Interesting letter....


----- Forwarded by Sue Nord/NA/Enron on 03/01/2001 01:36 PM -----

	"Pisciotta, Aileen" <APisciotta@KelleyDrye.com>
	03/01/2001 10:43 AM
		 
		 To: "'sue.nord@enron.com'" <sue.nord@enron.com>, "'scott_bolton@enron.net'" 
<scott_bolton@enron.net>, "'sburns@enron.com'" <sburns@enron.com>
		 cc: "Wilson, Heather M." <HWilson@KelleyDrye.com>, "Aamoth, Robert J." 
<RAamoth@KelleyDrye.com>
		 Subject: FW: [powell_interns] Gilder Letter to Chairman Powell

Dear Sue, Scott and Steve -- The letter below from George Gilder to FCC
Chairman Powell sets important parameters for our "vision".  We anticipated
that Powell would be unimpressed, if not hostile, to "open access"
approaches, but this should put a nail in the coffin.  The watchword will be
"innovation".  I imagine that both "Telecosm" and Hamel's "Leading the
Revolution" are high on Powell's reading list! 

We look forward to talking with you next week.  Aileen.

-----Original Message-----
From: Engel, Michael C. 
Sent: Wednesday, February 28, 2001 6:22 PM
To: Telecommunications Practice Group
Subject: FW: [powell_interns] Gilder Letter to Chairman Powell


This is an interesting letter to Commissioner Powell published last week.
Given the level of respect that the Commissioner has for Mr. Gilder (MKP has
repeatedly referenced Gilder's book Telecosm and speaks of him frequently),
it may be worth reading.  In any event, it gives a pretty good 30,000 foot
view of telecom policy considerations.

-----Original Message-----
From: Paul Jackson [mailto:pjackson@fcc.gov] 
Sent: Friday, February 23, 2001 12:09 PM
To: powell_interns@yahoogroups.com
Subject: [powell_interns] Gilder Letter to Chairman Powell


** Confidential **

The Wall Street Journal
Copyright (c) 2001, Dow Jones & Company, Inc.


Friday, February 23, 2001


The Broadband Economy Needs a Hero
By George Gilder and Bret Swanson

  Dear Mr. Powell:

  Whether you know it or not, your leadership and decisions over the next
four years will have more impact on the economy than those of Federal
Reserve Chairman Alan Greenspan.

   Surely, our stock-market swoon of 2000 and stagnating economic growth in
2001 are partly due to the Fed's inexplicable liquidity leash combined with
the highest tax burden since World War II. But the chief threats to the
21st- century economy are the politicians, bureaucrats and Silicon Valley
know-nothings responsible for America's broadband connectivity crisis.

  We owe Les Vadasz of Intel an apology for making fun of his prediction
that narrowband links would prevail into the 21st century. The Internet as
we know it is about seven years old, yet fewer than 7 million of 100 million
American homes enjoy broadband and its wealth of social, commercial and
educational opportunities.

  Contrary to popular belief, the chief obstacle to progress is not
entrenched Bell operating companies, but a regulatory regime that presumes
to "level the playing field," "equalize access," and "promote competition."
The only result of these policies has been the effective nationalization and
paralysis of broadband.

  The 1996 Telecommunications Act ruled that in exchange for the right to
enter the long-distance telephone business, the Bells must open their
residential copper lines to competitors, as well as allow these competitors
to locate equipment in Bell central offices and offer digital subscriber
line (DSL) services over Bell-owned copper. In November 1999, the FCC issued
a further decree forcing the Bells to stop dragging their feet and
cooperate.

  The FCC actions spawned a new category of start-ups known as broadband
competitive local exchange carriers (CLECs), which planned to compete with
the Bells. Funded by billions of dollars in Silicon Valley venture capital
and public offerings, companies like Rhythms, Northpoint, Covad and Jato
earned praise from "libertarians" in both Washington and Palo Alto, Calif.
Northpoint even had freedom-loving former FCC Chairman Reed Hundt on its
board.

  But despite all good intentions, these were not high-tech start-ups. They
became venture capital-funded lobbying and litigation shops intent on
forcing the Bells to share their copper. With more press releases on new
lawsuits than on new subscribers, one of the companies epitomized the
strategy: "Rhythms continues successful regulatory litigation." The result
of all this lawyering? The CLECs won everything. Access to copper wherever
they sued. Multimillion- dollar awards from the Bells. And bankruptcy.
Bankruptcy?

  Late last year, Northpoint filed for Chapter 11 after Verizon withdrew an
$800 million investment. Jato closed its doors. Rhythms cut its staff by
23%. Covad is slashing 800 jobs and closing 260 central offices. Of Covad's
274,000 lines in service, 92,000 are not "recognizing revenue." And all of
this is happening in the face of massive consumer demand for broadband
services.

  The problem is that DSL is risky and hard. Some studies have reported that
50% of DSL hook-ups fail on the first try. Even amicable relationships
between CLECs and Bells are a software nightmare, with a different billing
and provisioning system for each service provider. Such difficulties render
DSL not a matter of will and politics but of technical and entrepreneurial
risks. Companies are forced to invest heavily in research and engineering
personnel, but have few opportunities for outsized rewards.

  That's because Congress and the FCC set up an awkward scheme in which
everyone got a piece of the action but no one could make any money. Often
barred from carrying signals across long-distance boundaries, the Bells hand
off traffic to other long-distance carriers. CLECs rent lines from the
Bells. And Internet service providers end up doing costly customer service
and marketing to get people signed up in the first place. In short, as many
as four parties routinely battle for low- or negative-margin chunks of
$40-monthly bills.

  By summoning new competition and then mandating the rivals cooperate in
open access, the government effectively privatized the risks and socialized
the profits. By December, the Bells had signed up 1.8 million users and the
CLECs 600,000, combining for just 2.4 million DSL subscribers among the 120
million or so copper-connected U.S. homes and businesses.

  Cable modems, with 4.9 million subscribers at year-end, have done better,
but AOL Time Warner and AT&T, America's two cable behemoths, are bogged down
by the same open-access nonsense that plagues DSL. Over the past two years,
AT&T CEO Michael Armstrong acquired $140 billion in cable assets while
watching his company's $184 billion market capitalization plummet to $81
billion.

  Just last month the Federal Trade Commission ruled that AOL Time Warner
must offer "at least one non-affiliated cable broadband ISP [Internet
Service Provider] service on Time Warner's cable system before AOL itself
begins offering service, followed by two other non-affiliated ISPs within 90
days and a requirement to negotiate in good faith with others after that."
The nation's second-largest ISP, EarthLink, will now get access to AOL's
expensive cables pretty much for free.

  This regulatory morass treats the most dynamic, technically creative, and
transformative industry in the world economy as if it were some static
commodity market for corn or pork bellies.

  Mr. Chairman, in a recent speech you made the key point that innovation is

more important than price competition. When it comes to leading-edge
services and technologies, narrow price competition is almost meaningless.
Internet innovation means qualitative change, order-of-magnitude price
reductions and constantly changing services that always constitute
monopolies when first launched.

  No Internet advantage can last more than a couple of years. In 1999 and
2000, over 150 million kilometers of optical fiber were laid world-wide,
enough to stretch to the sun. Hundreds of billions of dollars have already
been invested by metropolitan fiber-optic network builders (Metromedia
Fiber, Level 3 Communications), optical hardware companies (Avanex, ONI,
Sorrento) and optical service providers (Yipes, Cogent, Sphera). These
companies are already rendering the metropolitan DSL debate moot with
thousand-fold increases in price performance over existing technology.
Similar breakthroughs are on the way in residential wireless. But none of
these deployments, including fiber to the home, can flourish under a regime
of forced sharing of entrepreneurial assets and profits.

  In this environment, let the Bells compete in long-distance and extort any
temporary profits they can from their local copper cages. Let the cable
companies capitalize on their advantage for the few years it will last.
Allow the infinite spectrum of air and fiber to be exploited in any way its
owners wish. Then, sit back, and nostalgically recall those early days of
the Internet, when we naively thought a 5% economic growth rate was really
something. The broadband economy needs a hero. President Bush and Mr.
Greenspan need a technology savior. You are the man best equipped to play
that role.

  --- 



Paul A. Jackson
Special Assistant to the Chairman
Office of Chairman Michael K. Powell
Federal Communications Commission
445 12th Street, S.W.
Suite 8B201
Washington, DC  20554
Phone: 202-418-1000
Fax: 202-418-2801
E-mail: pjackson@fcc.gov
Web Site: http://www.fcc.gov/commissioners/powell/

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