 2002, pp. 6-7

In the high end, university research arena, asset based telecom as practiced by CA*Net 4 will empower universities and even individual researchers to handle their own lightpaths. But on page 41 of the design document St Arnaud switches focus to the ordinary user at the periphery of a network of networks. There he writes: ³The holygrail of the telecom industry is Fiber To The Home (FTTH). However, the large up front capital costs required to deploy FTTH systems have generally made the prospect uneconomical except in new housing developments.²

"Fundamentally it is the same challenge facing all telecom sectors ­ the need to raise large amounts of capital in uncertain market conditions to deploy unproven services in a very competitive and changing market. However, one possible solution is to turn up side down the current business model by having the customer pay for the up front capital costs of FTTH deployment."

"The estimated capital costs for FTTH solutions vary from $500- $2000 per home passed and $500 - $2500 for homes connected. [Even if the take rate for fiber were small,. . . .i]f homeowners could include the fiber as an asset as part of their mortgage, then a back of the envelope estimate of the amortized cost of the fiber could be as low as $50 per month on a 20 year amortization at 5% interest. More importantly as additional subscribers are connected to the fiber cable the home owners who made the initial investment could see a significant return on that investment as later customers also purchase their own strands of fiber and thereby contribute to the original capital costs of the fiber build."

"This concept is not a hypothetical arm waving exercise. This was a model that was used in the early days of electricity deployment, and is still used in rural [areas].. The model has also worked quite successfully with condominium fiber builds for schools and universities and has enabled dramatically lower costs for these organizations to purchase their own dark fiber. See http://www.canet3.net/library/papers/FAQ_dark_fibre_oct_4.htm for more details."

At his Dallas Nov 2001 presentation St Arnaud asked briefly whether government should intervene? He noted that "sometimes government intrusion in the marketplace is warranted if there are significant benefits to the economy and society and where otherwise to do nothing would be to do harm."

By mid 2002 however the likelihood of government intervention was effectively nil. It was becoming rapidly apparent that the most modern form of telecom was now CHEAP ENOUGH for users or municipalities to buy. The concluding paragraphs of the design document [p. 45] draw the appropriate conclusions: "Currently the telecommunications sector is suffering from a massive debt hang over. It will take years to write down this debt through traditional telecom amortization processes. More importantly, it will be many years before the markets have their faith restored in the financial viability of the telecom sector. As such, for many small telecom companies, financing will continue to be problematic for the foreseeable future and the deployment of next generation broadband to the home may take decades to accomplish with current telecom business models.

Customer owned networks have the potential to move the financing problem away from the telecom company to the customer. The telecom company, instead, can focus on providing services for the management of the customer owned infrastructure as well as offering new and enhanced services that augment the customer owned infrastructure.

In many ways these developments parallel the evolution of the computer industry. In the 1960s the computer industry was a service based industry. In the 1980s and 90s the mainframe computer business went through a similar market meltdown much like telecom is going through today. But over time a number of companies in particular IBM, discovered that encouraging customers to purchase computers and then selling them after sales services was a very lucrative business indeed."


Separation of Content from Facility

Ideally, a stupid network must have separation of content from facility. Actually it must have more. The physical network must be held and operated by a neutral party. The goal here is that all higher-level services including content are provided without the exertion of any constraint on the part of the owner of the physical infrastructure.

The old view was first that the physical network was a commodity business and second that people needed to be able to add their own content to it in order to make a profit. Of course, there was a small problem in that the ³last² mile was also the local carrier monopoly. False assumptions that Internet traffic was doubling every 90 days and startling advances in the ability to send ³bits² over fiber spurred the building of Greenfield fiber networks on a global scale. The new Greenfield companies over built each other globally and nationally in a race to be the first to capture market share. For the over-builders, content meant web hosting. They spent huge sums of money to compete on the strength of these facilities as well as their fiber. With the dot com crash their web hosting investments turned from a resource into a glut and with the ensuing collapse of customers of all kinds their revenue streams on which they relied to pay interest on billions of dollars of debt dried up. Collapse became in evitable and, once they began collapsing, they fell like dominoes where their fate impacted their competitors and pulled them down as well.

While people were aware of the ³last mile² bottleneck as the stampede gathered steam, they seem to have thought that they could defy it. Their defiance it turned out was based on wishful thinking. To enable the stampede of the global build out as it gathered force in 1995, the belief was spread that in a competition-enabled local loop world, you would have multiple people building networks to enable the delivery of their own special content to those attached. The Greenfield over builders posited their success on the opening of the local loop to competition. Voila, in 1996 the Œgreat¹ telecom reform act was passed on the assumption that the LECs would now have to give up their last mile monopoly and permit the entry of the new technology so that it could cannibalize their business. As we have seen, although the LECs did allow access to their networks, they were able to do it in ways that gave them an inherent advantage over the CLECs

At a national level, we had various sized mergers of Internet providers with content owners. These folk did not understand that the Internet was not TV. They did not understand that it was in fact Isenberg¹s Stupid Network where the intelligence rested in the hands of the users at the periphery. What they did not count on was the ability of the internet to democratize the production of content in such a way that it would lead to such diversity as to render the relatively few huge clumps of corporate owned content economically unproductive. Investment by content owners in network transport facilities was done in a way reminiscent of the broadcast and cable networks bidding against each other for content that could make their customers pay for admission to their respective walled gardens. These vertical business models may have made sense in a world of the legacy phone companies with control, money and intelligence at the center. They made no sense in the Internet and the world of IP over fiber where the benefits of continued evolution of Moore¹s law pushed more and more power, money and intelligence toward the edge. The fact that they controlled the content and the pipeline leaves them ready to charge per transaction if possible. It assumes that the amount of bandwidth needed is just enough to deliver content from the Center to the couch potato at the edge. It leaves the center in control and ensures that enough traffic to take care of the glut of network capability will never appear. Driven by the intellectual property interests desire to control centrally provided content, it keeps the industry mired in legacy telco economics.


User Control of Resources as a Spur to Innovation

The current regime takes care to blind itself to the fact that asset based telecom and user control of resources at the edge of the network might be a way out. Give users huge amounts of bandwidth and let them decide what to do with it is the policy that could be enabled by the economics of gig Ethernet over fiber. Hopefully this will spur on the development of new applications and services in networking similar to what we saw with the introduction of the first mini-computer eventually culminating in the PC revolution.

Here is how St Arnaud put it in his March 31 2001 message: ³It is interesting to note that the first mini-computers and PCs were actually primitive in their architectural design compared to the large central computers of their day. Many of the computing jobs targeted to the mini-computer or the PC could easily be carried out on a main frame computer of that time period. But the power and attraction of the early mini-computer and PCs was not in their technical wizardry, but their simplicity, low cost and most importantly giving the user direct control of the computing resources and their application.

[Sections omitted]


So Wither this Issue of the COOK Report?

We will show, in great detail, one phase of ³asset based telecom.² Namely as the ³center² goes under, broadband increasingly is being built by local government at the edges often in very rural areas. We will look at the conditions determining who is building and the rationale of the builders. We will look in great detain at fiber to the home (FTTH) which is being planned for and beginning to happen in some areas. We will look at economic and regulatory issues impacting FTTH. We will examine possible fiber to the home architectures and point out why their shape is critical in determining who will control the architecture and, as a result, who will profit and who will loose as a result of the outcome. We will look at Canadian plans for reverse PON and attempt to assess the impact of what would put unprecedented power into end user hands.


What Readers will Learn from this Issue

The industry's main problems are and will remain political and economic. Future hope depends on finding ways to replace the ILECs copper infrastructure with fiber and wireless that is paid for and therefore owned and controlled by those who live in the communities that install the new networks. This is beginning to happen. This issue discusses how and where.

While it finds that no single model for success has yet emerged, the leaders in the field help us to document the full range of models under development. While there are many possible FTTH architectures none of which fits every situation, our experts are united that separation of ownership of the physical network from ownership of business that provide services over the network is mandatory both to deliver broadband and to unlock the economic development potential of user owned and operated network services and businesses.

While models of financing architecture and control are not fully agreed upon important new networks are being built Communities are beginning to lift themselves up by their own bootstraps. Costs of FTTH are dropping rapidly but enough projects have not yet been done to have reliable cost model projections.

What is least understood and agreed upon is what needs to be done from a regulatory point of view to enable the transition. Growing newly built municipal networks from patches at the edge of the PSTN to a well fashioned quilt that can replace the PSTN is the challenge that is getting underway. We present the first handbook that points the way to the necessary transformation.


Contributors to this Issue

Roxane Googin is an equities analyst for fund managers. Roxane has been helping Isenburg and Cook and many others understand why the phone companies ­ including the LEC s are going to go bankrupt

David Isenberg authored the famed stupid network paper in the summer of 97.

Bill St Arnaud Director Advanced Network Projects CANARIE. Bill is not offering any guarantee but, if his work on CA*Net4 is successful, within 5 years we might have lambdas on our desktops. It was just about a year ago that Bill coined the term ³asset based telecom.²

Kevin Kahn , Intel Fellow, Director Communications and Interconnect Technology, Intel Labs. Kevin is concentrating on broadband access to the home, home networking, and Internet issues bearing on these topics. He is also working on wireless technologies, such as Ultra Wideband (UWB)

Francois Menard works for IMS Consultants, which pioneered condo fiber builds in Canada. Francois is also an expert on ISP cable interconnection issues in Canada

Rich Shockey , Chair of the ENUM work group and very involved with SIP. He is also Senior Manager, Strategic Technology Initiatives, NeuStar Inc.

David Horne works on networking and communications architecture for next-gen technology initiatives in the Intel Communications Group, out of the Chief Technology Office. He has been active in the Ethernet in the first mile effort and in studying the economic and technical aspects of FTTH.

John Lupton lives in Scotland. His company is blowing fiber into homes and businesses in Monterey Mexico as well as in many other places around the world

Marvin Sirbu is Professor of Engineering and Public Policy at Carneigie Mellon University. He has been studying issues involved in bring broadband to the home since the 1980s.


Jim Baller is a principal in The Baller Herbst Law Group, which (in addition to an excellent website on municipal telecom) is the firm that just won a case overturning the Virginia ban on municipally owned telecom networks.

Tim Denton is an Ottawa attorney who, among other things, works with many Canadian ISPs and has authored several exceptional Œnethead¹ papers with Francois Menard

Miles Fidelman is co-founder and President of non-profit Center for Civic Networking where he serves as editor of the Journal of Municipal Telecommunications, and consults to local governments.

Bob Rowe is a member Montana Public Service Commission. Mentioned by Senator Burns as a candidate for the vacant democratic seat of the FCC.

W. Scott McCollough is a lawyer specializing in economic and regulatory issues for ISPs in the state of Texas. He is with the firm Stumpf, Craddock, Massey & Pulman located in Austin.

Fred Goldstein is a consultant on CLEC issues with TIAX LLC, a technology consulting firm in Cambridge, MA


Coe Hutchison is the Fiber Business Manager for the Grant Co. PUD in Ephrata, Washington

Marlon Schaffer runs a wireless ISP in Odessa Washington and is a business partner in KMS Wireless

Jeff Michka is an exceptionally savvy telecom activist who lives in Edmonds Washington and who has advised me on and off since 1994.

Larry Anglin is the President and founder of Hometown Computing a central Texas ISP in business since 1996. With operational wireless systems in Hamilton, Gatesville, Stephenville, Clifton, and Comanche, Hometown Computing has Central Texas covered with broadband. Hometown Computing operates wireless access points in cooperation with United Cooperative Services in Meridian, Glen Rose, and Possum Kingdom.

Frank Coluccio, President DTI Consulting Frank designs and builds optical networks in the northeastern US for the largest Wall Street Banks and similar financial institutions.

William J. "Billy" Ray, Superintendent, Glasgow Electric Plant Board. The Glasgow EPB is Glasgow's city-owned utility. In addition to providing Glasgow's electric power, the EPB¹s high speed, city-wide communications network provides cable television service, computer networking and data for operation of the electric system (and very high speed Internet access).