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To: ms.smartest.person who wrote (5050)7/1/2006 9:16:22 PM
From: ms.smartest.person  Read Replies (3) of 5140
:•) i, Cringely - If we build it they will come: It's time to own our own last mile

By Robert X. Cringely
June 29, 2006

Bob Frankston is one of the smartest people I speak to. If you don't recognize his name, Bob is best known as the programmer who wrote VisiCalc, the first spreadsheet, realizing the design of his partner, Dan Bricklin. Bob and Dan changed the world forever with VisiCalc, the first killer app. After a career at Lotus and eventually Microsoft, Bob would now like to change the world for the better again, this time by fixing the mess that we call the Internet.

The problem, to Bob's way of thinking, isn't the Internet per se, but the direction powerful political and business forces are attempting to take it. Part of this can be seen in last week's column on Net Neutrality, but Bob takes it further - a LOT further - to a point where it becomes logically clear that making almost any regulation specifically to hinder OR HELP the Internet can only make things worse. And by making it worse I mean inhibit in a severe way the growth of human knowledge, culture, and economic development. It's just a choice between freedom and totalitarianism, simple as that.

To Bob the issues surrounding Net Neutrality come down to billability and infrastructure. While saying they are doing us favors, ISPs are really offering us services they can bill for. Nothing is aimed at helping us, while everything is aimed at creating a billable event. Take WiFi hotspots, for example. Why should the telephone or cable company care about who connects to my WiFi access point? They are my bits, not the ISP's. I paid for them. If I can download gigabytes of pornography why can't I share my hotspot with someone walking down the street wanting to check his e-mail? Frankston's analogy for this is accusing someone of stealing your porch light by using it to read a street sign.

It isn't about service, it is about creating billable events, that's all. And billable events, by definition, are things we have others do because we are unable or unwilling to do for ourselves. So a Verizon or a Comcast does us a favor, they say, by licensing rights to a movie and allowing us to buy or rent it over the Internet. We could buy the rights ourselves, but who would know where to even go? And wouldn't Verizon, as a big buyer, necessarily get a better price? When you have a preferred or exclusive provider versus a competitive marketplace, prices are always higher, not lower. In this case the ISP isn't doing us a favor, they are forcing us to buy from them something that we might well be able to buy from someone else for a lot less.

But they need the money! After all, they spent billions bringing broadband to our homes in the first place. Don't they deserve to be paid back for that huge investment?

My Internet service isn't free, is yours? I'm paying Comcast every month and from what I can glean from the company's annual report, they seem to be making a profit from my business. Is it enough of a profit? Well they'd always like more, but the current return must be good enough because they keep my bits flowing.

To Bob Frankston's way of thinking this all comes down to who owns the infrastructure. The phone and cable companies own the wire outside our homes but we own the wire inside. (It didn't used to be that way, you know. There was a time when the phone company owned the wire in our walls even though we paid for its purchase and installation.) The Internet has been a huge success to date specifically because nobody much controls the electrons. This is as opposed to services like broadcasting where some perceived scarcity of spectrum allowed governments to determine who could give or sell us entertainment and information. The ISPs (by which I mean telcos and cable companies) would very much like to go back to that sort of system, where they, not you, are the provider and determinant of what bits are good bits and what bits are bad.

No thanks.

Frankston points out that we build and finance public infrastructure in a public way using public funds with the goal of benefiting economic, social, and cultural development in our communities. So why not do the same with the Internet, which is an information infrastructure? Well we did that, didn't we, with the National Information Infrastructure program of the 1990s, which was intended to bring fiber straight to most American homes? About $200 billion in tax credits and incentives went primarily to telephone companies participating in the NII program. What happened with that? They took the money, that's what, and gave us little or nothing in return.

But just because the highway contractor ran off with the money without finishing the road doesn't mean we can go without roads. It DOES mean, however, that we ought not to buy another road from that particular contractor.

The obvious answer is for regular folks like you and me to own our own last mile Internet connection. This idea, which Frankston supports, is well presented by Bill St. Arnaud in a presentation you'll find among this week's links. (Bill is senior director of advanced networks with CANARIE, which is responsible for the coordination and implementation of Canada's next generation optical Internet initiative.) The idea is simple: run Fiber To The Home (FTTH) and pay for it as a community of customers -- a cooperative. The cost per fiber drop, according to Bill's estimate, is $1,000-$1,500 if 40 percent of homes participate. Using the higher $1,500 figure, the cost to finance the system over 10 years at today's prime rate would be $17.42 per month.

What we'd get for our $17.42 per month is a gigabit-capable circuit with no bits inside - just a really fast connection to some local point of presence where you could connect to ANY ISP wanting to operate in your city.

"It's honest funding," says Frankston. "The current system is like buying drinks so you can watch the strippers. It is corrupt and opaque. We should pay for our wires in our communities just like we pay for the wires in our homes."

The effect of this move would be beyond amazing. It would be astounding. No more arguments about Net Neutrality, for one thing, because we'd effectively be extending our ownership and control of the wires all the way to the ISP interconnect. Of course you'd still have to buy Internet service, but at NerdTV rates the amount of bandwidth used by a median U.S. broadband customer would be less than $2.00 per month. Though with that GREAT BIG PIPE most of us would be tempted to use a lot more bandwidth, which is exactly the point.

There would be a community-financed Internet revolution and this time, because it would be locally funded and managed, very little money would be stolen. Dark fibers would be lighting up all over America, telco capital costs would plummet, and a truly competitive market for Internet services would emerge. In 2-3 years whatever bandwidth advantage countries like Korea have would be erased and we'd be back on track building even more innovative online industries.

This would be a real marketplace not a fake one. Today's system is a fake because it depends on capturing the value of the application -- communications -- in the transport and that would no longer be possible because with the Internet the value is created OUTSIDE the network.

"One example of the collateral damage caused by today's approach is the utter lack of simple wireless connectivity. Another is that we have redundant capital-intensive bit paths whose only purpose is to contain bits within billing paths," Frankston explains. "In practice, the telcos are about nothing at all other than creating billable events. Isn't it strange that as the costs of connectivity were going down your phone bill was increasing -- at least until VoIP forced the issue."

"We have an alternative model in the road system: The roads themselves are funded as infrastructure because the value is from having the road system as a whole, not the roads in isolation. You don't put a meter on each driveway. Tolls, fuel taxes, fees on trucks, etc. are ways of generating money but they are indirect. Local builders add capacity; communities add capacity and large entities create interstate roads. They don't create artificial scarcity just to increase toll revenues -- at least not so blatantly."

"I refer to today's carrier networks as trollways because the model is inverted -- the purpose of the road is to pass as many trollbooths as possible. We keep the backbone unlit to assure artificial scarcity. Worse, by trying to force us within their service model we lose the opportunity to create new value and can only choose among the services that fill their coffers -- it's hard to come up with a more effective way to minimize the value of the networks."

A model in which the infrastructure is paid for as infrastructure -- privately, locally, nationally, and internationally can create a true marketplace in which the incentives are aligned. Instead of having the strange phenomenon of carriers spending billions and then arguing that they deserve to be paid, we'd have them bidding on contracts to install and/or maintain connectivity to a marketplace that is buying capacity and making it available so value can be created without having to be captured within the network and thus taken out of the economy.

So why not do it? Well the telcos and cable companies would hate it. Who made them gods?

My recent discussion with Bob Frankston started with talk about Microsoft and what that company might do to turn itself around. "Microsoft seems to confuse end-to-end with womb-to-tomb," Bob said. "Or at least BillG did the last time I tried to speak to him about it. The problem Microsoft has is that it hasn't really given people enough opportunity to add value to the computing. Ironically, Google's APIs and mashups go more in this direction and I do need to give Ray (Ozzie) some credit for joining in this trend. The challenge will be reconciling that with the monolithic platform company. .Net, a stupid name for a great idea, could do very well if liberated from Windows."

So what's a Microsoft to do? Concentrate less on womb-to-tomb and more on end-to-end by embracing the idea of community-owned networks. One billion dollars each in seed capital from Microsoft, AOL, Yahoo, and Google would be enough to set neighborhood network dominos falling in communities throughout America with no tax money ever required. And they'd get their money back, both directly and indirectly, many times over.

Microsoft could go it alone, but the point would have to be to build a market, not to control the last mile, and I think the temptation to fall back on old habits would be less with a consortium involved.

But this leads us to the promised question of what else Microsoft might do as it moves forward into an uncertain future? Well the one thing they aren't doing (hardly any companies do) is to plan for that uncertainty. I have a plan.

Frank Gaudette, when he was Microsoft's first-ever chief financial officer, told me that he hated having all that cash lying around because it was a drag on earnings. In the money markets he could make at most a few percent per year. Investing in Microsoft's own products was yielding more than a 50 percent annual return. The problem was that Microsoft was making so much money then (and now, frankly) that they couldn't spend it all on their core business.

Where Gaudette saw a problem, I see opportunity: spend it on something else.

In a sense Microsoft is a lot like the Roman Empire. The Roman Empire's growth and economy was driven by conquering and plundering neighboring regions. Within the Empire they created a sort of safe economic zone where commerce could work and technology could be developed. However, that came at a price, as they tended to destroy everything outside the empire as it grew.

Same for Microsoft, whose leaders were greedy and made a number of good, shrewd business decisions. They were also ruthless. Over time they managed to destroy the surrounding software industry. Within Microsoft's world was a sort of safe economic zone. If you were not a threat to Microsoft or if you did something Microsoft didn't want to do (like make PCs) you were able to grow under the shadow of Redmond. When the emperor spoke, you listened.

It is too early to predict the fall of the Microsoft Empire. Does Microsoft have the leaders and generals who can lead the company into the future? Who knows? In the software world there is nothing else to conquer or plunder. In other markets it will be hard, if not impossible, for Microsoft to dominate whole industries as it has in the past. Microsoft now needs to act like a responsible company, work well with others, and grow through cooperation and teamwork. This will be hard for Microsoft. The Romans couldn't do it. The Romans neglected one of their "partners" and eventually that partner did them in.

Today's Microsoft is a great generator of cash. With some good product refreshes, this cash generation can continue for years to come. The BIG decision is what to do with the cash. Microsoft needs to develop new businesses. Microsoft could have a great future doing things that have nothing to do with computers. They could be making a great electric car, or great new medications, or any number of other things. Microsoft could create new industries that could have a huge benefit to the economy. Microsoft could change the world, again. Ten years from now Microsoft could be a huge holding company of which PC software is but one part. They don't have to gut the software unit, which is viable enough to be a great moneymaker for another 25 years if Microsoft manages it well.

Right now Microsoft is like a deer in the headlights. They are stuck on software and computer stuff. They can't move. There are much more interesting growth opportunities out there.

And you know there is a really simple way to proceed. Warren Buffett announced this week that he's giving $30+ billion to the Bill and Melinda Gates Foundation to continue their good work of curing diseases so we'll be around to buy more computers. Buffet is the best builder of holding companies in the history of industry. The simple answer for Microsoft is to give Buffet's Berkshire Hathaway half of Microsoft's excess cash flow every year. This year that would be about $6 billion. With Berkshire's switch to international investing, they'd find productive places for that money.

Eventually Microsoft's value might be mainly in its Berkshire shares, which would in turn greatly increase the value of Buffet's gift to the Gates Foundation. It seems only fair.
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