Fergus Cassidy

The future is still in bits

IT IS being called the 'Enron of telecoms' but it is more like The Great Gatsby. If the dotcom fiasco started to let the air out of the tech stock tyres, then the events at MCI/Worldcom last week are bringing the vehicle to a swift halt. Strange days indeed.

Strangest of all is why any telecommunications company has to engage in sleight-of-hand conjurer tricks in order to drum up 'profits'. Is this not the communications age? The era of the information superhighway? If it was just one company like Worldcom that was in trouble, then it would be written off as such. But a lot of the big multinational telcos are debt laden and struggling to cope with it. They might spin it off as something else but they are mired in the quicksand.

But Worldcom is one of the biggest and brightest stars. It is also much more than a traditional US telco. It is one of the biggest carriers of internet traffic. Estimates vary as anything between 30%-60%. The company mergered with a global backbone network called Uunet a number of years ago. This global network is of critical importance to the internet.

Now with Worldcom under investigation by the US government, there a lot more people worried about its future than the banks it owes money to. There are other companies who depend somewhat on Worldcom and they will be hastily convening meetings to assess the damage. Analysts in the US are not in the mood for calming the waters in this particular storm, some even going as far to say that bankruptcy is inevitable.

So much trust has been destroyed with the venture capitalists and bankers. Then there is the fear the big corporations might be vulnerable to losing communications facilities if Worldcom hit the wall suddenly. Those businesses might just be tempted to move now. Competitors, such as AT&T, are waiting with open arms.

So Worldcom sacked their chief financial officer. And statements from Andersen, their former accountants, seem to be pointing the finger at the same unfortunate fellow. Was he acting in isolation? The Lone Gunman theory? Nobody else in such a giant and prestigious company of top managers and consultants didn't spot what was going on?

But let's be generous here for a moment. Just say that other people did know what was going on. Why did they do it? Well, they were spending money on something that they couldn't guarantee would work. Large amounts of money. Building internet infrastructure is a costly business but the rewards must have seemed worth it at one time.

At the height of the goldrush three years ago, it must have been tempting to try and get the lion's share of internet traffic. It may have been hard to make a buck but any day now the multimedia content roadshow was coming to town. Worldcom got screwed. And they won't be the last either.

After last week's tremor, what odds will the bookies now give for anyone coming up with an answer to the question: 'How do you make money on the internet'? It's an impossible question to answer. Nobel would have problems. The whole thing is too new and there are too many variables. Quite a few ifs and buts as well.

First off there is the internet and the business of the internet. Two entirely different species. The net is just a collection of computer code and protocols that allow computers to 'talk' to one another. It's a geek thing and potentially one of the greatest technological breakthroughs since sliced bread.

But the business of the internet makes the whole thing work. It costs serious amounts of money to build and maintain the hardware of the net. The servers, databases, software and the wires that it all runs on are mostly owned by private companies, who aren't exactly queuing up to boast about their profit margins.

What ended with the demise of the dotcoms was the fantasy of 'build it and they will come' strategy. There was a bit of fall out - Merrill Lynch fitting the label nicely - but it was a whimper rather than a bang.

But there's real anger now. And not just the anger of those who are getting burned in telco stocks, but the wrath of those who consider that they have spent all this investment money on something they were led to believe was going to be bigger than anything Mr Ford dreamed up.

The big telcos in Europe, for example, have spent the rent money on licences for so-called Third Generation (3G) phone networks and they don't know if they'll ever see their money again. For the last seven or so years, the net has been built on a giant experiment. A partnership of commercial and non-commercial interests. Not in any formal sense but in a way that recognised their mutual interests. The standards bodies such as Isoc or Icann, both non-profit and NGO in the case of Isoc, were more than happy to have discussions and develop consensus as part of one big happy family.

This was where the net was going to change the world. It was going to be revolutionary. A paradigm shift. There was information and business would gain from that. The world would communicate and the profit margins would also benefit.

That marriage of convenience is already on its way to the divorce courts. The kids are in a right state and the friends and relatives are fighting over who gets to see who. And there's going to be one hell of a row over who gets to keep what.

It could have been very different. The 'build it and they will come strategy' might have worked. If the music, movies and games had come online. But Disney, EMI et al put paid to that. "Why should we take a dive for something that nobody could guarantee would work?" Or if the telcos had played ball and completely switched to a new and untested revenue model. And then there were the lawyers.

It has taken the Worldcom wobbler to bring it front and centre that the internet is in play. The actors are taking their positions for a rousing rendition of that song that goes "No you can't... yes I can". Copyright versus copyleft. Open source versus proprietary. Public versus private. Commercial v non-commercial. Patent v innovation. There's a great battle going on right now for the heart and soul of the net.

Not for the servers or the wires, but the fight for control over what happens next. Last week in Bucharest, Icann, the group chartered by the US Department of Commerce to run the domain name system, voted on major reform. It was a step that will see non-commercial entities no longer having direct input into decisions. Isoc rubber-stamped a similar position the previous week in Washington.

It's payback time and the quickest and surest way to resolve this conflict is to try something that has already proven to be a surefire money-spinner. Broadcasting. There is a way to orientate and configure the net so that the bandwidth is optimised in one direction. Vint Cerf pointed out recently that companies were inhibiting innovation by letting users receive information faster than they can send it. "That leads to a lot of peculiar effects", he said. "Two people could each receive high-quality video but can't send it."

It's cheaper and more efficient to build one-way networks and then charge the content providers and the viewers. Chi-ching.

If HBO or Sky were able to get their fingers out and show the big fight, then indeed the revolution will be televised.