Subject: Re: Backbone congestion

From: Greg Skinner <[email-masked]>
Date: 1 May 2002 23:36:35 -0000

grant mcdonald <[email-masked]> wrote:

> hi, a friend of mine is laboring under the delusion
> that the internet (the backbone services such a UUnet)
> are suffering from a "too much supply, not enough
> demand" problem right now, and that this is what is
> hurting Telecom stocks.

> i can't seem to convince him that nothing could be
> further from the truth, that in fact there is SO much
> DEMAND, that prices are at an all time high, and the
> reason telecom stocks are shitty is because of
> congestion on the networks.

Well, it seems to me that there can be congestion even in the
presence of an abundance of bandwidth.  Congestion is a property
of network dynamics.  To make a (simplified) analogy, consider how in
major cities, there can be severe congestion at certain intersections,
with little or none at others.  Making the major arteries wider (more
backbone bandwidth) does not necessarily relieve the congestion.
Changing how the traffic moves, e.g. by resequencing the traffic lights,
or even putting traffic lights in where previously there were only
stop signs, can.

[off topic-ish]

That said, I find it distressing that telecom and networking stocks
continue to be under pressure, not just because I'm an investor, but
also as a professional in the computer industry.  Also, to tie it in
with the rfc3271 thread, there is a feeling in some parts that IPR
laws (that even restrict or prohibit copying for personal use) need to be
passed to encourage provision of video-on-demand services, which will in
turn encourage the buildout of infrastructure to carry such services, ie.
telecommunications networks.  If that's what it takes to make the telecom
industry healthy, I'll be disappointed (although not too surprised).  After
all, there is past precedent, e.g. in licensing of communications spectrum
and the rise of the broadcast industry, that what wound up driving
innovation and buildout of the infrastructure was primarily
one-to-many commercial information and entertainment.  Perhaps it was just
wishful thinking that the Internet was somehow "different" in that it would
not only create a financially viable means of peer-to-peer communication,
that it might somehow reshape society so that peer-to-peer would be able to
pay for the buildout of the infrastructure without the necessity of the
one-to-many revenue and the types of regulation that generally accompany it.

I think your friend is quite right; telecom stocks are being punished
because there is an overabundance of supply and no demand.  There is a
lot of evidence to support this.  All that infrastructure was built out
in advance of what was thought to be a "revolution" where anyone and
everyone could set up shop on the Internet and become wealthy.  Problem
is, too much of the sources of these funds were investors looking to reap
huge rewards from IPOs, etc.  After a while, it became apparent that most
of these companies were poor investments.  The money to fund these ventures
went away, then the ventures went away, but the infrastructure remained.
(IMHO) the normal course of business that seeks to make a reasonable profit,
as opposed to great wealth, can't drive the telecom industry to the heights
it was at a couple of years ago.

--gregbo