Clay begins by reminding us of the French “green screen” system, Minitel. When it was created, it was the right answer. The Internet made it the wrong answer that “cost them an enormous cycle of innovation.” “Our Minitel is twisted pair” and is all the policies that say that it’s a good idea to run a circuit-switched, metered, analog, voice-optimized network.

The situation is dire. But why aren’t more people up in arms about it? One reason: our habitual techno-optimism. Engineers see two entities: the network and the things plugged into it. We have incredible PCs and unimaginable lengths of fiber. But politically we are in a three entity world: netword, edge, phone company (i.e., “the people engaged in monopoly rent extraction for the twisted pair that goes into your basement”). The separation between local and long distance has created a gap: a “creamy” core of fiber and a “crunchy” shell of copper going to your house. We have a zone of high speed connectivity in the home (e.g., plug your camera into your PC) and a zone of high speed connectivity in the core connected by a thin line of copper.

Why do the phone companies stifle innovation? They’re just responding to business conditions. Clay uses Vonage (a voice over IP system) and three months later cancelled his long distance carrier. The erosion of voice traffic is a death knell because they lose $2 of voice revenue for every $1 of IP they sell a customer. Clay says he thus disagrees with Reed: the incumbents can’t be protected.

What to do about this? Clay doesn’t know. As long as IP is the third rail — as soon as the phone company touches IP, their revenues fall faster than costs because vboice revenues are artificially high — the phone companies will fight innovation. “If we do nothing, nothing will happen”: nirvana for incumbents.

There are only two ways out of this, says Clay. 1. Functional competition. 802.16, powerline Internet, municipal fiber to the home, etc. Clay isn’t optimistic about any of these within 5 years. 2. Change the regulatory environment, which is tough in this company. “We’ll let shoe stores fail. We’ll let drugstores fail.” But we won’t let agriculture fail and we can’t imagine a country in which the telephone company fails. “Challenges to the phone companies are viewed as scams.” They should be force to account on replacement value.

There’s always option 3: stagnation. We are below #15 in growth of high speed access. We are fallling behind because we don’t have the political will to connect center to edge directly. The political shape (3-entity) is more important than the engineering shape (2-entity). We aren’t going to get there soon because twisted pair is our Minitel.

Q: Multi-terabyte storage changes everything.

A: Yup.

Notable quote: “You run into a restaurant and say that you’re going to get French fries off the menu. You’ll call them ‘freedom fries.’ But you forget that it’s still called a ‘restaurant’ and it’s still called a ‘menu.'”

Categories: Uncategorized dw