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Open Letter to FCC Chairman Powell 298

Posted by CowboyNeal
from the pushing-for-telecom-demise dept.
Adina Levin writes "An open letter to FCC chairman Michael Powell signed by internet and tech industry pioneers explains why the government shouldn't prop up the ailing telecom behemoths. Telecom companies bought expensive network technology with long bonds. That technology has been made obsolete by gear getting faster and cheaper all the time by Moore's law and Metcalfe's law. The telecom companies are asking for the equivalent of a bailout for their investments in sailing ships after the advent of steam. The way to speed the deployment of broadband to homes isn't to prop up businesses based on old technology, but to let uncompetitive businesses 'fail fast', and let new competitors play."
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Open Letter to FCC Chairman Powell

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  • by httpamphibio.us (579491) on Tuesday October 22, 2002 @07:40AM (#4502935)
    Doesn't their existing infrastructure, and social dependency on that infrastructure, give them a somewhat legitimate need for a bailout? If other, smaller, more efficient companies can replace everything the telecom behemoths do, then let the big boys suffer, but is that the case? Can smaller tech savvy companies do everything the large telecoms do or are we talking strictly about broadband internet?
    • by djlowe (41723) on Tuesday October 22, 2002 @10:58AM (#4504316)

      Doesn't their existing infrastructure, and
      social dependency on that infrastructure, give them a somewhat legitimate need for a bailout?

      As far as I know, the citizens of the US are engaged in an ongoing "bailout" of the Baby Bells... that's what all of the tariffs, etc. on the standard phone bill are for.

      We've *paid* for the infrastructure, allowing the telcos to profit from their regional monopolies for decades.

      I think that it is time to reclaim our ownership of it, decouple the infrastructure from the services by making infrastructure maintenance the province of non-profit organizations, forcing the the Baby Bells to compete for services on a level playing field.

      Of course, it will never happen - the Baby Bells spend enormous amounts of lobbying money at both the state and federal level to retain their "ownership" and control of "their" infrastructure, and the fact that our money was spent to build out their regional infrastructures is something they'd prefer everyone ignore.

      Oddly, one of the justifications that the Baby Bells continue to use for tariffs is to guarantee services in low population density areas... yet these regions are still lagging far behind more populous locations in DSL availability (and even quality POTS lines) because it isn't "cost effective" for the Bells to roll out such services there, despite the fact that the tariffs are supposed to eliminate cost considerations in such places in the first place!

      Further, the ILECs continue to prevent competition from CLECs whenever possible.

      True story: Here in Upstate NY I had a customer that wanted high speed Internet access... they are located in a small rural town, and a T1 line wasn't an option due to the cost. The POTS lines are lousy (and have been for the nearly 2 decades that I've done service there), and the local cable company didn't offer cablemodem services because their infrastructure couldn't support it and the owner wasn't prepared to make the financial commitment to rebuild the cable plant in town.

      The ILEC in this case (Verizon) wouldn't even offer them ISDN, which was in theory available, would have been at least acceptable for their Internet needs (which were basic email and light Web-browsing for some 20 LAN users).

      Well, after some searching, I found a CLEC that could offer DSL albeit "only" at 256Kbps due to distance) and local business dialtone service as well. There was much rejoicing, and plans were made to roll it out. A few other companies in town discovered what this company doing, and they too expressed an interest in DSL for their Internet access. It looked like a "win-win" for everyone: My customers would get cost-effective Internet access, lower cost business telephone service, the CLEC would get business that Verizon couldn't (or wouldn't) provide and my company would make money installing the firewalls, routers, mail servers, etc.

      When Verizon found out what was going on, they closed the POP from which the CLEC was operating, splitting the services between 2 small cities in the area, citing "lack of demand for services" from that location as the reason for their actions, thereby eliminating the CLEC's ability to deliver local dial tone and DSL services to that town.

      This is the same Verizon that is now allowed to offer long distance services because they have sufficiently opened up the last mile to competition...

      The more things change, the more they stay the same, at least here in Verizonland.

      It's obvious to me that so long as the RBOCs have control of the last mile, continue to have it supported by tax dollars, credits and tariffs, and abuse their monopoly control over it, that they will *not* compete, but will simply continue to ask for more money from us and the government when their mistakes cost them money.

      Time to wean them from the public teat. No more bailouts!
      • SBC too (Score:2, Interesting)

        by john82 (68332)
        There's a commercial running in the Wash, DC area about the curious condition of SBC (another of the Baby Bells). Seems that one of the financial officers was boasting to Wall Street that the company was so flush with cash (the amount $5B comes to mind), that they didn't know how they were going to spend it all! A mere week later, the company announced layoffs of 11,000 and now they want a bailout from the Fed Govt.

        What the heck, over?
    • by bourne (539955) on Tuesday October 22, 2002 @01:40PM (#4505623)

      Doesn't their existing infrastructure, and social dependency on that infrastructure, give them a somewhat legitimate need for a bailout?

      No.

      In fact, quite the opposite. The ideal combination of market and regulated solutions would be to strip the infrastructure part of the task away from the ILECs and create a new category, WC. The Wiring Carrier would handle building out infrastructure, and would sell it to whatever LEC pays the bills. That would put CLECs like Covad on semi-equal footing with the ILECs, who currently use their monopoly over physical infrastructure to beat the competition down like a red-headed stepchild.

      I say "semi-equal footing" because in all likelihood, the people constituting the WC will be ex-ILEC lifers, the type that have proven their willingness to creatively interpret job orders in such a way as to screw the competition. After time, though, they'll die off and the WC will deal with whoever pays the bills.

      It's our infrastructure. Our universal service fees have paid to make sure it gets built. However, it's managed in a way that allows the incumbent to screw the competition and screw the customer. They've had their day. Let's take it away.

  • by slattont (609768) on Tuesday October 22, 2002 @07:40AM (#4502939)
    Would comments concurring with the opinions in this letter help? If so what email address?
  • by irn_bru (209849) on Tuesday October 22, 2002 @07:40AM (#4502941)
    Who is to say we would be where we are today if these companies hadn't invested in their now obsolete hardware at the time??? It's easy to critisie this now, but would the internet have expanded so rapidly without their investment.

    Would future network investment be made less attractive id this was the case. Apparently, "Moores Law" makes any investment depreciate so rapidly that all progress is futile.

    This so obviously is not the case.

    • by Sheetrock (152993) on Tuesday October 22, 2002 @07:53AM (#4502981) Homepage Journal
      As you mention, a good deal of the current infrastructure was laid by these companies and is currently being enjoyed by a much larger segment that had little or nothing to do with it. However, if government is going to pump money into the telcos, it should probably be with the expectation that the infrastructure will be upgraded to make it possible for the continuing deployment of broadband technologies by the companies who are actually trying to expand their offerings to consumers.
    • by JPelorat (5320) on Tuesday October 22, 2002 @08:11AM (#4503063)
      So we should reward them with welfare? Retire them on full pension? Because they 'took a financial bullet for prosperity' or some such nonsense?

      You realise we're talking about corporations? Businesses. Legal entities. Not humans. They're not war veterans. They deserve no special loyalty simply because they were first or paid 'too much' for their equipment. Do we celebrate and subsidize the construction companies who laid the first interstate highways? Well, maybe, but not for that reason.

      The owners and employees who started the telcos and grew them and maintained them have already been amply rewarded - they were paid while they were doing it and they got to see the value of their stocks grow. If they want more money, they have plenty of other options besides being subsidized by the Federal Govt.
      • by Zathrus (232140)
        We should (perhaps) reward them because we're the ones who put them there.

        I admit that I don't know the entire picture, but I know some of it, and the fact is that the government put the Baby Bells into this situation.

        How? Well, up until 1996 the telecomm industry was heavily regulated by a mishmash of federal, state, and local laws, the local Public Service Commissions, and Judge Greene. It basically meant that any and all purchasing decisions had to be approved by the PSCs, who didn't understand technology and required the RBOC's to ammortize purchases over extremely long time periods - even when the RBOCs knew that it wasn't viable. The flip side to this is that the PSCs did, by and large, fulfill their obligation to the public by keeping costs down. Mostly.

        I don't know that this is what caused the RBOCs to buy equipment with long term bonds, but if it was then damn right the government is on the hook. You can't tell someone they have to buy a long term contract, then ditch them when it doesn't work out. Or maybe you'd like to see that happen. Have a home mortgage at a low interest rate right now? Want the bank to ditch you when interest rates go back up? Didn't think so.

        Do we celebrate and subsidize the construction companies who laid the first interstate highways?

        Apples and oranges. The interstate highways are public throughfares. They are owned by the state governments. This is not true for the telecomm network - it's owned and operated by corporations. The government licensed them, gave them some right of ways, but did not pay in whole for the network as they did for the interstate highway system. If this had occurred then we'd pay our phone bills directly to the government - what fun that would be. We'd probably be employing the rest of the world to do operator based switching still.

        I'm not arguing purely in favor of subsidizing them. What I am saying is that we don't have the full picture here. But, frankly, if you think letting the RBOCs go belly up would be a good thing then you really don't understand economics or how the telecomm system works.
        • "I'm not arguing purely in favor of subsidizing them. What I am saying is that we don't have the full picture here. But, frankly, if you think letting the RBOCs go belly up would be a good thing then you really don't understand economics or how the telecomm system works."

          You didn't understand my point. My point was not "The Baby Bells should go away", it was "They should not be subsidized out of a sense of reward or gratefulness." If they are the only thing keeping the infrastructure available, then yes, measures should be taken to keep them going, but not because they spent a lot of money and took risks in the early days.
          • You missed my point as well - if the government forced them to take long term loans, then the government is responsible for the outcome of that decision.

            I don't know that this is true though, but it should be checked before saying that the government isn't responsible.
            • I didn't miss your point, I ignored it - because it wasn't relevant to mine.

              Don't get me wrong, it's a valid point in its own right, but not at all germaine to what I was saying.
  • I haven't heard of most of these poeple, are they really tech industry pioneers. I mean really, check out this guy. [unitboy.com] The FCC isn't going to listen to anyone who isn't a big campaign contributor, these guys mostly are not, the big telecoms are, I'm predicting a telecom win here.
  • No bailouts (Score:5, Insightful)

    by Quixote (154172) on Tuesday October 22, 2002 @07:48AM (#4502962) Homepage Journal
    The Congress set a bad example by bailing out the airline industry post 9/11. Even after 2 bailouts, they want more. The only airline (Southwest) that didn't ask for the bailout has been doing just fine, making a profit. The market cap of Southwest is more than that of all of the other airlines combined (I know, marketcap is just an indicator).

    Companies with failed business models should be allowed to fail: that is The American Way. This economy depends on the fact that failing companies die, and in their place better/faster companies are born. Just like any other healthy ecosystem, we need a certain amount of "churning" to keep things moving. Stagnation is bad, and will only lead to long-term problems.

    • by alexhmit01 (104757) on Tuesday October 22, 2002 @09:43AM (#4503712)
      The US economy is DRASTICALLY improved by commercial air travel. The fact that you can cross the country at will is a BIG part of why we think of ourselves as one country and NOT a union of states (the Civil War was a BIG step in this direction as well).

      If you allow unprofitable airlines to fail, there are side effects. Right now, you can get anywhere pretty easily and pretty cheaply. For a while, the regulated airline market had heavily regulated costs that helped keep all costs "reasonable."

      The problem with "market forces" is that it ignores externalities. There is an overall economic benefit to having small cities connected to the nation's air travel grid. The nation as a whole benefits, but the airlines are only compensated for some of it.

      You can't worship at the altar of market capitalism (and you SHOULD) without understanding and appreciating the problems that externalities create. Figuring out how to internalize externalities, which IS a legit role of the government, is VERY tricky business. The more you internalize externalities, the BETTER the market functions.

      Let me give a hypothetical. Airline A services small towns in 10 states connecting them to business centers. The airline agrees to continue service with a $1 billion bailout because the routes are unprofitable. If the routes result in business of $10 billion, and alternatives like video conferencing would only produce $6 billion dollars, than the airlines are worth $4 billion to society. In this case, it's a no brainer, because it will also generate over $1 billion in tax revenues. What if alternatives would develop $9 billion? Society is a wash on the decision, economically, but the bailout might still make sense because of the side effect of making people in those states live better by being able to vacation.

      We definitely need churning, but you need to look beyond the sum requested by the company, political ideology, and desire for churning. You need to understand what the full economic consequences are before judging an economic action.

      Alex
      • Let me give a hypothetical. Airline A services small towns in 10 states connecting them to business centers. The airline agrees to continue service with a $1 billion bailout because the routes are unprofitable. If the routes result in business of $10 billion..
        [snip] Waitaminute...

        Why can't that $10 billion business afford to pay a little more for airline tickets?

        It's really just a choice: who should pay that $1 billion: just those who benefit from it? Or everyone?

      • Let me give a hypothetical. Airline A services small towns in 10 states connecting them to business centers. The airline agrees to continue service with a $1 billion bailout because the routes are unprofitable. If the routes result in business of $10 billion, and alternatives like video conferencing would only produce $6 billion dollars, than the airlines are worth $4 billion to society. In this case, it's a no brainer, because it will also generate over $1 billion in tax revenues. What if alternatives would develop $9 billion?

        But to complicate matters there maybe other alternatives. Let's say that someone develops a jet [eclipseaviation.com] that can carry six people and is as cheap to operate as a luxury car. Then you could start an airline that can go to more places, work on demand, and be more efficient than the current model (i.e. hub-and-spoke and big jets). Plus such an airline could serve many more cities and towns that are currently not covered by the majors. Could it generate more income for everyone? Think of time lost at airports today...

        If some of the big dinosaurs died off, there maybe a room for more fast mamals... :-)

    • Re:No bailouts (Score:3, Insightful)

      by Dusabre (176445)
      Companies failing being the American Way? Not really, US bankruptcy law is incredibly liberal and forgiving (from a comparative legal perspective).

      PS. Unlike criminal law, which is incredibly unforgiving.
  • by E-Rock-23 (470500) <lostprophytNO@SPAMgmail.com> on Tuesday October 22, 2002 @07:48AM (#4502964) Homepage Journal
    I'd be for adding the following things to this particular letter:

    1. Reverse Deregulation. Ever since deregulation occoured, our bills (phone, cable, et al) have doubled, and in some cases tripled.

    2. Bring webcasting down to a tolerable level. The fees webcasters have to pay are just insane. How about listening to the people instead of just these big businesses who want to squash the small-time communications industry? It does fall under communications, after all...

    3. Lay the smack down on the RIAA and MPAA. Please refer to #2. Originally, the two were created to oversee standards. Now they want to limit fair use and basically rule the industry? That's what happens when too much power is allowed to run rampant.

    4. Free the Internet, or at least bring it down to a cost-effective level. We're paying entirely too much for something that could help advance all people. Why should the less-fortunate not be able to afford access?

    5. This one's personal. Make MTV change it's name. It's not music television anymore, so why not change it to C(rap)TV. And for those who care, I'm not knocking rap. Just the crap (Real World, Road Rules, Jackass especially) that they put on that god forsaken channel...

    Yeah, I'm asking alot of an inept Federal juggernaught. But hey, why not at least try, right?
    • On point #1 what is your evidence? Is this a general observation? Are you including all tha taxes on basic phone service? Do you include the fact that you now have a choice in phone services. I pay $30 a month for cell (same as land line) and that covers all my local and long distance charges in that $30. That is much better than my bills were with only a land line and long distance service. The best part is that weekends are free. I believe that you are wrong on point #1. Don't even get me started on the larger range of services we have to choose from as well since de-reg (voice mail, caller id etc..)
    • You sound like your heart is in the right place, but I think you are missing the point. A truely free market has_market_mechanisims that work against the concentration of money & power by encouraging competition, not by regulation_that_picks_winners_and_losers.

      1. Reverse Deregulation. Ever since deregulation occoured, our bills (phone, cable, et al) have doubled, and in some cases tripled.

      Yes, but consumers have recieved increased value in a number of ways: 1)The price long distance has come down dramtically. 2)It's hard to argue that the cost of cellphone service is being entirely born by cell phone service users. 3)A lot of phone and cable companies have used increased revenues to establish Internet services.

      2. Bring webcasting down to a tolerable level. The fees webcasters have to pay are just insane. How about listening to the people instead of just these big businesses who want to squash the small-time communications industry? It does fall under communications, after all...

      You are right, but the solution is market_mechanisims_pricing_copyrighted_material. (See my coment below) Also, communities that grant local monopolies to cable companies should insist that monopoly holders provide public access channels and studio equipment to encourage production of independant/local content to compete with content controled by the RIAA & MPAA.

      Lay the smack down on the RIAA and MPAA. Please refer to #2. Originally, the two were created to oversee standards. Now they want to limit fair use and basically rule the industry? That's what happens when too much power is allowed to run rampant.

      Pray that the Supremes see the light on Eldred vs
      Ashcroft, and send the case back to the lower court with instructions to phase out copyright extensions that have been granted since 1790. Ditto for patent term lengths. In this day of rapid technological change, 50 years seems to long for patent protection.

      Free the Internet, or at least bring it down to a cost-effective level. We're paying entirely too much for something that could help advance all people. Why should the less-fortunate not be able to afford access?

      I assume you mean deregulate the internet. There is no way to force suppliers to provide goods and services below cost; at least not in the long run. Regulation (with or without subsidies)eventually means higher prices, poorer quality, & reduced supply.

      This one's personal. Make MTV change it's name. It's not music television anymore, so why not change it to C(rap)TV. And for those who care, I'm not knocking rap. Just the crap (Real World, Road Rules, Jackass especially) that they put on that god forsaken channel...

      does seem personal ;)
  • by scrod98 (609124) on Tuesday October 22, 2002 @07:49AM (#4502969)
    The companies that go under may be the one's currently providing the 'last mile': services for millions of americans. You cannot abandon the current ability to provide reliable communication service at a reasonable price to many rural and even suburban areas. Many of these people cannot afford cell phones (if available) or obtain any other alternative to land-line. I'm sure it is not cost-effective to solely serve them, while allowing major custoemrs to go elsewhere.

    This is where the government bailout would help, by allowing access to areas that would be under-served, and allow time for solutions to that problem.

    Jeez, pretty hefty rant this early on a Tuesday. Must be fear of sniper-related traffic in DC.

    • by albanac (214852) on Tuesday October 22, 2002 @08:08AM (#4503042) Homepage Journal
      The companies that go under may be the one's currently providing the 'last mile': services for millions of americans.

      Note that the companies will go under. No-one will go around digging up the fibre and copper which are already under ground. Companies that fail will have their assets bought by someone who is not failing. Control of the last-mile will move. The companies are trying to avoid corporate failure. The reason there is an argument, at a philosophical level, is not that some companies will die, but that control of the last-mile will move to companies which have a different paradigm entirely. That is what the corporates are trying to make the government fear, not the actual economics of bankruptcy for certain specific players.

      ~cHris
    • The companies that go under may be the one's currently providing the 'last mile': services for millions of americans...This is where the government bailout would help

      The "last mile" is still going to be there. As Albanac said, no one is going to come dig up the cables.

      The problem is the companies that end up getting handouts are the ones that don't need it - those companies are the ones that should go out of business because they are inefficient, operating on an obsolete business model, or just corrupt. A quick look at the airline industry - and their reliance on the hub-and-spoke model of wasting money - should show how wonderful these bailouts truly are.

      We shouldn't cry for the corporations that can't adapt, overspent based on faulty predictions, or went under because of fraud. That would serve no one, in the end.

      The best way to help the "little" people is to let those businesses go under and allow others, with better ideas, business models, etc. use the infrastructure to provide what the "little" people need. The short term pain of some businesses going away and some bad debts being written off is nothing in comparision to the benefits. (who typically lays the power lines and water pipes? who typically profits from them the most in the end?)

    • You must be very young and/or naive to think that a bankrupt company simply disappears assets and all. What happens is that the assets are sold off, auction-like, at a fraction of the cost to build them from scratch. For instance, the Iridum satellite phone system went belly up, cost billions to shoot 77 (88?) satellites into orbit, plus spares, ground stations, all that, sold for pennies on the dollar or less, and still running, and now it can stay in business because the initial R&D expense has evaporated and is no longer part of the return on investment equation.

      Who loses? The original investors. So what, they bet on the wrong horse.

      EVERY bankrupt company goes out like that. Original investors lose, R&D is written off, lost, gone, evaporated. If any assets have remaining value, someone buys them up for what they are actually worth. If they have no worth, they go to the landfill. But they usually have soem value.

      Think of what would happen if you declared bankruptcy. Would your house, car, computer, all disappear in a puff of smoke? Would the bankruptcy court order them destroyed? Of course not! They'd be sold to pay your debts. Same thing for bankrupt companies.
  • by slashd'oh (234025) on Tuesday October 22, 2002 @07:50AM (#4502973) Homepage
    • Moore's Law: "The observation made in 1965 by Gordon Moore, co-founder of Intel, that the number of transistors per square inch on integrated circuits had doubled every year since the integrated circuit was invented. Moore predicted that this trend would continue for the foreseeable future. In subsequent years, the pace slowed down a bit, but data density has doubled approximately every 18 months, and this is the current definition of Moore's Law, which Moore himself has blessed. Most experts, including Moore himself, expect Moore's Law to hold for at least another two decades." (read source [webopedia.com])

    • Metcalfe's Law: "A theory argued by Robert Metcalfe, inventor of Ethernet, which states that the power of a network increases by the square of the number of nodes connected to it. For example, where X is the number of nodes, the power of the network is X squared. Metcalfe observed that new technologies are valuable only when large numbers of people use them -- consider how less valuable the telephone would be if only two people in the world used them. The network becomes more valuable the more nodes that are connected to it." (source [webopedia.com])
  • Economics (Score:5, Interesting)

    by Bocaj (84920) on Tuesday October 22, 2002 @07:58AM (#4502997) Homepage
    IANAE, but what happens when major telcos start to go under? As they struggle to maintain profit margins, how despirate will they get? Can replacement technologies and companies absorb the workforce that will be laid off? How often will this type of thing happen? Think about it, the current plain old telephone system is no good unless it is ubiquitous. That's why the telcos are in trouble. They needed to put entire systems in place before they where useful. Fiber is fantastic except when it comes down to two little wires in the last mile. In for a penny, in for a pound. Telecommunications systems need to be complete or not at all. How do we get the technoloy in place before it's obsolete?
    • IANAE, but what happens when major telcos start to go under?

      As you point out, a telco asset is only valuable if it is complete, but if it is complete it is a very valuable asset.

      The remaining telcos will buy the bankrupt assets for pennies on the dollar, gaining substantial marketshare and capacity. Since fewer players control more capacity, they can idle the existing capacity and raise prices (or not keep cutting them) to recover from their debt load. They also eliminate future debt by being able to bring on the idle capacity with drastically lower capital expansion costs.

      "Bailouts" happen for a few reasons. (1) The misguided populist notion that we won't have phone service, (2) the egos and political capital invested in the current business, and (3) the demands of shareholders, bondholders and other investors who do not want to see their investments become essentially free investment in other businesses.
  • Short Term Impact (Score:5, Interesting)

    by skroz (7870) on Tuesday October 22, 2002 @07:59AM (#4502999) Homepage
    It seems to me that the long term goal of replacing outdated infrastructure and ancient business models may be reached sooner by this "fail fast" proposal, but the chaos produced would be devastating to customers. Service outages, price fluctuations, and provider changes could cripple customers large and small. The industry that might come out of such a proposal may be worse off for the experience.
  • This 'Open' letter (Score:3, Interesting)

    by Anonymous Coward on Tuesday October 22, 2002 @08:08AM (#4503039)
    Seems like a self-serving whine by people with a vested interest in the 'failure' of older technology. No matter how carefully worded, I smell money in someone's pockets.

    We need to remember that the internet was designed to be able to communicate with defense authorities during times of national strife, as in nuclear war. It shines because it is nearly impossible to kill all the telco communications capabilities at once. Old, yet trusty technology. Just look what YOU are doing with this technology today!
  • by Florian Weimer (88405) <fw@deneb.enyo.de> on Tuesday October 22, 2002 @08:08AM (#4503043) Homepage
    signed by internet [...] pioneers

    Who are they? Is it reasonable to call someone an "Internet pioneer" even if he or she hasn't (co-)authored an RFC carrying a three-digit number?
  • Bailout (Score:5, Interesting)

    by Omkar (618823) on Tuesday October 22, 2002 @08:09AM (#4503047) Homepage Journal
    The recent spate of government bailouts (airline, steel, etc.) reminds me of the S&L scandal in the 80's. I believe Japan had a similar problem as well. Instead of letting some 'creative destruction' take place, as our govt. did, the Japanese bailed the incompetent banks out.

    Result: their economy has been stagnant for a decade.

    Let's hope the govt. has learned from their mistakes.
    • That's odd....I don't remember our economy tanking right after the S&L bailout. I'm not saying it was necessarily a positive thing for us or the japanese to do it...just that saying it was the "cause" of the current Japanese economic troubles would be the epitome of ignorance.
  • by Cato (8296) on Tuesday October 22, 2002 @08:11AM (#4503062)
    If you look at all the telcos of various types, it is the incumbents (RBOCs, Baby Bells, ILECs, PTTs...) who are surviving quite well and even prospering. They didn't get sucked into the IP-based boom/bust as much as others, and more importantly their legacy phone switches make significant money through well-established per-minute billing. Wireless operators who charge per-minute are also doing OK, although 3G will probably kill some of them off.

    It's precisely the next-gen telcos (CLECs, ISPs, xSPs) who invested in the new IP technology that ran into the boom/bust and are struggling or going bust. WorldCom is something of a special case - it had a lot of legacy technology that should have tided it over, but the accounting shenanigans were too much to survive.

    This doesn't mean that IP-based networks are a passing fad, though - all that's happened is that the pioneers have gone through the normal bleeding-edge live/die cycle. Some of them have made it, some have gone bust, and all the old-line telcos have adopted the same technologies.

    I agree that failing telcos should normally not be propped up - as long as someone can step in to maintain services by buying up their assets, particularly local loops that are hard to recreate, the customer shouldn't notice that much interruption. My problem is with the analysis that the legacy technology is why telcos are going bust.
  • by MichaelCrawford (610140) on Tuesday October 22, 2002 @08:16AM (#4503082) Homepage Journal
    There's a concern I have that I think I first read in one of Bruce Schneier's crypto-gram newsletters. Ah, here it is:

    The problem is that if the telephone system becomes based on the Internet, there will be catastrophic security breaches in our telephone system.

    This is because every node on the internet can have packets directed at it by any other node. That's the whole point of end-to-end. But that means any joker with a PC can log in to his ISP and start up h4x0r scr1pt5 to start cracking phone switches.

    With the current phone system, control signaling is out of band - end users can only control the phones at each end of the connection, and cannot control the functioning of the switches in between. You can command the switches by dialing a number, but you can only route your call this way, not control the basic functioning of the switch.

    To a large extent security can be maintained by keeping the telco equipment in securely locked buildings.

    But the protocols used for the phone system apparently aren't designed with security in mind, so that when they are adapted to the Internet, they become gaping security holes.

    Potentially someone could do some clever work and bring down a whole nation's phone system, if it were on the Internet.

    The convergence of the telephone system and the Internet has already been going on for a while. It is quite common for long-distance calls to be routed over the Internet, so you get phone-to-phone VOIP without the user being aware of it.

    It is also common for telcos to be ISPs, and they just use the same fiber for voice and data. It's more economical to use the same data formats and protocols for voice as well as data, so they transmit all the voice calls with the Internet Protocol.

    • Just because the phone system uses cheaper off the shelf routers and the TCP/IP protocol does NOT mean it will be particularly vulnerable to hacking. You are confusing the successful efforts of script kiddies to hack cheaply set up servers running commercial OSes with an entirely different problem. These routers, which are rarely hacked, use flash firmware and a standard hardware configuration. They are usually not remotely reprogrammable, and use extremely stable code that is short on features, long on reliability (the opposite of commercial OSes). Hacks of these backbone beats are EXTREMELY RARE...most failures are due to operator error.

      No, I don't work for CISCO or the other companies, just explaing what they sell and why it works.

      Who says these routers will be part of the internet, anyway. Its doubtful you'd be able to send packets to one. Hacking REAL SYSTEMS is a lot more difficult than the ignorant public believes it to be, in fact I'd say many true embedded systems cannot be hacked. (if you can't reprogram it because it has no writable memory, how exactly are you going to subvert it?)
  • by anonymousman77 (584651) on Tuesday October 22, 2002 @08:17AM (#4503085)

    Why are the Bells forced to lease out their DSL connectivity to other companies at below cost? Does this really spur investment? The reason that most people do not have access to DSL is that the Bells will NOT invest until they are allowed to compete against cable companies DIRECTLY

    Do cable companies have to let the telcos use their cable at below cost?

    What will happen to the parasites (CLECs) when the hosts (Bells) die?

    Deregulate the Bells and let true competition take hold. You will not regret it, Mr. Powell

    • To clarify what anonymousman77 said - the RBOCs are currently required to lease out DSL coloc's for the amount it costs them to deliver service.

      Which sounds all fine and good, except that they're not allowed to charge for infrastructure costs. How much did it cost to upgrade the CO to DSL? To restructure wiring? To perform service upgrades? Doesn't matter, can't charge for it.

      The flip side to this is that traditionally the RBOCs have used exactly these costs (and generally inflated them) to prevent competition. To put it bluntly - they fucked other companies for a decade and now they're being punished for it.

      Of course, this doesn't help anyone who can't get DSL because it doesn't make economic sense for the RBOC to upgrade. Or the various telecomm supply companies who have seen their contracts evaporate because the RBOCs aren't willing to invest in infrastructure at this point.
    • "Why are the Bells forced to lease out their DSL connectivity to other companies at below cost? Does this really spur investment? The reason that most people do not have access to DSL is that the Bells will NOT invest until they are allowed to compete against cable companies DIRECTLY"

      The real question is why do YOU believe anything the Baby Bells say? They are not being required to lease lines below their costs. Never have been never will. The original rates were set so the Bells would make a profit. The Bells then cooked the accounting to make it look like they were losing money.

      The Bells complain about their unfair treatment under the telecom act of 1996. Bull. They wrote the telecom act of 1996 and they agreed to everything in it before it was passed. The telecom act of 1996 was referred to in the press as the Telecom Welfare Act of 1996. It has many clauses in it that make it nearly impossible for anyone to compete with the Bells on traditional telephone and gives the Bells the opportunity to make huge profits. BUT, the world changed, the Internet happened, and those clauses started to hurt the Bells, so they started crying about it and lying about it and went back on the deal they negotiated.

      Go back and look at what was being said in the middle '90s if you don't believe me.

      Four years ago I had the experience of trying to explain Moore's law to a Bell executive. He was amazed by it. He was in charge of R&D for SBC and had never heard of Moore's law. He later got fired for destroying Prodigy.

      Stonewolf
  • by taleman (147513) on Tuesday October 22, 2002 @08:30AM (#4503174) Homepage
    Telecom companies provide a needed service, a phone is considered a necessary household item, and an Internet connection is becoming that.

    Now, in many countries a telco has been forced to provide it's services to all parts of the country, even in sparsely populated areas, to get the telecom license. Now it is possible, with the new technologies, for startup telco replacements to start offering their services in big cities. By offering data connections and VoIP there, they can get all the traditional telco customers to switch to the new services. This may of cource take time, since big companies may have made investments in their own infrastructure and are unwilling to do a forklift upgrade.

    But this leads to telecom companies going bankrupt and sparsely populated areas losing all service. A telco can easily make a profit in densely populated areas, but may run to red where there is only one customer every few kilometers.

    Pumping money to failing companies is just rewarding badly run businesses, since there was no law that prevented incumbent telecoms from offering these same new technologies to their customers. They would even have been in a better position to do it, since they already had the customer base.

    Sooner or later it becomes a problem when something that people need in their normal everyday life is run by market forces. Banks and railroads are good (or bad?) examples.
  • by ahfoo (223186) on Tuesday October 22, 2002 @08:33AM (#4503204) Journal
    It's not just that they got caught buying the wrong equipment, the big telecoms players have specficially resisted IP over ethernet in order to keep entry costs as high as possible. The most ridiculous thing in the world is these suggestions that they had to stick with ATM and Sonet in order to cash in on the huge potential of video conferencing and video on demand and all this utter crap that only seventy year old technophobe shareholders would believe.
    Compare an OC3 from a Bell -vs- an OC3 from a native ethernet provider like Cogent. These are two different worlds of cost.
    But hey, let the FCC do what they will, we'll just add it to the list of criminal frauds already commited when it's time to impeach and imprison Bush and his administration.
  • is that the technology changes TOO FAST. Normal depreciation cycles just don't work well for the way things have been changing. Assets go to zero worth in a very short amount of time. This means a constant investment cycle is needed.

    This doesn't mean that you should have one group of companies, and then start to die off as you have the next group of companies invest in the next wave of technology. Later, rinse, repeat.

    Of course, this doesn't mean that they don't have things to fix. They most certainly do!
  • by AtariDatacenter (31657) on Tuesday October 22, 2002 @08:46AM (#4503293)
    ...if some of the (hidden) corporate interest behind this goes something along the lines of:

    "Please, please, don't bail out Worldcom! We all want to grab a piece of that 50% Internet backbone share for ourselves! Don't bail them out!" ?
  • by Timinithis (14891) on Tuesday October 22, 2002 @08:55AM (#4503355) Homepage
    Following the Sailing to Steam Power analogy:

    Government's do not scrap entire fleets when a new technology improves over what is in existance, they strat building new ships and as the older, obsolete ships either sink, are lost in battle, or are too old to maintain they are replaced.

    There is some old technology out there, and anyone seeking a bailout on that should be denied. Airlines should be denied bailouts, unless the money is used to go toward improved tech. The $100,000 switch of yesteryear can be replaced with a more relaible $25,000 switch that can handle more traffic, then that is what the money should go for -- improvements.

    If their business model is failing, many airlines are in this boat only because of the lessed travel, then they need to adjust..close hubs, discontinue routes, etc. Yes, it would suck for the people that are affected, but what is to stop them from forming a local company to fill the void? It may be too expensive to run a daily flight from Los Angeles to San Francisco for a major airline using a big jet, because there are only 30 people wanting to go each day on average, but a smaller company with a 10 passenger leer could make 3 trips a day, and probably be very profitable.

    Government should seek to involve itself in National Defense and Policies, and Proteciton of the Populace -- everything else should be a local matter.
  • Free markets (Score:4, Interesting)

    by evenparity (569837) on Tuesday October 22, 2002 @09:15AM (#4503515)
    It is funny how many engineers and scientists tend to be libertarian, free-market types. There is this tendency to have supreme faith in the existence of "natural laws."

    But economics, psychologists and other liberal arts types realize that human beings defy "nature" all the time. People who study economics essentially study the cases where economics don't work! Psychologists study why people are not rational/utility maximizers.

    As far as the broadband/telecom connection goes, did anyone else read this [businessweek.com] article in Business Week?

    It talks about how broadband providers are keeping prices artificially high because they would rather deal with slower adoption rates at higher margins than faster adoption at lower margins because THEY KNOW EVERYONE WILL ADOPT BROADBAND EVENTUALLY and they can force us to pay more. Cable broadband profit margins are about 50 percent now.

    Makes you realize how much companies like Comcast can prevent high-speed adoption and screw over the telecoms in the process.

    (I canceled my Comcast modem and television service last week. Originally, I just wanted to get rid of the television service, but they told me that if I did, they were going to jack up my cable modem price by $15. I told them to cancel everything.)

    • It is funny how many engineers and scientists tend to be libertarian, free-market types. There is this tendency to have supreme faith in the existence of "natural laws."

      This isn't a observation which I've made. I'm a chemistry PhD student, and have worked in a number of institutions, and have never met a libertarian in the flesh. Only a few scientists that I know have heard of them, and the ones that have generally think that they are a joke (as do I).

      However, on Slashdot, everything changes. Maybe it is because the average slashdotter is much more knowledgable on computing than chemistry/physics/biology, or perhaps it has to do with the average age of slashdotters. Or perhaps slashdot simply attracts strange points of view.
  • For a number of years now, there has been a large effort to take the ownership and management of a lot of the telecom (data comm) infrastructure out of the hands of the federal government. Outsourcing. Unfortunately, because the ability to communicate over this infrastructure has become so important to national security, the federal gov must make sure it remains functioning. Look at some of the postings from a couple of days ago relating to the Navy-Marine Corps Intranet (NMCI). That project relies exclusively on the financial health of EDS, the prime contractor. These "Internet Pioneers" should remember that the federal government IS the internet pioneer and that the only reason most of them have a job to begin with is the fact that Uncle Sam was kind enough to give up most of the direct control of the infrastructure that the internet is based on. Wheew! Glad I got that off my chest....
  • How Corruption Works (Score:5, Interesting)

    by Featureless (599963) on Tuesday October 22, 2002 @09:37AM (#4503670) Journal
    You have people running big bussiness and people in the federal government. They're all friends. They went to Yale and Harvard and Princeton together... they drank at the same clubs. Their parents were friends, and their kids are going to Taft and Dalton and Exeter together right now.

    Their goal? Simple. Take tax money out of the government, and get it into their pockets.

    Back in the Reagan days, their favorite was the defense industry. It was perfect; there's relative secrecy associated with defense approrpriations, and the military bureaucracy is so intense that it took quite a while for the few people looking to find those $10,000 toilet seats.

    We also saw a lot of "foreign aid" disappear into the ether, split up between the corrupt foreign officials and the corrupt local ones, all of it more or less going to Switzerland and Grand Cayman. Still do, actually.

    More recently it's been Enron ("privatizing" electric utilities was already absurd, and anyone who followed it the time - including me - called it a blatant invitation to fraud; who knew they'd go all the way to turning off the lights to convince people of a fake shortage! Gives you an idea how little these people fear getting caught), the "airline bailout," the "farm subsidy," and of course, don't forget the "tax breaks."

    Now it's a "telecom bailout."

    All of these scams netted their perpetrators billions, and in some cases tens or even hundreds of billions. Almost none of the people involved have been investigated, let alone caught. It's the new American mafia, ladies and gentlemen.

    Michael Powell is a notoriously corrupt FCC chairman; he's blatantly carried water for both the cable and bell monopolists, and under his watch telecom (and especially internet) service has been abyssmal (remember Northpoint? and what happened to the CLECs?) while prices have risen. It was easy for him, a smug "regulator" in a plum job snagged with handy nepotism; all he had to do was stand back and wink while the bells slaughtered their competition. You don't get a job like FCC chair under a Bush administration without knowing how the game is played... Anyway, this goofy letter to him is pretty amusing; you may as well write a letter to Satan.

    Until heads start rolling in quantity (and believe me, once we started, by the time it's over we'd need to build a new federal prison), it's open season.
  • by Anonymous Coward
    What needs to happen is to remove cable companies from content providing or allow telcos to provide content. That's the real reason DSL is not more popular--all the profit to be made from the upgrade is denied to the local phone companies that have to make the investment. They are still banned from providing content-games, movies, ect... they have to set it up and give it away.

    The big media companies have done an end-around by purchasing cable companies and denying others media companies access. Now many of them also provide phone service taking away from the phone companies when the phone companies can't compete back! Even AT&T was broken up as only the long distance only arm has used the system against it's former children by buying cable comanies and offering data services over them which compete against the locals while still supporting the ban on locals from carrying long distance directly.

    One has to die--Cable or Local Phone--they are now redundant. As far as our rights go we want the phone companies to win due to their common-carrier status. They cannot be censored as easily. (versus the RIAA/MPAA run cable co) This means that rules to open up cable to competition must be pushed thru--and allow Local phone to buy them up as they fail--but still have to offer competition.
  • It's simple we should just pass a law that no business can go out of business, then no one will ever lose their job. And then the 40% we hand over to our respective governments can go for something good, like bailing out the company we work for. Wait why don't we all just start our own companies and when it fails the money we paid ourselves for doing nothing, we can give to the government to bail us out. What was I thinking!? Instead of that why don't we just work for the government! It just gets simpler and simpler.
  • The best way to force a redesign is to throw a monkey wrench in the works.
  • Perhaps our schools should teach students about corporate bailouts/handouts right before the students learn about capitalism, so that the students grow up realizing that the USA is a SOCIALIST NATION!!!
  • Why are cable companies giving away service to compete with dial-up? Why aren't cable providers overloaded with customers?

    The answer is two-fold -- first of all, a dialup delivers more than my desired quantity of spam and the content-rich sites I desire to see at very low cost.

    I think the broadband market is saturated because there is no compelling and inexpensive content to be had via broadband.

    Finally, competition is only healthy when there are competitors. If we lose the telecom services then broadband providers can get all the revenue and deliver shoddy service at high prices. I say let's keep telecom companies healthy until they are redundant.

It seems that more and more mathematicians are using a new, high level language named "research student".

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