A Practical Navigator for the Internet Economy

The Internet's Dilemma: What Good Is the Stupid Network If the Other Guys Own It?

Future to Offer Access to a Public Highway Grid or Exile to Corporate Controlled Walled Gardens and OS'?

An Analysis by Gordon Cook

pp. 1 - 7

Find out how to order single copy ($125) or group license ($250) for just THIS issue.

We take a detailed look at how most all of telecom except for the ILECs fell off the precipice. We conclude that without intelligent public policy designed to act ass a counterweight to the ongoing consolidation of the "free-market" the AOL/Time Warner "Walled Garden" business model of the Internet may well become dominant. We need to make understanding and emulating the Canadian approach to enabling the building of community owned fiber networks a high priority. We find and conclude that:

1. Classic industrial age business cycle has overtaken information age infrastructure build and brought with it oversupply and slump.

2. Matched against big business practice and philosophy, edge control is no control. Edge control has no defensive capability and thus is ripe for takeover and top down control.

3. Vertical top down control, ownership and integration of networks squeezes liquidity up and out of the entire system.

4. We need to understand fully the implications different economic models for the Internet. Is the Internet to be understood as composed of thousands and hundreds of thousands of local private enterprises and municipalities at every layer of the global network who operate under local democratic regulation, or is it to be seen as a cartel of 12 or so intertwined global media and distribution corporations who control and staff their own nominal regulators at ICANN and WTO.

5. While in an abstract sense the distinction is still quite clear, the failure of 96 Telecom Reform Act blurred the Nethead vs. Bellhead split. It can be said that we now have mainly companies with varied degrees of bell headedness.

6. The technologies which once defined the ideologies are themselves converging both in applicability and in price. This convergence is another driver of the above ³blurring². Everyone is using a varied mix of technologies that were formally understood as particularly Netheaded or Bellheaded.

7. The Nethead ideologues were like settlers of the early American frontier west. And when the railroads pushed through and established towns and sufficient presence and support infrastructure and enforcement personnel, the frontier was brought to heel.

8. The regulatory playing field of ILEC versus CLEC that was created by the 1996 telecom act was in fact tilted on behalf of the ILECs and the inability of the FCC to enforce opening of local markets to competition.

9. Netheaded, green field, would be first movers borrowed vast sums for their fiber build outs driven by flawed estimates of bandwidth growth which, if accurate, would have given a successful first mover great payoffs. The result looks like a glut and the inability of the would be first mover to get enough cash flow to pay their debts.

10.The ILECs out lobbied, outspent and outsmarted the builders of the Greenfield fiber plays and the Internet

11. There will be a fiber fire sale. The questions are who will be allowed to buy? Will there be *any* public interest test, any monopoly or anti-trust test or regulation, any access or control or preference given to the localities in whose earth the fiber runs, and whose residents and business and institutions are the logical first choice to benefit from this fire sale?

12. The traditional American model has been that of local and individual ownership and local and individual responsibility for the physical necessities of life. Our telecommunication policy has abandoned these ideals.

13. Yet we define telecommunication as a necessity and then through the Schools and Libraries corporation part or the universal service fund extract money from the community for use by distant corporations

14. We need a national debate on problems of media concentration and distribution channel monopoly versus the feasibility of community owned and operated alternative infrastructure.

15. The struggle is aimed at control a technology that is most fertile if uncontrolled. The way things are headed the struggle for control may kill the ³golden goose.²

16. Are we to have networks with end to end connectivity that we can use in ways that we see fit rather than have our usage subject to the rules of a central authority? Can a ³private vehicle/highway² model survive alongside the ³railroad model?¹

Broadband in Canada

Enabling Local Control of Local Infrastructure

A Pragmatic Regulatory Approach to Enabling Community Fiber Networks and Commercial Interconnection

pp. 8-12

We publish an essay by Francois Menard. What Menard convincingly shows is that, given intelligent use of regulatory power, discriminatory interconnections and unfairly priced rights of way do not have to remain undue barriers to broadband. Menard demonstrates how communities could force the aggregation of demand onto the same infrastructure. He illustrates why doing so will be a necessary precondition for any sound business case for fiber to the business or fiber to the home. While local loop monopoly regulations have forced aggregation of demand in a way that sustains the PSTN. He shows how demand aggregation can be achieved on a fiber optic infrastructure without requiring that a utility be given a monopoly on services.

He argues that the necessary preconditions for broadband can only be truly realized when end-users can directly influence what equipment is attached to the infrastructure, which requires that dedicated infrastructure, such as customers owning rights to specific fiber optic strands within the same cable. He doesn't discount the use of wave division multiplexing, frequency division multiplexing, time or code division multiple access or even optical packet switching equipment, but warns that any use of such technology constitutes what he calls "service-defining bottleneck facilities". He argues that owners of networks must mandate that physical open access be provided at the location of every such service-defining bottleneck facility. This is necessary, he suggests so as to enable other carriers to bypass such bottleneck facility, in order not to have imposed on them a certain type of service or business model. Regulators of the facilities based competition model are missing this point and are relying on what in fact constitutes discriminatory interconnections.

Just as it is seen as a proper and accepted role of government at local, regional and national level to set the rules for building and use of physical highways and the clover leafs by which they interconnect, so should government, from the community upward, determine the rules for building and interconnection of fiber based packet data networks. While the current system protects the interests of ILEC stockholders, it may only bring broadband "walled gardens" to most customers several decades from now. Menard contends that regulators are too busy with working the bugs out of regulations that are supposed to enable local competition in telephony. Consequently, they are unaware that they have the ability to ensure that we do not miss out on the opportunity, feasible today, of bringing broadband to everyone. What Menard describes is the technology and regulatory approach that will enable communities to extend fiber to government, schools and business, and then to homes immediately.

The architecture that Menard advocates would bring the fiber strand from the individual business or residence to the nearest carrier neutral co-location site where the owner of the strand could choose what services he or she wished to be connected to. The use of new technology such as high density ribbon cables and patch panels, micro-tubing and the ability to blow fiber through conduits would enable cost effective build outs. Investigation is underway to determine what the exact costs and best architectures are likely to be. The point is that in Canada there is now a regulatory impasse where CLECs have been given mandated access to unbundled network elements at discounted prices while they build out their networks. The discounts were to end within five years. However seeing that the objectives are not being achieved, the regulators have extended the discounts indefinitely - an act that deprives the CLECs of the very incentive necessary to build competitive infrastructure. In this essay Menard argues that it is time to throw out the current approach, adopt well defined standards of interconnection and encourage communities to act as referees of equal access to their rights of way. [Note: The preceding text also appears as part of this article¹s introduction.]

Two quotes from the essay: "What now appears to be needed from telecommunications policy are regulations which will favor the aggregation of end user demand onto a single fibre optic community network. But regulations must also explicitly mandate the disaggregation of services by enabling customer-owned physical-layer equal access onto carrier-neutral facilities. In other words every carrier can offer its own set of services while being unable to prevent a competitor from offering a completely different set.

Furthermore, this regulation should call for municipalities to provide for the support structures necessary for customer-owned fibre optic strands under cost recovery principles similar to those of other municipal infrastructures. It is to be expected that some municipal administrations will be less interested than others in venturing into providing telecommunications support structures. Therefore it will be necessary for regulators to get an explicit mandate from the government to be able to regulate how cities are to be compensated when carriers are required to acquire rights of ways and build their networks should the municipality not be willing to do it."

Finally, we have written a more generalized set of findings based on his essay. 1. Broadband is an essential public utility. Access is only half the broadband issue. The other half is end user (consumer choice) of service model at the point of access.

2. The regulatory model for existing cable and copper last mile loops was conceptually flawed and has failed enable any over build of new technologies.

3. While regulated carrier competition has failed, however, private local networks are being built by municipalities and local schools. These local public infrastructure networks could become well placed to provide service as a competitive market alternative to the current monopoly telco and monopoly cable incumbents, particularly in areas that the monopoly incumbents refuse to serve with high speed access, or with choice.

4. When the broadband market fails because of monopoly, the local communities have a duty to provide market alternatives to their residents and businesses.

5. Canadian regulators are grappling with deployment and development issues at least two generations ahead of the current American telecommunications landscape.

6. To date Canadian school districts and municipalities have been building their own fiber networks. To make the economic case for fiber to the home Canadian municipalities will have to take adopt a new model where the municipality no longer operates the network but instead uses its ownership of rights of way to become an impartial referee on behalf of equal access.

7. The ideal business, technical, and regulatory model places the municipality in charge only of guaranteeing what it has always guaranteed--public rights of way access and non-interference, and regulating which services shall have access to the public Rights of Way and under what terms, conditions and fees for use, including how they must mutually assist and coordinate with each other. The technology enables the city's responsibility for maintaining physical equipment to be extremely limited, as would their billing for service model.

8. As in all natural monopoly/limited distributor situations, the end user cannot freely choose nor freely change distributor because the distribution channels are either prohibitively capital intensive or prohibitively spacially intensive. Therefore, the physical interface to the consumer for these natural monopolies are best regulated and coordinated by the local municipalities, as several hundred years of time and experience in thousands of essential public utility contexts have shown.

9. The ancient public-private contract of monopoly and public grant of special easements and tax relief and tax funded public investment given to private telco corporations for 100 year old technology does not imply an eternal commitment by the public to support these same corporations as exclusive beneficiaries of public tax funded relief and assistance, when new technologies and new businesses develop which can serve the public in better ways and at lower cost.

10. The 1996 regulatory model for encouraging market opening and active infrastructure competition has failed. In Canada it has done better, but not a lot better. And in hindsight we see that there is no business case to be made for any permissive regulatory framework that will effectively draw the ILECs into investing in full scale residential broadband, much less broadband choice. It is too much in the financial interest of the telcos and the cables to drag their feet forever.

11. In Canada careful review of rights of way agreements will uncover impacts on school and municipal networks that may be undesirable, as well as finding that current RoW agreements favor incumbent telcos and cables. RoW reviews should be comprehensively undertaken to favor broadband competition, consumer access, and consumer choice and municipal alternatives.

Level 3 Communications: Smart People Have Designed a Flexible, Intelligent But Capital Hungry Global Build Out

Can L3 Find Enough Customers Quickly Enough to Support its Infrastructure Investment and Pay its Debt? Likely Yes

Uncertainty Is How Much Infrastructure It Will Have to Shed

Interviews with Ron Vidal and Rob Hagens Show a Business Model in Flux

pp. 13 -29

The interviews have shown us that Level 3 Communications Inc. is a very impressive company that may have made just one major mistake. It's raison d'etre was to leverage the new fiber and packet network technologies by building a global infrastructure and becoming a global sales engine of highly cost effective transport to carriers and enterprises. Level 3 is finishing its very impressive global build out. Only Global Crossing can boast infrastructure in any way comparable. The mistake that Level 3 made was to build an infrastructure predicated on bandwidth growth assumptions that have proven to be without foundation. Consequently it has huge amounts of fiber and the ability to lay far more additional fiber than anyone else. It has also burned its way through billions of dollars. But without the explosive bandwidth growth it finds itself competing with all the other new fiber players to find enough customers to light its fiber and give it enough income to pay its expense and the interest on 7.9 billion dollars of debt.

Level 3 will likely do what ever it takes to survive including selling its European operations if necessary. While it has announced a large layoff it has major lines of business.

Almost three years ago we reported on its development of IPDC and an early Softswitch product. Softswitch is now a managed modem or modem wholesaling service used in huge quantity by Earthlink and AOL. Softswitch is reported by a source outside of Level 3, to have driven down the monthly dial up port cost from 15 dollars to three dollars in just the past year. According to Hagens Softswitch is also used for some voice-over-IP services. Level 3 has SONET throughout its network which also. This permits it to do a large amount of VPN business for large corporations. Level 3 sells both VPN and IP services to large corporations. It also has positioned itself as a carrier¹s carrier. Someone that a network like MCI could go to for lambdas more cheaply than it could add them to its own fiber. it brags persuasively that its network is put together with enough flexibility to enable it to choose from the most cost effective technology in adding bandwidth when it needs to.

Should Verizon, or SBC or any of the ILECs get permission to sell long distance one of the things that Level 3 would love to do is sell it bandwidth to the rest of the world. Here is how Vidal presented the philosophy.

"As a carrier's carrier we are a company without a sales organization competing heavily for retail customers with those of our customers. We do sell to enterprises occasionally, especially those that operate their own networks, but our focus is very much on the top 300 bandwidth customers around the world. And we think we¹re unique in this position. For example Qwest, Broadwing, Global Crossing and Williams Communications through its alliance with SBC have all said that they have a renewed focus on selling to enterprise customers. But that territory is also the territory of AT&T, Sprint, and WorldCom. These companies are all potential competitors of each other as well as customers. We don¹t think that these kind of mixed roles make for good business partnerships."

This was an approach that we really heard on from Vidal. We suspect that it is part of a repositioning effort by Level 3 as the ground continues to shift underneath everyone.

Customer-Owned IP Networks

Completing the IP Revolution Through Customer-Owned Networks - an essay by Timothy Denton,

pp. 30-32

We reprint a portion of a 12 page paper by Timothy Denton. http://www.tmdenton.com/pdffiles/Customer-ownedNetworksv1.2.PDF

The paper is filled with valuable pricing on the cost of condo fiber builds in Quebec, Alberta and Ottawa.

"These networks have four characteristics that differ from legacy telephone and cable networks: ·Customers own and control their wavelengths, and may trade them with other like- minded customers. · The network is an asset, not a service. · Creativity is derived from the end users, not the network managers. · The core of the network will not be optimally designed to minimize resource usage when end users have control; it will waste bandwidth." The paper is a good summary of the current Canadian state-of-the-art.

Spectrum is Not Property, - Robert J Berger

p. 32

From a post to Dewayne Hendricks¹ tech list, very short essay by Robert Berger: Two essential points from the essay follow. "By making spectrum property today, we make it nearly impossible to create such a innovative broadband solution and only allow oligopolies to control our communications systems and thus the ability for individuals to form true peer-to-peer broadband services whose content is not easily controlled by the oligopolies and the government.

Please note that unlicensed does not mean un-regulated. The devices will have to still meet regulations for at least per hertz power levels and so on to guarantee that the spectrum is indeed being shared, not polluted.

ICANN Update:

Thanks to Continued Support from Bureaucrats at Commerce ICANN Expands its Payroll and Continues its Efforts to Police DNS and Extend Governmental and Corporate Intellectual Property Control over the Internet,

pp. 33 -37

We further document ICANN's ongoing output of disinformation about its efforts to clamp down on and control the Internet.

As the Hague Conference Diplomatic Conference Ends the Internet and the Public Domain Are at Risk, an essay by Jamie Love,

pp. 38 - 40

Today (Jamie Love wrote on June 20) the Hague Conference on Private International Law will end its first diplomatic conference on a new treaty to set the rules for jurisdiction for nearly all commercial and civil litigation. In a world where everyone is struggling to understand how to address jurisdiction issues raised by the Internet, this new proposed treaty imposes a bold set of rules that will profoundly change the Internet, and not only that. As drafted, it will extend the reach of every country¹s intellectual property laws, including those that have nothing to do with the Internet.

Sweden's IT Commission Publishes General Guide to Future Proof IT Infrastructure

Booklet Shows How to Plan Physical Fiber Network Architecture

pp. 40

Like Canada Sweden is not leaving its future to the local phone company. They are committed to building a national fiber infrastructure and have just published a "cook book" describing their approach. We recommend that readers be sure to pick up the following document at http://www.itkommissionen.se/extra/document/?id=347

What is the Digital Divide Really About?

Marketing IT Hardware, Software & Services or Helping Communities Sustain their Economies & Independence?

Larry Irving Lashes Out at Dave Hughes over the Digital Divide,

pp. 41 -45

FCC Chairman Powell created some controversy a few weeks ago with remarks that were interpreted as not caring about the hallowed digital divide. On the Cyber telecom list on July 2 the question was raised as to whether Powell's remark should be taken as an insult to the good work of Larry Irving...

Dave Hughes responded to the discussion: "Larry Irving, when he headed up the National Telecommunications and Information Administration - NTIA - didn¹t do a damn thing when I handed him SEVERAL TIMES, on a silver platter, a major solution to cost-effective connectivity in rural areas - no-license wireless. Which NTIA could have, and should have, pursued. But utterly ignored - yeah, I mean Larry personally. And now still bleats about the 'digital divide.'" There followed a lively debate which we have republished above.

Within less than 48 hours Irving jumped in with the following comment where he obfuscates the issue with an attack on Dave Hughes personality rather than on the substance of the technology.

Irving: "Let's not dismiss or deride efforts to assist the least fortunate in our society.

Now with regard to Dave and his continued rants about ³his solution² to increased connectivity. I am sure that he believes that he has found the silver bullet for rural connectivity in the low cost wireless technology he opines about so often. Unfortunately, his view is a minority opinion. Yes, I spoke to him several times (in fact, innumerable times) about his views on how to bridge the divide. I passed on his views to my colleagues and to others outside of government. Most of us agree that Dave has an approach that may assist with the issue of affordable connectivity. There is by no means unanimity as to the merits of his suggestion. I am not a technologist or engineer. I am a lawyer and policy advocate. Like most people, however, I tune out when I hear the same song over and over, whether it is a classic like "Respect" or piffle such as "Sugar, Sugar".

I have no idea whether Dave is an Aretha or the latest incarnation of the Archies. I am, however, tired of his song and his insistence that he and he alone has the right answer. Now that I am out of government, I feel no obligation to listen to Dave's tune over and over again. So, I can and will just tune out his particular station.

Dave, the administration has nominated a new assistant secretary. I hope she provides you as many opportunities to express your point of view as I did. One suggestion. People are more likely to listen if you avoid the self righteous, condescending ad hominem attacks. Lets make that two: Hyperbole and bluster do not go over well at a first meeting either.

I do, however, want to thank you for reintroducing me to Hedy Lamarr. Because of you I now know that she was a very successful technologist and not just a 40's actress and one of the best tag lines in "Blazing Saddles..." Larry"

Dave Hughes replied: "Well, Larry can say he 'tunes out' my repeated assertions that no-license wireless can go a LONG way to bridging the rural 'digital divide' - but then having never tried it - even funding with the NTIA funds a serious field test of the proposition - he hardly can say it won¹t work. As he admits he only sought the 'opinions' of others. The difference being, I go do it, try it, and see how well, or not, it works. And I have always aimed PRIMARILY at, and reported on, the very disadvantaged communities Larry says he champions. What I have championed, works. Period."

Why I wondered did Larry Irving lash out with such disdain? A look in Google under Larry Irving's new consulting company (the Irving Information Group) was instructive. It seems to me that digital divide is about MARKETING and sales of IT hardware and software. It is about getting all American to use PAID services. It is NOT about no cost telecommunications services promoted by Dave Hughes. Consider the following excerpts from Business Week.

News: Analysis & Commentary Business Week, December, 20 1999 By Roger O. Crockett http://www.dmeinteractive.com/about/bizweek.html

"Commentary HIGH TECH'S BIG MARKET? TRY THE INNER CITY" "For years, policymakers and concerned members of the high-tech community have spoken of a digital divide-between technology haves and have-nots. But despite their concerns, the niggling disparity persists. If that doesn¹t change, the cyber ride that is propelling the U.S. economy into the next millennium could sputter. Indeed, if the technology revolution leaves low-income Americans behind, all of America will suffer. [Snip]

But more discussion of the problem isn't going to help. Nor are the welcome and generous gifts of computers and other gear that tech companies routinely make to inner city schools, libraries, and other institutions. What¹s missing is a committed effort to sell computers to these forgotten folks. Nothing fancy. Just a nicely targeted marketing campaign, and maybe a few inner-city stores, to demonstrate the benefits of the Internet. Simply put, companies ought to make the same investment in inner cities that they do elsewhere in the U.S. and overseas." [Snip] "Every white geek with an income of $100,000 is online," notes Larry Irving, president of Irving Information Group, a Washington technology consultant. "The low-hanging fruit had been gathered." Now, it's time to do some reaching." So wrote Business Week.

The documentation of the forces that Larry has enlisted on behalf of fighting the divide - a term that he coined- is substantial. It fills most of page 44 and 45 above.

I conclude by asking: What Interests Benefit? Let's be perfectly clear about the meaning of the so called digital divide. Given the above evidence, we conclude that, for Mr. Irving, likely views it as a marketing opportunity to sell hardware and software and the Internet in the form of recurring monthly service fees. It looks to me like a marketing opportunity for corporate America on whose behalf he advocates the use of public money to prime the pump for the extension of computer use and ownership. I dislike the approach because it seldom, if ever goes beyond the superficial attitude of "close the sale and move on." Dave Hughes vision on the other hand emphasizes understanding the needs of each community into which the technology will be brought. With such understanding comes a focus on training so that the infrastructure is used in ways that go beyond on line purchases. Most significantly Hughes seeks to give each community through spread spectrum wireless a way of owning as much of infrastructure as possible and obtaining connectivity to the net at the lowest possible monthly cost. When he asked Irving while he was running NTIA to back measures that would help local communities but not the local phone companies, Dave Hughes misunderstood the real purpose of NTIA's focus on the digital divide . Given the vehemence of his personal attack on Dave, I believe Irving may have decided that he could not afford to explain they way the system really works. Gordon Cook