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Metcalfe Places Broadband Bets

Light Reading
News Analysis
Light Reading
5/31/2005

Never exactly the shy type, Bob Metcalfe, Ethernet creator and partner at Polaris Venture Partners, sounds off about broadband access in the latest LRTV interview.

Given the plethora of access technologies vying for attention, Metcalfe wastes no time picking his least favorite. "I'm rooting for the cable companies against the ILECs," he says. "That's just because I have this long-term grudge with the ILEC monopolies."

It's a recurring theme for Metcalfe, who preaches the benefits of competition -- noting that competitive pressure is the only reason RBOCs offer Ethernet services -- and views suspiciously anything resembling the old Ma Bell structure.

"I'm not an expert on regulation but I'm pretty sure allowing AT&T to re-form -- allowing all the RBOCs to buy each other and re-form -- is probably a really bad idea. I don't know how we're letting that happen."

Of course, Metcalfe wouldn't be a venture capitalist if he didn't think there was some hope out there. He declares himself a "big fan" of VOIP providers Skype Technologies SA and Vonage Holdings Corp.. "At the very least they lit a fire under the existing monopolies," he says.

WiMax could be the salvation of broadband, Metcalfe adds, not for its inherent coolness but because it would upset the status quo enough to squeeze progress out of telephone, cable, and wireless operators.

"The mobile guys will be attacked, the wireline LECs will be attacked, and the cable companies will be attacked by WiMax -- and I’m really looking forward to that," he says.

That's not to say Metcalfe is a fan of the ballyhooed Verizon Communications Inc. (NYSE: VZ) service that claims to outdo WLAN. He calls the service "a pitiful precursor" to WiMax and he has a point, considering the sneaky nature of "pre-WiMax" (read: not WiMax) implementations (see Intel's WiMax AntiClimax).

For more, including why Ethernet is as undying as Metcalfe's hatred of Harvard, see Full Transcript of LRTV's Interview With Bob Metcalfe, Inventor of Ethernet.

— Craig Matsumoto, Senior Editor, Light Reading

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rjmcmahon
rjmcmahon
12/5/2012 | 3:12:58 AM
re: Metcalfe Places Broadband Bets
Thanks for the article and the LR TV interview with Bob Metcalfe. Here are the questions I would have liked to have asked him.

1) Is it really a coincidence that Ethernet and TCP/IP were both invented in 1973? What really was your role in the invention of TCP/IP?

2) Why hasn't your venture fund invested in *any* FTTH projects?

3) What are your thoughts on motivating investment in fiber infrastructure and on structural separation?

For the last question, Charles Jacobson of Morgan, Angel & Associates http://www.morganangel.com gave the following response.

Since writing the book, my work in networks has been more focused on electric utilities than on communications, but your question prompted a few thoughts that can be briefly stated as follows:

1) I think that the goals you mention, motivating investment in fiber optics (particularly, the "last mile" to the consumer which can be enormously capital intensive) while promoting structural separation are worthy goals but may need to be thought through more carefully. In particular, it seems to me that the ultimate goals of separation of application and service providers is to promote technological
innovation, and diversity and openness of speech - prevent the content of communications from being monopolized and censored.

2) Separation is of value to the extent that it fulfills these goals, but may not always be the best means of getting there. My own judgment, is that the real prize is not to have three or four choices of competing broadband providers (to use an example from today's internet), but to make sure that the provider that there is has
reasonable incentives to provide good service, does not censor content, and does not get in the way of developing innovative applications etc.

3) Care is needed in thinking about competition. Encouraging competition among owners of fiber optics, cables, etc. may actually
slow rather than promote the diffusion of more advanced internet technology, investment in fiber etc. The reason is that with many firms potentially competing, firms may not find it worthwhile to make the large initial capital investments required. That is, investing
large sums in a fiber optic network maybe worthwhile for a firm if it can have reasonable assurance that it will reap the gains of people
using the network. If there is a risk (from the firm's perspective) of other firms building duplicate systems and taking some of the
customers. engaging in a price war, the risk of the investment is vastly increased.

4) For public policy, these thoughts suggest that attempts to encourage competition among telephone, cable providers, etc. for provision of internet connectivity, maybe less productive for
protecting consumers, encouraging innovation, etc. than accepting possibility of monopoly provision in this domain, or even government
investment, under common carrier principles in which the owner of the communications pipeline does not dictate content.
firstmiler
firstmiler
12/5/2012 | 3:12:53 AM
re: Metcalfe Places Broadband Bets
RJ,

It is with keen interest that I have read your posts over the past two years.

Unfortunately, the reality is that the operational, business, and political hurdles to workable "open access" systems are very problematic to overcome. It would take, as you have stated many times, federal government intervention in order to bring this model to critical mass here in the US. Short of Uncle Sam mandating, subsidizing, and legislatively coddling a nation-wide initiative it simply will never happen at scale.

The handful of projects that are constantly held up by the FTTH/Open Access Community must be fodder for much bemusement within the executive ranks of the entrenched incumbants. The economics of deploying FTTH vs. the deep pockets that enable the incumbanst to ride out small competitive incursions by utilities, municipalities, and other quasi governmental cooperatives (read UTOPIA) make these well intentioned projects unviable.

Government entities have had more success deploying closed-loop (City owned infrastructure and city provided services) FTTH projects, but this falls short of your well documented position regarding disaggregation of facility and services.

You may wish to reexamine your position and hone your message to focus exclusively on the promotion of a Federal program.

Worrying about VCs dumping money into start-up FTTH vendors, nascent underfunded Triple-Play CLECs, or misguided middlemen (OpportunityIowa or Dynamic Cities) is wasted effort.

Respectfully,
FM
rjmcmahon
rjmcmahon
12/5/2012 | 3:12:51 AM
re: Metcalfe Places Broadband Bets
firstmiler; Thanks so much for the response. Comments inline.

It is with keen interest that I have read your posts over the past two years.

Thank you. That's a nice compliment.

Unfortunately, the reality is that the operational, business, and political hurdles to workable "open access" systems are very problematic to overcome. It would take, as you have stated many times, federal government intervention in order to bring this model to critical mass here in the US. Short of Uncle Sam mandating, subsidizing, and legislatively coddling a nation-wide initiative it simply will never happen at scale.

I don't believe the federal government will help. I was thinking local government combined with some sort of local authority board. The proposal is something more like a municipal utility district or transit authority board, funded by revenue bonds (not general obligation bonds.) Done in a way others can emulate.

The handful of projects that are constantly held up by the FTTH/Open Access Community must be fodder for much bemusement within the executive ranks of the entrenched incumbants. The economics of deploying FTTH vs. the deep pockets that enable the incumbanst to ride out small competitive incursions by utilities, municipalities, and other quasi governmental cooperatives (read UTOPIA) make these well intentioned projects unviable.

Being seen as unviable and fodder for bemusement will be something we'll have to get past. A few successful projects will change that perspective quickly. (Maybe even too quickly.)

Government entities have had more success deploying closed-loop (City owned infrastructure and city provided services) FTTH projects, but this falls short of your well documented position regarding disaggregation of facility and services.

Agreed. The federal RUS program falls short too.

You may wish to reexamine your position and hone your message to focus exclusively on the promotion of a Federal program.

What type of federal program are you suggesting? I have not found one to use as a guide. I've found examples of what not to do, but that hasn't helped very much.

Worrying about VCs dumping money into start-up FTTH vendors, nascent underfunded Triple-Play CLECs, or misguided middlemen (OpportunityIowa or Dynamic Cities) is wasted effort.

Agreed that worrying is waste of a precious resource - our time. Building on hope (or realistic optimism) is the way I believe this problem can be solved.
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