ANGST AND AWE ON THE INTERNET

This series of articles by George Gilder provides some interesting technological and cultural background that helps prepare readers to better understand and place in proper perspective the events relative to the National Data Super Highway, which are unfolding almost daily in the national press. I contacted the author and Forbes and as the preface below indicates obtained permission to post on the Internet. Please note that the preface must be included when cross posting or uploading this article.

The following article, ANGST AND AWE ON THE INTERNET, was first published in Forbes ASAP, December 4, 1995. It is a portion of George Gilder's book, Telecosm, which will be published in 1996 by Simon & Schuster, as a sequel to Microcosm, published in 1989 and Life After Television published by Norton in 1992. Subsequent chapters of Telecosm will be serialized in Forbes ASAP.

ANGST AND AWE ON THE INTERNET

GEORGE GILDER

In 1995, Internet stories trumped even O. J. The net will have a far happier ending.

Well, it had to happen. As the Internet emerges as the central nervous system of global capitalism, the Luddite left is bursting into "flames" against the microcosm and telecosm, against interlinked computers and the global radiance of electromagnetic communications.

This rising resistance resonates with the press coverage that has long lavished attention on the excesses of the Net. Richard Shaffer of the Computer Letter counts 39,158 Internet stories during the first three quarters of 1995, beating O. J. by some 15,000 citations. Much of the coverage has been lurid. For psychedelic visions of virtual reality, the media have exalted Jaron Lanier in dreadlocks and bankruptcy above Bob Metcalfe, creator of Ethernet, or Gordon Moore, inventor of IC processing, or Charles Kao, father of fiber optics, all of whom reshaped the boundaries of human possibility. Computer viruses and Net porn win headlines and magazine covers that elude the creators of vast new computer powers, such as RSA encryption or the World Wide Web or new tools of chip fabrication at the quarter-micron level. Last August, Windows 95, a modest advance in operating systems, exploded across the press and the airwaves as if the entire media had been preempted for a Microsoft infomercial. No wonder befuddled academics, politicians and book publishers gain a grotesquely distorted view of the industry.

In Tom Peters's first Forbes ASAP interview (March 29, 1993), he predicted that the `90s would see a fabulous unfolding of new technology, accompanied with increasing outbreaks of technophobia, Ludditism and Marxism. Alvin Toffler greeted the initial readers of Wired with a similar dual prophecy of networked marvels, foiled by a multifront war against the Third Wave. Once again, Peters and Toffler may well be right, as from Hollywood to Harvard, America's brainlords rebel against computer technology.

In his pungent new book War of the Worlds, Mark Slouka joins the rising chorus of resistance. Slouka finds it all a "kind of lie." Like a "speech of Ronald Reagan" or a spiritual vision from the "religious right," the virtual world is increasingly usurping reality and identity itself. "Rather than doing away with the couch potato, the telecomputer has actually created a new, more tenacious variety of tuber: the individual who swivels from the television screen to computer monitor without missing a beat. . . ."

Today, Sandra Bullock writhes in anguish in the sinister clutches of The Net, with a blond, predatory, arachnoid Bill Gates (using "Gateway" software) masterminding the Web. Similar chimeras recur in antitech crusades. Bathed in the ultraviolet frequencies of sunlight, humans throughout the history of the species have raced through a planetary magnetic field of half a gauss in power on a terrestrial sphere charged by worldwide lightning strikes a hundred times a second to a capacitive level of 100 volts per meter of height. Yet Paul Brodeur and other electro-phobes panic at power lines, power plants, cathode-ray tubes, microprocessors, cellular antennas and other high-tech oscillators with an impact on humans measurable only in millionths of a gauss. They defy the fact that around the world use of electricity correlates almost perfectly with greater longevity.

Meanwhile, despite the higher longevity and the globally spreading jobs and riches springing from high technology, pseudoeconomists prattle endlessly about the growing gap between the "information rich" and the "information poor." Publishers sign up other disgruntled nerds to write hymns to noble savagery and gardening. And from the fever swamps, a Marxist enrage posts bombs through the mail and addled editors detonate them in the pages of the Washington Post.

SUCH FEARS AND FANTASIES have always afflicted the course of human innovation and progress. With life expectancies rising eight years in the developed countries and 22 years in the Third World since 1950, people have more time to lash out at industrial benefactors who gain wealth and create it from sources hard to comprehend.

Misconceptions about the Internet, however, also abound in more savvy circles. From Stewart Alsop's Agenda conference to the Internet Society, serious critics are emerging to predict that the network itself will bog down and degrade, jammed by traffic and trivia. Often unconsciously, these critics feed upon a spurious vision of capitalist ecology. Constantly recycling Garrett Hardin's "The Tragedy of the Commons" as a theory of the Internet, writers such as Clifford Stoll in Silicon Snake Oil, and others from publications such as the New York Times to the National Review and the Atlantic, predict that the Web, as a public good, will be overgrazed, like the commonly owned fields of feudal Britain. Each herdsman or entrepreneur gains from adding to his herd or bandwidth, beating rivals to the remaining grass or spectrum, until congestion sins the common space.

As the epitome of a capitalist commons, the Internet, according to the critics' predictions, will collapse under the impact of this law, clogged with traffic and polluted with porn and violence. As a precursor, the same writers cite citizens band radio, an earlier fad that rose meteorically and collapsed ignominiously when, as they see it, millions of middle- and lower-class hoi polloi rushed in and polluted the bandwidth without renewing it.

Overall, the resistance converges many streams of reaction. In general, the "humanist" opponents mistake the Internet for a continuation of television technology. Thus they ascribe to the Internet the very flaws that they find in TV_crudeness, violence, porn, entertainment for "diverting ourselves to death"_and extend to the computer the old and mostly valid arguments of Neil Postman and Jerry Mander against the idiot box. Some of the other critics of the Internet benefit from TV and fear the Web will replace their familiar tube. The executives of media companies are mostly baffled by the new technology. Paralyzed by market research, as Jim Barksdale, CEO of Netscape puts it, "They are trying to build bridges by counting the swimmers." A Washington lobbyist for a long-distance carrier wonders poignantly if "America is ready for all this bandwidth." Baby Bells spurn the Internet to fund Hollywood films and TV.

Blinded by the robber-baron image assigned in U.S. history courses to the heroic builders of American capitalism, many critics see Bill Gates as a menacing monopolist. They mistake for greed the gargantuan tenacity of Microsoft as it struggles to assure the compatibility of its standard with tens of thousands of applications and peripherals over generations of dynamically changing technology (avoiding the dialectical babel of the more open Unix, for example). They see the Internet as another arena likely to be dominated by Microsoft and a few giant media companies, increasing the wealth of Wall Street at the expense of the stultified masses of consumers and opening an ever greater gap between the "information rich" and the "information poor."

Focused on the summits of the industry_CEO seances among media conglomerates and software kings_all the critics can foster the impression that the Internet is a questionable, unpromising venue, vulnerable to monopoly and trash, thereby vindicating the Luddites and the Cassandras. From the beginning of its civilian eruption, however (see Forbes ASAP, "The Issaquah Miracle," June 7, 1993), the Net has risen from the bottom up rather than from the top down; by nature, it is a heterarchy rather than a hierarchy.

To get a view of the future of the Net, let us turn aside from Herb Allen's golfing groves and Bill Gates's mansion and Louis Gerstner's "net-centric" revelation, and visit some of the fertile bottomlands where the Web is growing fastest. Here no robber barons or monopolists come into view and there are no signs at all of an impending slide toward tragedy and decline. Here the negative externalities of the degraded commons fall before the huge positive externalities of Moore's Law and Metcalfe's Law, the microcosm and the telecosm, where smaller transistors yield exponentially more efficient machines and the value of networks rises by the square of the power of all the computers attached to them. Governing the positive externalities of the Internet is the convergence of these forces, compounded by the creativity of entrepreneurs.

PERHAPS SUCH a combinatorial explosion explains the mind of Avi Freedman of Net Access. Among the vanguard of the armies of the Internet, Freedman is a classic American entrepreneur, entirely alien to the megalithic visions of the critics. As an Internet service provider (ISP), Freedman supplies the Philadelphia area with access to the goods and services of this global ganglion of networks at a flat rate of between $12.50 and $20 per month, depending on the services chosen.

Net Access still operates chiefly out of his cellar in a marginally middle- class suburb of Wyndmoor. The street bristles with wires, transformer nodes, terminal boxes and power lines, many of them converging on the duplex red- brick bungalow where Freedman lives with his wife in an apartment, above a basement crammed floor-to-ceiling with multiplying racks of electromagnetic conversion and processing gear for computers and telecom. These technologies are all oscillating and radiating like crazy in the spirit of their hyperkinetic owner, who is multiplexing Internet insights between his cellular phone and an attentive audience of aspiring ISPs from western Pennsylvania and geek students visiting from the University of Pennsylvania, gathered at his door next to the power-line link.

Is this an entrepreneurial dream, or a carcinogenic nightmare out of the muddled pages of Paul Brodeur? Avi is too busy to give the issue much thought. Extending business service to New York City, Washington, D.C., and Chicago, over-flowing his basement, he is now moving his operations to a collocation cage at the Philadelphia central office of MFS (Metropolitan Fiber Systems) where he has just turned up a T-3 fiber circuit (45 megabits per second) direct to MAE East, the major East Coast Internet exchange point. From Seattle to San Jose, top companies are besieging him with multimillion- dollar buyout offers, but looking to the future and its promise, Freedman calculates that he can't afford to sell.

With only 4,000 customers, however, Net Access hardly seems to pose a threat to such local colossi as Bell Atlantic and Comcast, now searching the world for "content" opportunities and looming ever larger on Rodeo Drive. Yet Ray Smith and Brian Roberts should pay attention to what is going on in Freedman's teeming mind and basement. Millions of PC owners may well become part-time Internet service providers in the future_as their home and small-business PCs supply content for others, perhaps beginning with teleconferencing and telecommuting activities that will soon dwarf Hollywood in volume.

One of the students hanging on Freedman's words, for example, is Meng- Weng Wong, whose personal Web page at Penn attracts some 35,000 hits a week with its restaurant reviews, film criticisms, Philadelphia maps, technology insights and other delectations. Drawing wide media attention, from Forbes ASAP to Scandinavian TV (a crew is visiting this very day from the Netherlands), Wong has now established a server at Net Access, pobox.com, which supplies his clients with a permanent Internet address wherever they may go, and he is developing a Web-page design business.

Responding to the onrush of innovative customers like Wong, the configuration of Freedman's bottom-up operations offers clues to the future shape of the industry. A portly, perspiring, blond, balding geek-genius bursting with monologic humor and street smarts_hardly full-duplex (scant signs of upstream flow)_Freedman has just hustled past his 26th birthday. He has been deep in computers since age eight, when a prescient uncle gave him a book on the Basic programming language at a Seder. Within months he was entrenched among the information rich, opening an unbridgeable gap in computer savvy between himself and nearly all of the other five billion inhabitants of the planet. If you think you are going to catch up, forget it. By the age of 12, in 1982, he was an active user of e-mail and Usenet news and familiar with the abstruse command codes of the Unix operating system that ran on his father's DEC PDP-11. Freedman senior, a pulmonary physician, inherited the machine indirectly from Bell Labs, where it had been employed as a Usenet news hub until displaced by a VAX.

In 1986, still a teenager, Freedman began exploring the uses of Unix machines for commercial databases and discovered to his surprise that serious businessmen would give him gouts of money to get help with their computers. Eventually, he was earning "lawyers' rates" (his mother is a Philadelphia tax attorney) for work he found "amazingly routine" and "even fun." Nonetheless, after high school, his parents sent him off to college in Massachusetts, where his computer skills were under appreciated. He returned after a few weeks to get a job at the National Software Testing Labs in the Philadelphia suburb of Conshohocken before enlisting at nearby Temple University, which he chose because it offered more freedom for computer experiments and consulting work than the more prestigious Penn a few miles away.

After arriving, he discovered that Temple's computer lab also commanded a superb resource: bandwidth, in the form of a nearly empty T-1 line linking to the Internet at 1.544 megabits per second. Already computer rich, he was becoming communications rich as well. In Avi Freedman, Temple's department of computer science got rather more than it bargained for. Realizing that the available PCs were network hostile and the lab's MicroVAXes ran VMS rather than Unix, Freedman used his savings to buy five secondhand Sun 3 workstations for $600 apiece.

In short order, Freedman began his career as an Internet service provider and "professional geek," albeit unpaid. Soon he had some 100 students as users, mostly cavorting through games of Multiuser Dungeons (MUD). Temple's address, supplied by Freedman_bigboy.cis.temple.edu_became known far and wide as a hive of MUD activity. Temple's computer science professors began to rebel at this untoward distinction, particularly when they found that lost in the crypts and catacombs of the Net, their charges were virtually unreachable for assignments in higher-level languages. Freedman was forced to close down local access to the game portions of the server during daytime hours.

Freedman has given some thought to the problem of "how to civilize young, intelligent teenage males." He concludes, "You have got to get them interested." He says the students playing MUD at least were learning Unix commands, "a better way to get a job than mastering the Pascal programming language," which was then being taught in the regular classes.

As a student, working with Prof. Yuan Shi and other Temple professors, Freedman developed a toolkit for distributed processing on Suns and presented a paper in London in 1989 at a conference on computer-aided software engineering. As his time at Temple drew to a close, he began contemplating graduate school. "Everyone was very surprised that anyone who could do anything on the outside was going to graduate school," he says, "but Stony Brook on Long Island offered me a nice job as a research assistant in the lab and I went up there."

After graduating from Temple, Freedman also encountered the harsh facts of life in the world beyond college computer laboratories. With their local- area networks and T-1 links to the Internet, universities offered a revel for budding cybernauts. Marc Andreessen of Netscape discovered a similar disjunction between college lab and residential communications. At LAN's end was a communications cliff and a bandwidth scandal. Most homes and offices connected to the world only through twisted-pair, four-kilohertz, copper telephone wires.

In October of 1992, Freedman became an ISP chiefly to continue his college revels by chasing bandwidth. Twenty-three at the time and engaged, he could still recall his days in high school and remembered how much he had learned from the Internet through his father's PDP-11. He began to fill up his basement with second-hand Suns. Since that time, Freedman has purchased scores of Sun machines, mostly at prices well below new Pentium levels, all using Berkeley Unix, equipped by Bill Joy with fast TCP/IP (Transmission Control Protocol/ Internet Protocol) for Internet access.

Beginning with 40 customers from local bulletin board systems, Freedman provided access through the serial ports of a single SPARCstation IPC with a 200-megabyte hard drive and 12 megabytes of memory that he purchased secondhand for $1,500. The serial ports ran up to 38.4 kilobits per second, linked to 14.4-kilobit-per-second Zoom and Supra modems connected to POTS (plain old telephone service) outside lines running from the phone company's central office. Costing a total of some $4,000, the system worked well enough until his clientele began to multiply and the modems balked at continual resetting. In April 1992, he bought a 16-port Iolan terminal server that answered the phones and connected subscribers to the Sun servers, which supplied e-mail, Usenet news, Gopher searches, Telnet and file transfer services in a Unix environment.

In June of 1992 emerged the menace of competition. A local entrepreneur launched Voicenet by simply linking a 386 PC with a modem to each phone line through a terminal server. Charging fees several times higher than Net Access's, Voicenet thrived through the device of hiring two full-time people to scan in pictures from porno magazines for what Freedman describes as the "sticky keyboard set." Eventually the "adult" bulletin board service enlisted some 5,000 members paying $4 per hour to peruse images. Nonetheless, Voicenet protested what it called Net Access's predatory low pricing, a $12.50 to $20 flat rate per month with no full-time employees to pay.

IN THE EARLY YEARS of the Net's development, the late `80s, the Internet business outside campuses and corporations was a small-time and sometimes tacky trade. In 1992, the entire Net comprised a million linked computers, many of them in university and government labs. It wasn't until November 1993 that Net Access acquired a dedicated 56-kilobit line for direct connection to an official network access point. Costing $400 per month, it multiplexed 22 dial-up modems among 250 users. With the Mosaic World Wide Web browser yet to catch on outside the universities, Net Access did not even have to supply SLIP (serial line interface protocol) or PPP (point-to-point protocol) accounts, which shield the user from the details of Unix.

Freedman, however, saw the need for new technology to link people to the full resources of the Net without having to know abstruse Unix commands. "As a professional geek, writing code is my true calling," he says, adding that he threw himself into this work. Although the program was eclipsed by Mosaic, Lynx and other approaches, he still believes that his software provided easier access to the Internet, complete with the ability to trace routes and "ping" remote machines. Enabling users to log in to the program in 1992, he put Net Access on the technological forefront of ISPs.

The largest challenge for an ISP, then and now, is managing the floods of bits engulfing a Usenet news server at a rate of some 500 megabytes per day, five news articles per second, each with a unique identification that has to be scanned to assure that the news is fresh and not duplicated. The heart of the Internet until the arrival of the World Wide Web_and still cherished more than the Web by many Internet veterans_Usenet is the huge collection of textual bulletin boards and other information troves and exchanges from which the communities of the Net exfoliate. As Steve Willens of Livingston Enterprises puts it: "This is the real source of the Internet as we know it and the challenge that forced the development of technology specialized for the Net"_notably Livingston communications servers that linked modems to the Net through fast comports functioning with compression at 115.2 kilobits per second.

In 1994, Freedman recognized he had a major business on his hands. He decided to lease a T-1 line from PREP-NET (Pennsylvania Research and Economic Partnership Network), which required a prepayment of $1,000 per month. With 50 phone lines and modems and 500 users, he broke all ties with Stony Brook and began hiring people to handle a rising tide of traffic and a surging demand for technical support.

That summer, he had three full-time people: "Myself, my wife, Gail, and my 20-year-old brother, Noam. Working with him made me realize why people pay me so much money as a consultant [up to $150 an hour]. He served as a kind of Avi echo, intuitively knowing what I wanted and when." A student in computer science at the University of Chicago, Noam is in the process of extending the business to that city, while Avi has established points of presence in New York and Washington, D.C. He has hired five Net Access customers, none with college degrees, to provide technical support full time as the number of users has climbed at a pace of some 15% per month since the end of 1994.

For the links to other cities, Freedman relied on advice from telecommunications consultant Gordon Jacobson, a Penn alumnus who maintains close links to the Penn School of Engineering, where his father graduated. With Jacobson's help, Freedman is ending 1995 with a fiber circuit connecting him to MAE East at 45 megabits a second, a 10-megabit-per-second link to Sprint's network-access point, and more than half a dozen point-to- point T-1 lines, all for well under half of the normally tariffed prices for these services. With increasing broadband connectivity, Net Access commands more than half as much bandwidth at the nerve centers of the Net as Netcom, which has 50 times more customers.

Though indispensable, technology alone cannot sustain a successful ISP. It is people that make the vital difference. If Freedman had originally hired people to perform the work that he did himself part-time_"keeping the machines running, maintaining software, recovering from disasters, installing and tuning equipment and circuits"_he would have incurred expenses of some $100,000 per year and his financial model would have collapsed. The reason many corporations are so slow to develop Internet programs is not the lack of equipment but the dearth of personnel. The large companies pursuing Net Access did not care about Freedman's rooms full of gear. They were after Freedman himself.

FREEDMAN'S ENTREPRENEURSHIP and technology ride on a tide of other enterprise by the suppliers of Internet gear. These, too, are not huge telephone company equipment manufacturers or rising software monopolists but mostly small or medium-size companies, led by young entrepreneurs, fighting to survive in the most intensely competitive arena of the world economy.

An Internet service provider must begin by supplying modems through which the outside world can connect to his offerings. With millions of home customers who dwarf the ISP modem volumes, U.S. Robotics is currently ascendant in most ISPs, but Freedman spurns them for cheaper devices from Multi-Tech. These modems connect to a Xylogics terminal server that authenticates the name and password combination entered by the user and validates the caller as legitimate. Then the customer enters Net Access's local- area network linking a set of Sun Microsystems servers that supply World Wide Web, Gopher, Usenet, e-mail, file transfer, Telnet and other Internet services.

Net Access is unusual for an ISP, since few use Xylogics equipment. Recently bought out by Bay Networks, Xylogics supplied nearly all the terminal servers for the university market, and it still shies away from the tumultuous world of ISPs. These customers mostly use Livingston products that run a security protocol named Radius (remote authentication dial-in user services). Channeling the bits around the ISP's internal net and on to other networks are banks of routers, also often built by Cisco or Livingston (although Freedman originally chose Morningstar because it was cheaper). Linking a particular ISP to other ISPs and network access points are T-1 cables running at 1.544 megabits per second through multiplexing and demultiplexing and conditioning equipment. These functions are performed by DSU-CSUs (data service units- channel service units) made by such companies as TxPort, Adtran, General DataComm and ADC Kentrox.

Freedman insists on the Law of the Microcosm in choosing all his equipment and in making all his projects for expansion. Since his study of distributed computing at Temple, he has everywhere cherished duplication and redundancy and cheap components over centralization and scale economies. He at first bought a nine-gigabyte drive from Micropolis. Now he regrets the decision and is replacing it with five two-gigabyte drives (more I/O [input/output], redundancy and reliability). "The more spindles the better," he says. He buys lots of cheap secondhand Suns rather than one powerful server. He criticizes some of the larger ISPs, such as Netcom, for centralizing their servers and technical support. It causes bottlenecks and delays, he says, and opens the system to crashes if any of the communication lines go down.

Freedman's rule is to provide service as locally as possible. He believes ISPs with fully equipped local network sites, rather than mere communications nodes like Netcom's, will prevail. Like most small ISPs, Freedman is wedded to flat-rate pricing, though his accounts of altercations with customers who want to resell or overgraze his commons may undermine confidence that this pricing regime can survive into the future. But managing flat-rate prices is a core competence of the ISPs. Believing that bits will flee toward flat rates, Freedman says MCI will fail in its plans to transform Internet pricing models by adding some as yet unannounced scale of measured usage based on time, packets or both.

Is Freedman's model scaleable, or is it doomed as he grows? Could Freedman be displaced by MCI or Sprint-Comcast or Bell Atlantic or Microsoft- UUNet or AT&T in a siege of merger-monopolization? He believes that up until a threshold of some 25,000 to 50,000 customers, meaning revenues of between $5 million and $10 million net of more lucrative business clients, his economic and technical model can trump all comers. At that point, he will face the usual entrepreneurial crisis of transition: Freedman will need business partners, routinized technology management schemes and expensive accounting to maintain operations as Net Access spreads across the country.

But he does not fear competition. His problems, he says, are servicing the flood of new customers and anticipating the depredations of "Congresscritters" who want to make him liable for any vagrant flasher who strays onto one of his hard drives.

Still a small force in the global matrix of telecommunications, Freedman now dreams of exploiting available resources of fiber, dark and lit, to acquire major new bandwidth, linking cities up and down the East Coast and across the U.S. Helping Freedman move this project toward reality is his telecom guru Jacobson, an entrepreneurial dervish from Portman Communications. With financiers on the line to supply some $5 million in startup capital, Jacobson is planning to launch a national IRamp network. The service will ultimately open fully staffed Internet access facilities in 30 cities nationwide, linked everywhere by fiber, at a cost of some $1 million per site.

Such investment looms large compared to the rock-bottom base of Freedman's operation, and easily eclipses a national ISP's point-of-presence facility that can cost upwards of $70,000. But David Farber, gigabit-testbed guru, recently told a New York audience at the Penn Club that, spurred by business needs, the marketplace is seeking higher-end, stable-broadband ISP services that can handle millions of hits a day at a Web site with no access delays or congestion and that provide local access and custom software configuration. For these high-end customers, the SPARC 20 servers and T-1 and 56-kilobit links of the many small ISPs will no longer suffice.

Pioneering the kind of broadband channels that will eventually become ubiquitous on the Net, IRamp's planned facilities will command OC-3 fiber (155 megabits per second) links to a national network of both dark and lit fiber, available from utilities, pipelines and other unusual sources. Such bypass strategies will become increasingly common in coming years. The 10 million miles of fiber currently installed in the U.S., after all, is exploited to approximately one-millionth of its potential capacity_and much of it is unused "dark fiber."

For key ISP server and security functions, Jacobson plans to use fully fault-tolerant Tandem S4000 servers running the new ServerNet multibus scheme. It was conceived by venerable Tandem designer Robert Horst as a new-generation architecture explicitly optimized to substitute bandwidth for switching speeds. Fully scaleable, ServerNet was licensed in October by Compaq, yet it commands a theoretical throughput limit of an unprecedented petabit per second (a million billion bits). For graphics-intensive applications, Jacobson envisages Silicon Graphics WebForce Challenge S servers using Irix software. Even with as few as 5,000 subscribers per site paying a competitive non-usage based rate, Jacobson projects a high rate of return.

Meanwhile, at Netcom, the nation's largest ISP, David Garrison, the CEO, is undergoing the stresses that Freedman foresees for himself as he expands his business. During his previous stint at the helm of the meteoric paging company, SkyTel, Garrison, a rangy dark-haired entrepreneur with a slight uneasiness in his ready smile of prosperity, thought he had approached the ultimate in entrepreneurial excitement. But nothing in his career in the wireless industry prepared him for his first nine months as head of Netcom.

Here is a company that during the last three quarters grew from 400 to 1,200 employees, from 58 to 201 points of presence, from 72,000 to more than 200,000 customers, and from revenues of $12.4 million in 1994 to a $50 million run rate in 1995 and to a market cap of some $400 million, while the traffic in bits grows at an even faster pace_impelled by the graphic demands of the World Wide Web, itself expanding at the rate of more than 1,000 new servers per week.

Netcom pares down its points of presence to simple communications nodes and handles all the technical support and Internet services for them at the company's headquarters. This operation fills up a high-rise in San Jose. Some floors teem with desks manned by earnest engineers in jeans, many of them Asian, working the phones. Other floors are replete with row upon row of racks filled wall-to-wall with Cisco routers, Sun servers, Livingston PortMasters, Ascend ISDN pipelines, Cascade edge switches and U.S. Robotics modems. Walking through these ever-expanding mazes of machinery, Garrison's entrepreneurial smile at times moves from the ready to the giddy.

IN THIS ENVIRONMENT OF RIOTOUS GROWTH, the telcos move their slow thighs like trolls under the bridges and routers of the Internet. Currently commanding perhaps 2% of the traffic, AT&T, for example, has declared its ambition to capture 60% of the Internet business over the next two years. But Garrison demurs: "From the Olympian perspective of a McKinsey & Co. consultant, AT&T could take over any business. They have one of the greatest brand names in the world, they've got more money than God, a billing relationship with some 40 million people, a global network and alliances and consortia, Internet pioneer Bolt, Beranek & Newman in their fold, and they have perhaps the world's largest internal World Wide Web on their own Unix servers among their 300,000 employees."

But like most of the telcos, AT&T lacks focus. As Netcom marketing chief John Zeisler explains: "Phone companies have their 700 numbers, 800 numbers, corporate customers, their Hollywood links, their leased lines, their frame relay, their ADSL (asymmetric digital subscriber line), their cable aspirations, their huge wireless opportunities, their bureaucracy, their regulatory tariffs, their pricing confusions. Should voice be priced as data or should data be priced as voice? They are great at laying fiber and wire, connecting it to switches and bringing signals to the central office and to the curb. But the Internet is a second thought, just another business to them."

As in the PC industry, focus and agility are crucial. In an arena where the technologies ride a remorseless onrush of exponential changes, no prolonged bureaucratic process can succeed. Even the maps and schematics of rapid convergence among media industries miss the point. Dominating this arena is the computer industry_with its millions of piranha processors and entrepreneurs_and it doesn't converge with anything; it eats everything in its path.

Now ascendant is the Internet computer industry. Most of these new companies, from Livingston to Netscape, focus on the Internet. Using personal computer components to reduce the price of ISP infrastructure far below the price of telco installations, these companies endow the ISPs with a further advantage in a dynamic industry.

Livingston Enterprises epitomizes the success of the new companies creating this new industry. Secreted in Pleasanton, Calif., and financed by corporate cash flow, Livingston has grown up with the Internet at a pace not far in the wake of its more illustrious rival, Cisco Systems. Livingston PortMasters crowd Netcom's headquarters, as they do most of the other ISPs.

Launched in 1989 under the leadership of Steven Willens, then a manager of multiprocessors at Sun Microsystems, Livingston's networking drive began by creating a cheap router and communications server based on a new operating system, ComOS, specifically developed to help ISPs meet their Usenet burdens. Livingston quickly became a dominant force in Internet terminal servers and routers, and grew at a pace of more than 50% per year until engulfed by an explosion of demand in 1995. In August of this year, Livingston launched cheap low-end routers to serve both ends of an Internet connection: a $1,395 two-port PortMaster to link small offices to the Net at up to 230.4 kilobits per second and a sleek space-saving $3,495 PortMaster with 24 ports for ISPs. In October, Livingston announced a series of ISDN remote- access machines that will compete with the currently dominant Ascend ISDN pipeline system, if ISDN becomes the preferred mode of Internet access.

Now everywhere in the Internet industry companies are resigning themselves to ISDN as the next "modem" (though, in fact it just brings into home and office the 64Kbps digital channels long used by the telcos between central offices). The scandal of U.S. telecom, however, is that the telcos could just as easily be bringing video capable T-1 service (1.544 megabits per second of bandwidth, equivalent to CD-ROMs) to homes if regulations permitted a reasonable tariff structure.

Moreover, new access technologies are emerging, such as cable modems and AT&T's new SDSL (symmetrical digital subscriber loop). Available this year and under test by Bell Atlantic, SDSL modems promise to bring T-1-line capability to homes on twisted-pair copper wires for about $10 a month. SDSL follows many such copper prosthetics announced over the years (notably HDSL [high bit rate digital subscriber line] from Level One, PairGain, Brooktree and others), all largely spurned by the telcos on pricing grounds, but capable of transforming the entire world of Internet access before ISDN's niggardly pipes catch on with the public.

While Internet hardware rushes ahead, Netscape, Sun and other providers of Internet software make the ISP a fast and elusively moving target for the telcos that wish to compete. With eight million browsers in the field, all upgradeable to the new 2.0 system_with the Java interpreter and Java multimedia programming language and toolkit_Netscape expects to attract some 100,000 software developers to its platform over the next year. There are already some 400 Java applications available, including word processors, spreadsheets and games that can play on any machine with a browser running a Java interpreter, regardless of operating system or microprocessor instruction set.

Netscape's expected army of 100,000 developers compares with some 10,000 developers for Apple's Macintosh and perhaps 3,000 for Microsoft's network, MSN. Emerging from a company that did not even exist two years ago, such a juggernaut will further empower the ISPs in their competition with the large invaders of the territory_not only the telcos but also the on-line services such as America Online and MSN.

The ISPs, however, are not usually in direct competition with the large phone companies. ISPs bring them new customers and new business users, and the ISPs also depend on them for home connections and for potential fiber- retaking services. The American telcos are currently laying some 1,300 miles of fiber-optic line every day. Moreover, beginning with TCI's and Kleiner Perkins' at home system, which functions with cable modems and new software from Netscape, the ISPs also may end up using cable plant. As cable modems become available, cable companies will likely turn to the ISPs to supply Internet services, local content, technical support and point-of-presence technology.

In the midst of these whitewater torrents of change, the some 4,000 ISPs and their increasing armies of supporters represent a serious threat to many of the established empires of telecom. Not only can they move much faster and more resourcefully, but they also have the key advantage of having bet exclusively on the PC and the Internet as the platforms of the future. However smart and powerful, Ray Smith, Mike Ovitz of Disney, Gerald Levin and Ted Turner, Sumner Redstone and other aspiring Kings of the Road still entertain crippling sessions of set-top boxes and interactive TV sets.

Andrew Grove of Intel had the last word for these efforts when he told Forbes ASAP last year: "By the time the set-top people reach the price points and form factors of consumer electronics and penetrate 30% of homes, the personal computer will be everywhere, controlling the TV like a minor peripheral." Bill Joy elaborated on this point in the October issue of Red Herring: "By the time [they] bring digital TV to the home, you will be able to take your Super Netscape version 4.0 Web browser with Super-Ultra-HotJava- Burners, and that will be your animated user interface. [The TV people tried, but] it's like the Internet happened in the meantime. Right?"

Distracting most of the large companies (seen by the Internet's critics as impending monopolists), the pursuit of the set-top not only misses the point and begs the question but it also blows the key new hardware opportunity of the epoch. Although the PC will not be dislodged for most office applications, there is a real and rare chance today to create a new home architecture and software optimized for bandwidth rather than for installed base. Together with the Java language, the Web browser breakthrough allows creation of new network PC and software architectures at price points that take advantage of the "hollowing out of the computer" caused by the impact of the Internet. Sun, Apple, Oracle and Jean-Louis Gassee's BeBox are all focusing on this target today. All are trying to take advantage of the elusive opportunity of creating cheap machines optimized for bandwidth and graphics rather than for legacy software baggage (the storage can be supplied on the Net). That opportunity follows the PC and Internet model_the microcosm and the telecosm_into the cornucopian digital future of the information age, with the old analog TV and telephone left far behind.

AMID ALL THESE TORRENTS of futuristic technology and prophecies of a tragic denouement in a wasted commons, it is comforting to return to the man who began it all, Vinton Cerf of MCI. Coinventor of the Internet protocol TCP/IP, developer of the once-pioneering MCI Mail service, and both a poet and a philosopher of the Net, he is now in charge of MCI's data network, which includes MCI's Internet backbone network. A rare combination of technical grit and visionary enthusiasm, he faces resistance from forces within the company that still lust for the glamour of Hollywood and see the Internet as the CB radio of the 1990s. Nonetheless, Cerf at 52 is leading MCI toward a new Internet- centric strategy that is more likely than the MCI lobbyists to save the company from the grave perils of long-distance deregulation. The company is already creating a new backbone for the National Science Foundation part of the Internet, connecting supercomputer centers and other high-bandwidth applications at speeds of up to 622 megabits per second. MCI also is a major supplier of Internet bandwidth. Its network connects to all six NAPs (national access points) through which the ISPs link to one another.

Cerf observes that the national phone network grew at a similar pace through much of its history and regularly met every challenge. The telcos, for instance, surmounted the predicted crisis Of the NAPs early this year, when_ following the withdrawal of government funds_the network was expected to collapse under galloping increases in traffic. But the NAPs, despite unsuccessful struggles with the remaining instabilities of ATM (asynchronous transfer mode), ultimately rose to the challenge, saving the Net by using fiber optics and digitization, as well as transparent silicon and opaque silicon.

Today, new entrepreneurs are rising up to shape the future of broadband networks and possibly seize the market from the incumbent backbone suppliers. Silicon, both see-through and solid, remains at the heart of the solution. One of the ways MCI is meeting the challenge of the future is by purchasing eight "gigarouters" from NetStar, a startup in Minneapolis that is exploiting Moore's Law to bring IP (Internet Protocol) switching and router technology into the microcosm.

Launched five years ago by a group of veterans of the Minneapolis supercomputer scene_Lee Data, Cray and other companies_NetStar went public this fall at a $83 million valuation. It is pioneering an elegant routing architecture that gets eight times the throughput of a Cisco 7500 at a 20% lower price. While existing routers run bits down shared backplane buses, NetStar's IP router reserves a full one gigabit per each of up to 16 media cards attached to a single-chip TriQuint 16 gigabit-crossbar switch.

Ubiquitous on the Internet, Cisco remains an imperial force. But as the microcosm advances, it too faces threats. Not only can it not compete with NetStar at the top of the line but it also faces Livingston, Ascend and possibly even Compaq at the bottom.

Critics of the Internet have long predicted that as ever-more-turbulent floods of broadband data and Web images crowd the commons, the Net will no longer be able to bear the load. The routers in the NAPs and other critical paths will jam up and crash. But the microcosm enables a constant stream of exponentially more powerful new architectures as functions that were once spread out across entire boards collapse into single chips and multichip modules.

For 1995 and beyond, MCI has bet on NetStar's feats of microchip integration to countervail every population explosion across the network commons. Following the laws of the telecosm rather than the megalithic visions of the critics, the fast new networks are becoming constantly dumber and more entrepreneurial. Ciena Corp., a small, venture-funded vendor of optical networks, is now supplying the next generation of backbone gear, a system that can carry 16 separate bitstreams on every fiber thread. The first application of the new all-optical technology in public networks, Ciena's innovation is a precursor of the terabit (trillion-bit throughput) networks that will be filled with video teleconferencing, video on demand, virtual reality, and other bit-thronging and polygon-shuffling applications of the future.

Only one competitor, Northern Telecom, might challenge NetStar and the others providing the new superswitches dumb enough to prevail at the top of the line. In early October, Northern's BNR lab exhibited a terabitswitch architecture at the Telecom 95 show in Geneva. This machine, once again, illustrates the triumph of dumb networks. The dumb terminals of the past, whether POTS phones or mainframe 3270 panels, required smart networks, with central-office switches from Northern and AT&T containing no fewer than 26 million lines of software code. But the new Northern terabit uses passive optical components and virtually no software at all. It points to the evolution of a fibersphere for broadband wire traffic that will function like the atmosphere for wireless traffic. (See Forbes ASAP, "Into the Fibersphere," December 7, 1992.)

While the critics of the new technology fix on the foibles of television and the monolithic aggregations of old media, the Internet is emerging as an entrepreneurial efflorescence. Comparing the Net to the decline of CB radio and the tragedy of the commons misses the providential convergence of the laws espoused by Moore and Metcalfe, with thousands of entrepreneurs in tow, exponentially expanding the commons with streams of new invention in a creative spiral of growth and opportunity. In seeing the technology as a killer of jobs and family life and a polarizer of opportunities between rich and poor, they miss the most radically egalitarian force in the history of the world economy.

The critics seem oblivious to the most basic realities of the U.S. job miracle. While the U.S. deployed three times as much computer power per capita as any other industrial region, this country created some 45 million jobs in 25 years at rising, real incomes. Not only was the U.S. a world leader in the proportion of its working-age population with jobs, but it also created employment for some 12 million immigrants, while its corporations endowed new work for people around the globe.

At the same time, a billion people, mostly Third World Asians, used the technology to leap into Third Wave riches without ever having to endure a heavy industrial phase. Gaps between the rich and the poor collapsed everywhere that the networks reached, as former peasants around the world_ from Bangalore to Los Angeles_gained new freedom and opportunity from the information economy.

The Internet creates jobs by making workers more productive, and thus more employable, regardless of where they live. By engendering more investable wealth, it endows new work, providing the key remedy for the job displacement entailed by all human progress. By aggregating distant markets, the Internet enables more specialization, and more productivity and excellence. It will help all people, but most particularly the poor, who always comprise the largest untapped market for enterprise. And the Internet will continue to grow, transforming the global economy with its power and building a new industry even larger than the PC's.

FUELING THE TRANSFORMATION are the laws of the telecosm. They begin with Metcalfe's Law: The power of computers on a network rises with the square of the total power of computers attached to it. Every new computer, therefore, both uses the Net as a resource and adds resources to the Net in a spiral of increasing value and choice. This means that any limited, exclusive or proprietary network will tend to lose business to a more open, accessible and widely connected network. Metcalfe's Law dooms all the dreams of the Time Warners of the world to create exclusive and proprietary combinations of content and conduit.

As a further rule, networks prevail to the extent that they feed on the invention and creativity of their users, since the power of the computers on the edge of the network will increasingly dwarf the intelligence of the network fabric itself. For example, a 5ESS central-office switch from AT&T, commanding some 10 MIPS (millions of instructions per second) and linking some 110,000 lines, once represented the most powerful computer in a local phone network. Today those 10 MIPS are infinitesimal compared to the collective computer power of the tens of thousands of personal computers, each commanding 20 to 100 MIPS, linked by modems to the switch.

Lacking an entrepreneurial environment of inventive users, the government-run PTTs (Post Telegraph and Telephone) of Europe have been rapidly losing ground to the U.S.'s more rivalrous RBOCs (regional Bell operating companies) and long-distance carriers, and all have been losing ground to the explosion of interconnected private nets. The U.S. has some 700,000 private networks compared to just 14,000 in Europe and some 75,000 in Japan. Private nets that feed on the creativity of their users will always tend to prevail over public nets, such as France's Minitel or America's interactive TV projects, that try to supply their entire system from a central office.

Eric Schmidt of Sun offers a true parable of the Net. Back when the Internet was the ARPAnet, two routers were added to the system, but the routers' hopping ratio (the number of hops to any destination) got stuck at zero. Because traffic always seeks out the optimal path, most of the traffic on the Net rushed to these two machines, since they promised instant transmission. Until the settings were corrected, the system was swamped.

On the Net, traffic will always gravitate to the most efficient broadband channels. If the telcos and software monopolists attempt to gouge customers in a badly designed and costly "top-down" network, traffic will migrate rapidly toward the freedom and bandwidth of a bottom-up solution. In the emerging global Internet, these channels could emerge among bypass suppliers using dark fiber; among low-earth-orbit satellite systems, such as Teledesic and GlobalStar; among cable companies and renegade long-distance suppliers; or among companies as yet unknown.

Guided by the valuations of the market, capital follows a similar rule: It is routed rapidly to the channels where it can be used most productively. At present, afflicted by perverse regulations that bar phone and cable companies from collaborating in the same region, valuations of these companies are low. Meanwhile, analysts complain of the excessive valuations for ISPs, such as Netcom, and their suppliers, such as Cisco, 3Com and Netscape. Not only traffic but also investment flows to the least regulated and most entrepreneurial arena.

A further law of the telecosm ordains that, in an age of dumb terminals and phones, traffic flows to smart networks full of intricate software. In an age of ever-multiplying computer power, impelled by Metcalfe's Law, traffic flows to the dumbest networks that gain their intelligence from the variety of powerful machines attached to them. A corollary is that, along with traffic, capital flows to the dumbest and most broadband nets with the most computer intelligence on their edges.

Perhaps most important of all is the cultural law of the telecosm. Networks promote choice, choice enhances quality and quality favors morality. Television is culturally erosive because its small range of offerings requires a broad, lowest-common-denominator appeal. Linking to millions of cultural sources, global networks provide a cornucopia of choices, like a Library of Congress at your fingertips. On the Net, as at a giant bookstore, you always get your first choice rather than a lowest-common-denominator choice. A culture of first choices creates a bias toward excellence and virtue.

The critics of the Internet are mostly skeptical about the value of choice. But choice validates freedom and substantiates individuality. Choice accords with the inexorable genetic diversity of humans. It makes possible individual aspiration and creativity. It is the lowest-common-denominator offerings of mass-broadcast media that lower humans to the animal level, eclipsing the differences that make us human, cutting off the higher aspirations and inspirations that elevate us beyond our appetites, reducing us to an impressionable crowd, zapping through the channels looking for a splash of blood or flash of nudity or demagogic spiel of hate.

In prophesying centralization and tyranny, the Cassandras miss the centrifugal force of the Law of the Microcosm, overthrowing all monopolies, hierarchies, pyramids and power grids of established industrial society and endowing individuals with the power to be transcendent and free.

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