Voices from the Vortex: Day 2

By JOHN GALLANT
Network World Fusion, 05/28/99

First, a confession. Yesterday's Day One journal from Bob Metcalfe's Vortex 99 convergence conference didn't give the complete picture.

After responding to my 5:30 a.m. wake-up call, I played a thoroughly enjoyable (though personally disappointing) round of golf with CEOs Woody Benson of MCK Communications and Tom Proulx of Netpulse Communications, and Paul Gillin, editor-in-chief of Computerworld. After that, this intrepid reporter didn't have the stamina to file reports on Vortex's evening sessions (the pre- and post-rubber chicken events). How could a mere trade journalist pass up a round on the links at the Ritz in Laguna Niguel or the opportunity for small talk with such leading lights? (Hey, I'm trying here...)

Herewith, a wrap-up of Wednesday evening's insights, along with highlights from Thursday's Vortex program. No strafing runs from the Newbridge Air Force, but what do $10,000 bets, $1 bets and post-tornado predictions have in common? Read on, MacDuff.

Day one evening sessions:

Wall Street panel: The 'net bubble and DSL

In an opinionated session chaired by Bob Metcalfe and Kevin Fong, general partner with the Mayfield Fund, three of Wall Street's "meat-eaters" - M&A and IPO experts - bandied back and forth on such topics as when the Internet stock bubble will burst, whether voice-over-IP makes business sense and whether voice over DSL will be the killer app for that emerging technology - a contentious subject that prompted talk of a $10,000 wager between debaters. (Metcalfe assured the crowd on Thursday that the bet didn't materialize. Too bad.)

Some thoughts from the panelists:

Michael Costa, managing director, Merrill Lynch.
The big value lies with the consolidators, companies like Global Crossing, WorldCom and Equant that have the wherewithal to aggregate customers and revenue in the new telecom services marketplace.

We're at the tail end of the horizontal consolidation period in the telecom market, in which similar companies merged for economies of scale (i.e. Bell Atlantic/Nynex). Look for dissimilar companies to merge (like Global Crossing and US WEST) during an upcoming period of vertical consolidation.
Paul Johnson, managing director and senior technology analyst, BancBoston Robertson Stephens
Voice over IP is nonsense - in fact, it's a mixed metaphor.

Newcomers with high market valuations, like Global Crossing, are buying up established companies so they'll have assets to lean on when their sky-high stock prices dip.

Are tech companies overvalued? Perhaps individual companies are, but the whole tech portfolio is not because of the incredible returns it will deliver.
Paul Weinstein, managing director, Credit Suisse First Boston
Hot growth areas are circuit-to-packet transition gear and the siliconization of networking.

The investing public is becoming the real venture engine for networking, thanks to its eagerness to snap up new issues.

US WEST's Trujillo on Global Crossing

Next up: US West CEO Sol Trujillo, who braved the post-dinner slot to discuss his firm's recently announced plans to merge with Global Crossing - a stunner of an announcement. Why is this 100-year-old RBOC marrying up with a three-year-old startup? Because the market is changing faster than any one company can handle and telecom firms need to find the right partners to compete in a global, data-centric services arena. (Or, as Trujillo said: Shift happens.)

As at last year's event, Trujillo emphasized US West's commitment to rapidly expanding data services like DSL and VDSL, and he also spoke of horizontal v. vertical mergers in telecom. Trujillo said he isn't interested in horizontal mergers (like the pending SBC and Ameritech deal) because they only provide a short-term cost-savings potential. Vertical deals, like his betrothal to Global Crossing, offer much greater potential for growth in new services and geographies.

Thursday, May 27, 1999

Les Vadasz, a senior vice president with Intel, got Day 2 of Vortex off to a jump-start with a look at our progress at bringing broadband to consumers. The prognosis? Not so hot. Vadasz gave the industry mixed grades on deploying PC-class communications services that support not only high bandwidth, but capabilities for real-time multimedia, always-on networking, strong security and multicasting.

Vadasz also lamented the erosion in the meaning of "broadband," which used to be associated with at least T-1 speed (1.45M bit/sec) but is now being associated with services that offer only a few hundred K bit/sec. Worse, he voiced concern about the scalability of the broadband alternatives out there, which providers may have trouble ramping up to tens of millions of consumers.

David House, president of Nortel Networks

House spoke about the ongoing transition of the networking industry and relayed Nortel's vision for tomorrow's unified networks that will be driven by personal user profiles.

Today's data networks are not ready for voice they do not match in availability or downtime, he said. Circuit switched networks are clogged with packet traffic. Since packet networks are 15 times more efficient than circuit nets for data, carriers are rushing to build them and get out of circuit switched networks. Today there's a mixed environment with fiber, IP, ATM, SONET and dense wave division multiplexing (DWDM) but House predicted the ultimate network will consist of IP running over optical - no ATM. A key problem: The Internet is driving growth, but the bulk of revenue still comes from plain ol' telephony.

QoS

Yours truly joined Metcalfe for a panel focusing on how to ensure quality of service in the Internet for priority data, voice, video, perhaps even television in the future. Much of the debate, which involved Scott Bradner, a senior technical consultant at Harvard University, Shai Herzog, founder and CTO of IPHighway, Tom Evslin, CEO of ITXC Corp., and Surya Panditi, CEO of Avici Systems, centered around whether raw bandwidth or smart traffic shaping and network engineering will make these new applications possible.

The near consensus: even the deployment of DWDM and terabit routers won't obviate the need for QoS mechanisms in the Internet. But don't expect widescale, interoperable implementations of key QoS standards across multiple service provider networks any time soon - we're just in the dawn of this QoS development.

AT&T exec explains broadband

An unapologetic Leo Hindery, president and CEO of AT&T's broadband and Internet services group, then got up to lay out the strategy behind AT&T's expensive and ambitious cable access strategy, being built on such major acquisitions as Hindery's Tele-Communications, Inc. and MediaOne. AT&T wants to be your any-distance, any-service, any-time supplier of everything from television and high-speed data services, to Internet access, interactive entertainment and commerce services.

Hindery said AT&T's deal-making is done - now the job is executing on the strategy. Meeting demand, not finding it.

Hindery praised cable as the superior last-mile technology and said AT&T will capitalize on the vast penetration of televisions in the home to do more and do it less expensively than competitors using DSL. AT&T will be your first - and best - real choice in local service, he said. Cable frees it from having to rely on future competitors - the RBOCs.

But while he assured the somewhat skeptical Vortex crowd that AT&T won't bundle content and services, AT&T won't be a cable common carrier giving free access to the pipe to all comers. It intends to reap big profits from its investment there.

A bet is placed

Here's where the $1 bet comes in. Marty Kaplan, a senior vice president and CTO with Sprint, followed Hindery on stage and challenged the executives at Vortex to commit themselves to making convergence a reality. He handed out hundreds of $1 bills and said the audience members could keep them, unless they failed to do their part for convergence. If the latter, then they should sign the bills and ship 'em off to Metcalfe. Kaplan said the attributes of convergence are more important than the integration of voice and data technologies. Those attributes include:

- QoS on a per-application basis

- Dynamic bandwidth allocation

- Control of services in the hands of customers

- All services are provided over an integrated fabric

Services are affordable

Radio Shack as broadband leader?

Dave Martella, vice president, business development for Radio Shack - yes, Radio Shack - expressed almost as much surprise as the rest of the audience that some guy from Radio Shack was giving a presentation at a convergence conference.

But the guy made a pretty good case that Radio Shack will help lead American households into broadband. Radio Shack's five-year strategy calls for the company to add to its existing line of computing and communications devices a new line of broadband services - including installation and support. The goal: to become the premiere home-network installer within three years. And look for Radio Shack selling on the Web, where they will certainly ask for your address, just like in the stores.

Chambers: Government needs an education

John Chambers, CEO of network giant Cisco, then took to the floor to sound some familiar themes about the need for industry to do more basic research and get more involved in educating the next generation of tech workers. But Chambers primarily focused on the message that industry needs to educate government so it makes better decisions about regulating - better still, not regulating - technology. That government-industry cooperation, he said, is key to the success of the Internet economy.

Chambers cited progress on cryptography regulation, securities reform, the loosening of restrictions on foreign works, expensing of stock options and treatment of acquisitions as the fruits of growing industry involvement with government.

Internet2 on the move

Doug Van Houweling, CEO of UCAID - a consortium of universities experimenting with next-generation Internet network systems and applications - showed off some really remarkable applications for Internet2, including a weather modeling system that may soon predict more accurately where tornadoes will touch down. Unfortunately, today the computations eat up more time than it takes the twisters to form, but just you wait for Version 2.0.

Van Houweling said UCAID's goal is to narrow the gap between the real performance of the Internet and the promise so many people hold out for it. The project will also bear fruit in new technologies that will find their way to market through entrepreneurs (which was enough to make the VCs in the crowd drool.) As he so eloquently stated, the academics, corporate partners and others working on Internet 2 are trying to demonstrate a realistic path to convergence.

VC roundtable

A VC panel discussion then united moderators Metcalfe and Jim Parmelee, director of the technology group of Credit Suisse First Boston. The VCs on board included Yogen Dalal, general partner with the Mayfield Fund, Vinod Khosla, general partner with Kleiner Perkins Caufield & Byers, and Rich Shapero, general partner with Crosspoint Venture Partners.

Some highlights:

Will there be another Cisco among the current crop of startups? Quite likely, say our intrepid investors. With change accelerating and startups being able to move faster than established players, we could see one of today's bright young stars acquiring a Lucent, Nortel or Cisco five years from now. The trick: avoid the conventional wisdom and stop listening to customers.
They want the next little incremental change, and you have to think of show-stopping change.

Parmelee worked the panelists through a delightful thumbs-up-or-down session on 10 key players in the network industry. High-speed router maker Juniper got a big thumbs up because, the panel agreed, big improvements in price/performance still matter. The panelists were split on the prospects for companies like Lucent and Alcatel, as well as the possibilities in the DSL equipment market. They also took a shot at their investment banking brethren who, they said, should more closely screen IPOs to ensure that they don't come out too early and disappoint investors.

A place for fixed wireless?

Bill Rouhana, chairman and CEO of WinStar Communications, touted fixed wireless technology, as opposed to mobile wireless. The big advantage of fixed wireless is scalability and cost. Wireless, he said, is all about equipment costs. These costs are plummeting, and the trend is just beginning.