DSL Prime News: The Inside Source

DSL Prime covers the gamut of current DSL industry issues from the Worldcom case to Voice over DSL (VoDSL) to a new technology called Dynamic Spectrum Management (DSM).

by Dave Burstein DSL Prime [July 12, 2002]

"The MSN deal is Verizon saying 'We are a phone company, not a content company'"
—Dave Burstein, quoted in The New York Times. (My family was very happy to see me in the paper.)

"Are you now or have you ever been at Worldcom?" was the ominous echo of the old House Unamerican Activities Committee (HUAC) at the Worldcom hearings. Ebbers is presumably a crook who should go to jail, but evidence and a trial is the right way to do it. Meanwhile, Sidgmore is claiming that as Vice-Chairman he knew nothing of what was going on. Apparently, he had a fight with Bernie and stopped showing up in the office, although he continued collecting millions of dollars. Sidgmore inspires deeper doubt because he was the primary source of the "Internet is doubling every 120 days" canard, which he maintained long after Andrew Odlyzko proved it nonsense. (So did Jim Crowe of Level 3. Careful, Warren Buffet!)

The real problem is not the few crooks who go over the line, but the plentitude of companies acting badly under pressure, as they fight a slow growth industry. CEOs with millions of dollars in options become desperate when they can't meet the 10 percent growth goals they promise Wall Street. Below, in "Declining Rate of Profit," is my report on the subject from 2000. I wish I had been wrong—helluva lot more fun when people made money.

Ads are free for three issues to any company in the field looking to hire. Just send a short ad with a dedicated contact to jobs@dslprime.com.

Emmanuel Goldstein, The Cheshire Catalyst, Declan McCullagh, and several thousand of the most interesting computer folk are in New York this weekend for H2K2, the hackers conference. See you there.

Verizon: We're a phone company, not an Internet portal
MSN deal lets them concentrate on core competence
Ivan Seidenberg's vision in 2000 was that Verizon was now an information company, no longer a telephone company. (Ed Whitacre of SBC about the same time told Wall Street "Our stock price is too low. You should value us like an Internet company.") They made the "twenty year" Verizon/Blockbuster/Enron deal for movies, had large teams working on e-commerce, and heavily invested in building a consulting services division.

In 2002, Verizon is putting running a network and serving customers first. This Microsoft deal allows more focus. Capex spending is incredibly tight, and the Internet/ISP service is not ready to generate cash. That's a strategic investment for Microsoft, who presumably made a very generous deal to bring their Net services to the 2 million Verizon Online will serve by the end of the year.

Mike Poling moves into the new position of VP, Portal Management to oversee the joint work and add Verizon services as well. Keiko Harvey has tasked him with "developing a unique experience customers won't get from other broadband providers. Quality is essential to attract and retain customers." Unlike the Qwest deal, where MSN took over the ISP business entirely, Verizon will continue as an active ISP, with no plans to lay off anyone in the division.

Amazon.com: The D.C. issue is freedom of speech
Carriers must not block programming or control the Net
Amazon just reminded the FCC not to break the end-to-end organization of the Internet:

"The most fundamental consumer choice at issue in these and other FCC Internet access proceedings is not the choice among multiple broadband carriers or multiple ISPs. [T]he ultimate choice most critical to consumers is the freedom to choose among Internet-based information, products, and services."

"The FCC should consider rules that would bar parties (either cable operators or broadband ISPs using cable modem facilities) from impeding consumer access to information, products, and services."

Mike Powell told me two years ago he expected an explosion of video choices over the Internet. Instead, as the Internet moves to video speeds, most cable companies are re-imposing a "walled garden", specifically prohibiting TV quality video. Cable companies are clear they have enough bandwidth to solve any technical problems, but neither they nor the few ISPs allowed on their system are allowed to offer compelling streamed video that might compete with cable revenue leaders like HBO. SBC, Cisco, and others have revealed similar plans for blocking programming.

I've been fighting this battle since 1999 on the DSL side, and Jeff Chester has been influential in D.C. Now, Verizon, Amazon, the A.C.L.U. and others are jumping in. In the current debate, this means the FCC must protect independent ISPs to offer a choice or else they will have to directly impose strong regulations on the broadband providers. This is not just a business battle; access to all ideas is a fundamental right of Americans.

Declining rate of profit
The pressure that created Worldcom
This is from DSL Prime, August, 2000:

"The major telcos in the United States have made unreasonable projections of income going forward, and will have to struggle to meet the numbers and eventually hit crisis. At some point, probably not immediately, the street will be stunned and disappointed, as recently happened at Verizon. Local service prices will go down with competition, long distance rates are plummeting, and basic growth is unlikely to continue at three and four times the growth in the economy. We have seen this reflected in consistent underinvestment which will ultimately catch up with them. Symptoms to watch will include overstated writedowns."

I didn't predict Worldcom's problems. I laugh at the many analysts and journalists who now claim they saw it coming. I also note I made a big mistake in my projections above; it wasn't until late in 2001 I realized the death of competitors meant prices would go up. The FCC just reported an amazing 5.2 percent increase in 2001 in phone costs.

Copyright 2002 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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