Coppers Killers: Narad Wants the Telcos' Lunch
Locke, Christopher
"Coppers Killers:" Someone Wants the Telcos' Lunch BY CHRISTOPHER LOCK Andy Chapman has a wager for you. A veteran technology entrepreneur and o-founder of a two-year-old startup in suburban...
...Oh, and do it right now, before the whole high-tech sector sinks under a red-ink tide...
...And when it actually workswithout, say, inadvertently dropping half the bit stream-it's a lot better for Web surfing than your 56K dial-up...
...Narad believes homes might one day be connected for $500 each...
...Not the future, in other words...
...Emboldened by the 1996 Telecommunications Reform Act, the CLECs threw billions of dollars at the DSL dream...
...An easy thousand dollars, right...
...Narad's projections for new cash flow from an upgraded system are striking...
...SBC is deploying its own new new thing, passive-optical network.Verizon is said to be testing advanced broadband wireless...
...The top 400 are invited to the Indian Institute's Kampur campus...
...residential cable TV market...
...Small businesses routinely plunk down $1,000 a month instead for more reliable 1.5 megabit a secondT-1 lines...
...And even the RBOCs still have DSL regulatory troubles: Just last year, SBC cancelled $2.6 billion-worth deployments in Illinois because of rate restrictions imposed by the state utility commission...
...he ended up finishing number two in his graduating class...
...Narad will succeed because the telechasm needs to be bridged, and Narad is best suited to do this," says Metcalfe, who knows a thing or two about the value of the final piece that completes a complex technological system...
...And at Gupta's behest, they set to work on designing chips that can handle electromagnetic signals that previously escaped useful detection...
...But there's more.The core of Narad's customer strategy-its value proposition, if you like-is for cable companies to go first after small and medium businesses, SMBs in marketeer-speak...
...I'm not a staff guy," he says...
...Cable is ubiquitous...
...Clicking and tapping echoed louder than the muted conversations...
...A total of $19 million went into the pot to found Narad Networks...
...For $1,000 you can take on his boast that one of the FCC-cosseted, money-grows-on-trees, telecom-meltdownsurviving RBOCs-combined 2001 revenues: $157 billion-will succumb within five years...
...From The Cable Guy to bandwidth bliss...
...But Andy Chapman is happy to be frank about the second reason-"because in 1995 there was a market opportunity for it, and we were able to sell the companies for a lot of money to Cisco...
...Much of IBM's original SiGe team now works at Narad...
...TOO GOOD TO BE TRUE...
...A quick trip to LongBets.com shows how serious Chapman is...
...Next came MaxComm, in 1998, which put voice and data over DSL...
...They have already buried the CLECs and most of the "next generation" fiber optic networks...
...Things were different down in the basement, where Narad's 90-member engineering contingent has an advanced technical group working on modem devices, a software team, hardware team, a radio-frequency team and others...
...And thus it was Dev Gupta's mathematical skills-among other things, he is an accomplished bridge playerthat pointed him toward a solution: to look for unutilized bandwidth outside the conventional cable operating spectrum...
...Lovely stuff (and yes-that long agoNarad was indeed a Hindu sage...
...Together, he and Chapman may well have a deeper understanding of DSL and a greater appreciation of its shortcomings-than anyone in the world...
...Broadband is the Moby Dick of high technology: talked about obsessively, pursued by Ahabs from Bernie Ebbers and Jim Crowe to Reed Hundt and Michael Armstrong, but maddeningly always just out of sight over the horizon...
...RATTLING THE CAGE gopper's just not going to fly-it's a nonstarter," Chapman says...
...WISH YOU WERE HERE At Narad headquarters earlier this year, a sign just inside the front door read "Welcome Cabletron" in light blue letters...
...cornpanies with 100 employees or less...
...The result, when it finally gelled, were two companies in quick succession, both focused on a then bright new technology that used whizzy electronics and clever software to coax all the bandwith possible out of the phone system's copper: DSL.Why...
...Anyone who doubts DSL's downside need look no further than the wreckage of the CLECs-the competitive local exchange car riers, erstwhile high-flyers with names like Northpoint, Covad and Rhythms...
...It's interesting to speculate what America might look like today were it not for the steady infusion of eager immigrants, able to keep innovating faster than our home-grown politicians and corpocrats can legislate and litigate...
...So I'll further predict that as a result we'll see the telephone industry equivalent of Amtrak-let's call it Amphone-to offload all of the currently cross-subsidized consumer phone business onto the backs of taxpayers...
...Acquiring just three business customers doubles a cable company's profit stream from a hypothetical 120-home network segment...
...And there's no way you're going to get that from the current telephone or cable-modem infrastructure...
...But for anything more demanding, DSL- s the geeks say-sucks...
...With Andy Chapman back on board, the newly formed company then went out and quickly raised another $49 million, just over half of it from Boston-based Polaris Ventures...
...But digging up sidewalks and streets to lay the delicate fiber runs about $300 per foot assuming you can navigate municipal trenching prohibitions, extortive politicians and finicky building managers...
...The first generation of Narad gear, being rolled out now, more than doubles cable's usable spectrum, to 2.5 gigahertz...
...But in the here and now, there is one final possibility: cable...
...We'll spend billions underwriting universal service for mostly undeserving consumers...
...You bet: "Market-share losses in the small-and-medium-business sector will cause them to lose creditworthiness and thus access to debt capital...
...Too small to afford their own wholesale telecom deals, they are captive to the Bells' artificially pegged rate schedules...
...Cell phones chirped incessantly or buzzed to themselves on conference room tables...
...He first came across Gupta on a late-1980s head-hunting foray through AT&T, where Gupta was by then a vice president...
...But whatever the cause, broadband's slow take-up rate (to use the industry phrase) has been a prime culprit in the ongoing meltdown of the telecommunications sector...
...Except for the Boston Bruins bumper stickers, it could be Any Company, Silicon Valley, U.S.A...
...at the University of Massachusetts, then headed off to the fabled Bell Labs...
...MAY/JUNE 2002 • THE AMERICAN SPECTATOR 53...
...Indeed, according to Narad's calculations, a single SMB customer equals 40 homes in terms of revenue potential...
...Zero-sum, no more-at least not until an awful lot of subscribers start doing holographic virtual-reality teleconferencing, on wall-sized screens...
...And though Narad offers a huge new "pipe 'into the home, the diverse, dynamic Internet it would feed on is a very different place from the cable world's current realm of pre-packaged "content"-entertainment, sports, premium services...
...TWO-WAY STREETS Today's cable TV systems were designed as broadcast networks, blasting out the same signal to every subscriber, who then tunes in a selected frequency-what comes on the screen as a channel...
...And even more to the point, a two-way street that makes the 1990s idea of an "Information Superhighway" look like a country lane...
...Nor the politics, we might add...
...Customers can choose service at 10, 100 or 1,000 megabits a second-or anything in between-depending on how much they want to pay...
...Does he have a scenario for how that will happen...
...That is, when you actually get full speed, which for a lot of quickly disappointed users, means never...
...household in 10 has signed on...
...Next year's version will double that again, to 5 gigahertz...
...Though cable bandwidth is copious by phone-system standards-each of the hundred-odd channels in a typical system takes up roughly 6 megabits per second-it is not unlimited...
...According to the company Web site, "Narad is the name of a mythical sage who was the prototype of today's networked person...
...But in the newly available high-frequency spectrum, Narad gear creates a full-blown switched gigabit Ethernet network-exactly what desperate commercial users beg for today...
...And the reason will be the collective ingenuity of Chapman, his soft-spoken Indian en i re boss Dev Gupta, their pile of barely intelligible patents and 150 employees...
...The sense was of tiniest possibilities that could yield enormous results...
...COPPER MLLE Someone Wants the Telcos' Lunch B Y CHRISTOPHER LOCK E A ndy Chapman has a wager for you...
...As a result, SMBs pay an astonishing $62 billion to the Bells every year for telecommunications services...
...True broadband-the kind of connectivity that will enable full-motion video, flawless Internet voice services, peer-to-peer networking, and massive remote storage utilities, the stuff of Sony TV commercials and Silicon Valley dreams-requires a hundred tithes that, 100 megabits a second...
...A veteran technology entrepreneur and o-founder of a two-year-old startup in suburban Boston, he's willing to bet that at least one of the four Baby Bells-the proprietors of America's phone system, the gilded offspring ofAT&T-will go bankrupt by 2007...
...As cable networks went digital in the 1990s, about 5 percent of their available bandwidth was converted over to reverse or "upstream" transmission, allowing rudimentary interaction such as pay-per-view movies, and also modem-based Internet access...
...Most cable companies have little experience with business customers-couch potatoes are more like it...
...But the essential problem remains: How do you take a one-way broadcast network and turn it into an Internet-style, two-way street...
...Cable providers therefore prefer using it for services that are actually profitable, including basic and premium TV channels, advertising and those pay-per-view films...
...The key to that is silicon germanium, a chip-making material whose smaller "band-gap" allows electrons to flow more freely and thus faster than they do in straight silicon...
...Current consumer services-cable TV, cable modem, video-on-demand, first generation voice-over-cable-all still operate as usual...
...Firms like Cogent and Telseon are offering business customers in urban areas 100 megabit or even gigabit-that's a billion bits a second-Ethernet connections, carried over custom-built optical fiber networks...
...Andy Chapman trod a different path...
...Chapman thinks Narad has set up a supreme battle between the Bells and the cable TV operators-Adelphia, Cablevision, Comcast, AT&T, Cox, Charter, Time Warner-that goes far beyond residential broadband.The FCC is helping...
...A Yale and Wharton Ivy Leaguer, he spent a decade as a venture capitalist, high tech's brahmin class...
...Former Metromedia Fiber CEO Steve Garfolo believes fully wiring America's businesses with optical fiber could require half a century, which reality has turned leading-edge thought toward taking to the airwaves, with one or another bleeding-edge wireless technology...
...BellSouth and Verizon each more than doubled their DSL subscribers in 2001...
...Meanwhile, the Bells will fade into oblivion as wholesale freight forwarders...
...Remember Excite @ Home...
...cable companies...
...Cisco bought it for $125 million in 1997...
...He earned a Ph.D...
...Cooked up at AT&T's Bell Labs in the 1980s, its design specifications call for 1.5 megabits per second, over a maximum distance of 12,000 feet from a telephone switching office...
...But if Narad is right, the economics of the "last mile" connection to homes and businesses will never be the same...
...MAY/JUNE 2002 • THE AMERICAN SPECTATOR 51 THE HEAD OF THE CLASS Each year in India, 2 million high school students take a rigorous math test...
...It's relatively modern, technologically...
...That cash flow can then be used to finance a build-out to residential areas, where another value set kicks in...
...Being all things to all people is a tough game...
...The big question, of course, is how aggressively the cable industry will go after the new markets Narad can open...
...most are now bankrupt...
...But why should anyone who doesn't already have their own time (or $25 million) invested in Dev and Andy's vision take it seriously...
...Add DSL, and you get-at best (which is not always)-VCR quality video...
...But Gupta and Chapman are even crazier than you think...
...The place was a labyrinth of colored wires, metal shelves, oscilloscopes and computer screens...
...OK, but the fact is that the Bells have customers and all those tens of billions in cash flow They can't be dismissed with a wave of even a silicon germanium hand...
...Marginal advances are more like it, ideally the kind with an idea to immediate cash flow are more like it-adding a few new TV channels, moving up from analog to digital, upgrading for 1 megabit cable modem service...
...Before he and Gupta founded Narad two years ago, pushing the limits of twisted-pair phone technology was their business...
...And that doesn't include the possibilities Narad offers to add out-sourced IT services, from virtual private networks and remote data backup to video-conferencing...
...50 THE AMERICAN SPECTATOR • MAY/JUNE 2002 Chapman is not that crazy...
...Gentleman, place your bets...
...The idea was to piggyback on the Bells' infrastructure, adding supercharged marketing power to kick and drag their foot-dragging hosts into the 21st century...
...He got his master's in electrical engineering from the University of Maine (along with his future wife, Linda...
...We could argue all day about why, starting with high price, poor performance and lack of availability in many areas.There's also a classic chicken-and-egg conundrum: no compelling broadband applications or "content," no hungry hordes of broadband customers, and 14ice versa (though Napster came close...
...The best-known optical Ethernet provider,Yipes, with networks in 22 U.S...
...In April, it classified cable modems as part of "information services" rather than telecommunications, saving the companies that deploy them from the "open access" rules that have plagued DSL...
...Gupta, in fact, designed the world's first "very high bit rate" DSL microchip in 1994, at the duo's first startup, Dagaz, which they ultimately sold to Cisco Systems...
...The answer, say Chapman and Gupta, is a dirty little secret of the telecom world: The telcos and cable guys don'tand maybe more to the point, can't-actually deliver broadband, not to homes or small businesses anyway...
...The most obvious effect of this is to instantly increase a cable system's overall bandwidth...
...No, broadband is not dead-and Andy Christopher Locke is a former stir niter a The Red Herring...
...households are now modemready...
...It's largely free of the kind of micro-managing regulation that hobbles telcos...
...Even after a couple of unexpectedly good quarters, just over one U.S...
...This will start a death spiral that will make the Penn Central bankruptcy look like a tea party...
...ButVCs always talk like that...
...The top 2,000-a tenth of one percent-get a ticket to one of the branches of the Indian Institute of Technology, invariably referred to as India's cross between MIT and Harvard...
...The technology that brought you Jim Carey in The Cable Guy has its own set of problems, but it also has one unsurpassable advantage over the phone system: It's thirty years old, not 130...
...One of the venture firm's partners is the fabled inventor of Ethernet and founder of 3Com Corporation, Bob Metcalfe...
...That's bigger than the entire U.S...
...The only way to give cable-modem users more bandwidth is to reduce the number of video channels...
...For one, in those nascent Net days when 14.4K modems were hot, a megabit a second really did look big...
...There are other possible solutions...
...Analog chip design-despite the "digital" name, analog technologies still lie at the heart of modern cable systems-is as much a black art as an engineering science...
...But what they found instead was a tricky, unpredictable and essentially narrowband technology mired in the telco world's endless regulatory thicket...
...Dev Gupta was one of those...
...Narad carried the spoken word from place to place, brokered deals, made peace, told tales and embodied the power of communication...
...Narad's technology enables a cable company to store movies as data files in generic storage-area networks...
...And yet, and yet...
...Bandwidth is equal upstream and down...
...You need what Dev Gupta and Andy Chapman are cooking up in Narad's Westford, Massachusetts, laboratory...
...Why do industry prognosticators still talk about a "high tech depression" and warn of a fiveyear telecom and Internet downturn...
...That might be adequate-barely-for DSL''s original purpose: a single channel of ondemand video...
...They aren't just betting against the Bells.They're betting on broadband, the Internet on steroids, the movie-watching, music-listening, bandwidth-sucking, virtualreality machine whose expectation has already chewed up and spit out a trillion dollars or so of investment capital...
...The piddly data stream you get from DSL or a cable modem-a million or so bits a second-is a 21st-century wonder only in comparison with your screeching dial-up modem...
...Why do the telecom bankruptcies, now totaling more than $60 billion in the last 15 months, continue...
...52 THE AMERICAN SPECTATOR • MAY/JUNE 2002 And the software is up and running to manage data traffic and deliver services, using a flexible, distributed architecture rooted in geek-friendly Java and XML...
...For one, Narad has actual products, good-to-go boxes already in trials with U.S...
...They also have an eye-opening business plan-not just their own, but for their customers.The key is a modular technology that avoids one of the cable industry's recurring nightmares: massive up-front capital costs for simultaneously upgrading an entire system...
...Industry spokesmen say 75 percent of US...
...Cisco snapped this one up, too, for $140 million, and took Gupta with it.The switch from CEO gunning a startup to just another vice president failed to suit...
...But if he's so smart, why is the technology economy still a shambles...
...There are 8 million U.S...
...With his two-year noncompete with Cisco coming to an end, Gupta called in some chips, including two of the networking world's bluest: Pradeep Sindu, founder and CEO of juniper Networks, and Hasad Amad, CEO of Sonus Networks...
...If cable companies seize the opportunity, Chapman believes, they could overtake the Bells before the telephone companies can replace their aging copper cages...
...They own something that has been as good as gold for more than a century: your phone bill...
...The obvious manifestation of this phenomenon is that while you can receive more than 100 channels of rich color television programming over cable, the phone system manages Grandma's voice...
...Narad's aim is to change that...
...It's foundation is coaxial cable, with a copper strand at its heart, but also some very useful shielding wrapped around it, Though not nearly as capacious as optical fiber, coax has a thousand times the theoretical carrying capacity of "twisted pair" phone wire...
...Developed at IBM in the 1980s, SiGe burst onto the communications scene a decade later and is used today in numerous wireless and optical transceivers...
...But it's the second consequence that's actually revolutionary: Narad gear transforms the cable system into a two-layer network...
...The telcos-not to mention a little company called Blockbuster-can only look on in disbelief...
...Also, Dev Gupta is a genius...
...The Bells have owned their customers for a century and will not easily relinquish them...
...If they don't, Narad may end up as another bug on the telcos' windshield, or another anonymous prize rattling around in Cisco's basement...
...This is a regulated industry, remember, in which business customers subsidize "universal service" for everyone else...
...But even in a perfect, truly deregulated world, DSL's technical limitations would remain...
...cities, filed for bankruptcy this April...
...The cable industry, with its scrappy Mom & Pop local-operator roots, has never been big on the "vision thing...
...He ~./ ought to know...
...rather than playing them off high-priced, movie-specific DVD servers, cutting the cost of video-ondemand by 90 percent...
...It has an arrangement with Plexus to handle the complex manufacturing...
...No one has challenged his prediction of impending-well, medium-term, anyway-telco death...
...Big ones-or those in the Internet business-go for 45 megabit T-3s, average monthly cost $40,000 (and up to a year's wait for installation...
...A year ago, just 6 million Americans had signed up for the two main broadband alternatives, digital subscriber line (from the Baby Bells mainly) and cable modern (from the friendly guys who bring you the Weather Channel), at something around $40 a month...
...Switching engines" regulate who gets how much bandwidth and what services a user can access...
...Dagaz designed special switching equipment for use in DSL networks...
...At this writing, Andy Chapman's wager is still listed as "open" on the LongBets.com Web site...
...Cable TV has been a zero-sum game...
...And they are learning to outsource where necessary to companies with superior technology-witness SBC's long-distance voice and data traffic, for instance, which runs over Williams Communications' leading-edge fiber optic network...
...The two hit it off, kept in touch, and slowly nurtured the entrepreneurs' dream: Bag the middlettien-let's do it our way...
...That's when the idea started percolating for a company that would do what DSL could not: be the robust foundation for true broad band networking...
...Why is Wall Street's bargain basement stuffed with companies whose hardware would build the broadband Internet-the Nortels, the JDSUs, the Avanexes...
...The first business customer can be connected for $10,000, but by the fifth customer, per connection costs drop to $3,000...
...The CLECs morphed into litigation houses...
...Gupta arrived for graduate school in the United States in 1974 with only $7 in his pocket...
Vol. 35 • May 2002 • No. 3
