Open Letter to FCC Chairman Powell

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."

Moore's Law & Metcalfe's Law defined

[slashd'oh]

• 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])

Telecoms provide a needed service

[taleman]

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.

Re:Legitimate reason for bailout?

[JaredOfEuropa]

"People like Friedman and Hayek have proved that markets are the ultimate source of truth, at least in this world."

I suggest you go re-read Friedman. First off, he did not prove that free markets are the best solution, he merely made a (very compelling) argument that it is so. Second, Friedman himself pointed out various examples where 'Market failure' can occur. One example he cites is about public works, for example people might be willing to pay a fee for using properly maintained sidewalks, yet it would be economically unfeasible for a private company to collect these tolls. So instead we all pay a small amount of tax and the government takes care of the sidewalk.

There are other factors that may may prompt a government intervention: in case of the telcos, the government may decide that having a phone line is a basic right, and that telcos are supposed to hook everyone up for a basic fee, with the easy hookups subsidising the ones in remote locations. If governments did not do this, then all the telco's would tell the few customers living in the sticks to get stuffed if they wanted a phone hookup.

I am not saying any of that is right or wrong, but there is nothing fundamental about letting the market economy run its course. It may be the most efficient, and there is a strong case for any government to think twice before interfering with the free market, but not even Friedman suggested to leave everything to the market.

Re:Legitimate reason for bailout?

[RobinH]

Well, the point is that it is fundamentally wrong for the government to do anything to hinder the workings of the market economy.

When the government doesn't do anything to 'hinder' the economy, you get a situation like the roaring 20's, which leads to rapid inflation, and overvalued markets. Then you get the depression. The reason the world pulled out of the depression was because governments started spending lots of money (another interference in the market). The first economy to pull out of the depression was Germany, because their leader said, "I don't care if we don't have money - just build me a frickin' army!" Of course, they could have spent the money on road or schools too, and that would have worked, but hindsight in 20/20.

In more modern times, the central banks *agressively* set interest rates higher if the risk of inflation gets too high, so as to slow the economy, and governments will increase spending and lower interest rates if the economy slows down too much.

Get this through your head: the economy is naturally Unstable! This is what economists have learned in the past century. Economies have to be regulated by governments or they fail dramatically. You owe your prosperity to Greenspan and people like him (e.g. John Maynard Keynes).

As an aside... this natural instability, and our ability to control it with a feedback loop is why I think economists and control systems engineers like myself should spend some time working on the problem together. The problem of economic balancing and the control systems problem of balancing an inverted pendulum have many interesting similarities.

Re:Security of Internet-based phone system

[ShooterNeo]

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?)