A friend of mine on a consulting assignment asked me about the sequence of events which transformed CompuServe from a subsidiary of H&R Block to a part of both AOL and Worldcom. I figured it was worth posting in my blog...
The process started with HRB coming to the conclusion that they wanted to sell their 80% interest in CompuServe (soon after the 20% was sold on the open market). Through their investment bankers, they shopped it to a number of potential buyers, including AOL, LBO specialists and even AT&T. None of the offers were acceptable to HRB, as most required HRB to take a stock they didn't trust as currency (e.g. AOL), or required seller debt financing, or the price was just not what they were looking for.
Eventually John Sidgmore of Worldcom figured out a structure that made everyone happy (we had known Sidgmore for a number of years, from the days when he joined UUNET, whose first network was an IP-over-X.25 implementation running over our network).
At the time UUNET was the major dialup network provider to both AOL and MSN, and Sidgmore knew Steve Case well. The imaginative deal he proposed was accepted by all parties, and was executed like this:
Step 1: WCOM bought all of the outstanding shares of CSRV using WCOM stock as the currency. The value of the WCOM stock was approx $1.2 billion, and HRB sold all of it within a day or two, pocketing the cash (Had HRB held the stock for another 18 months, it would have turned into $3.5 billion. But then if they had held it for 3 years, it would have been worthless...) At this point, HRB is completely out of CompuServe, and Worldcom owns 100% of CompuServe.
Step 2: WCOM sells CompuServe Interactive Services and various pieces of the intellectual property and infrastructure to AOL. WCOM actually has to throw some cash into the deal -- about $100 million as I recall -- but gets back a long-term dial services agreement from AOL for zillions of hours. AOL gives their network subsidiary, ANS, to WCOM in this transaction. WCOM and AOL agree to a complex infrastructure cooperation agreement which defines who owns what (e.g. AOL owned the CompuServe mainframes, but WCOM owned the source code and use licenses for the CompuServe operating system -- my idea by the way, to make sure neither party could hold the other hostage). At this point, CompuServe Network Services (renamed Worldcom Advanced Networks) and UUNET are sister companies within Worldcom, both reporting to Sidgmore. ANS became part of UUNET.
Step 3: However, during one their acquisitions, WCOM had picked up a little IP networking company called GridNet, based in Atlanta. Management of GridNet was assigned to WAN (the former CNS). I found out that GridNet had been given responsibility for managing another little network company in Memphis, and I don't even remember their name, but great folks. I made the recommendation that this company be shut down, but instead it was absorbed into a group managed by Robert Hudspeth, who I believe had been responsible for Memphis guys in the company that WCOM had acquired to bring the Memphis guys into WCOM (beginning to understand what a complex world WCOM was?). Anyway, it was at this point that we began using the GridNet technology to consolidate dial points on the old CompuServe network. We made it so that you could call their modems using a CNS phone number, and by reading the DNIS (Caller ID), their modem system would route the call to a "reverse gateway" which would present the CompuServe LOGOUT interface.
Step 4: Sidgmore decided to take a Darwinian approach to determining whether CNS should continue to survive: he directed us to give our entire customer list to UUNET Sales, and they immediately began going to our customers and cherry picking the folks whose usage profiles matched UUNET technology (IP orientation, coverage matchup with the UUNET network, no fancy billing). The trend was clear, UUNET was going to drive the price of dialup network down to a point where CNS would be losing money, because we were still saddled with about $250 million/year in non-WCOM telephone expense, primarily via AT&T and MCI. Ultimately, the CNS management team decides that the only sensible thing to do was roll in under UUNET and stop the war. The CNS leadership reported to Mark Spagnolo, the UUNET CEO. The CNS integration with GridNet ceases, and GridNet is shut down.
Step 5: WCOM buys MCI. The SEC and FTC require MCI to divest their IP network, but interestingly allows them to keep Tymnet. Vint Cerf, to whom Tymnet reported, initiated conversations with us about merging the CNS and Tymnet networks. What we found was that the Tymnet network was a generation of technology behind the CNS network, and that besides, the CNS network had features DESIGNED to allow users to move from Tymnet to CNS with a minimum of hassle, but not visa versa. That conversion was just starting when I left.
Step 6. Meanwhile, the technology we developed to facilitate reaching the CNS network over GridNet access was applied to begin moving the CNS network to UUNET. This conversion is still going on -- there are still CompuServe nodes running in the middle of the MCI network. One of the reasons is the POS authorization network service. It is my understanding that MCI now provides 100% of the dialup POS authorization service in this country (one of the significant competitors was Tymnet!).
Step 7: WCOM self-destructs. Bernie is fired, Sidgmore dies, Spagnolo leaves, and the former MCI executive team rises to the top (other than Mike Cappellas, who is hired after Compaq is acquired by HP). UUNET disappears as an organization, and ultimately as a brand as what had been competing and redundant internal divisions (e.g. both MCI and WCOM had substantial technology headquarters) were reorganized under an MCI-like structure with MCI leadership.
Gradually, the old CompuServe team is disbanding and moving on to a next life. It was the ride of a lifetime.
The Columbus Dispatch did a story on Sept 6, 2009 about the history of CompuServe. It has been captured here if you wish you read it.
Showing posts with label Business. Show all posts
Showing posts with label Business. Show all posts
Thursday, June 9, 2005
Saturday, February 5, 2005
The Third Wave
Originally published February 5, 2005
We're almost at the tipping point when the tried-and-true circuit switched telephone network gets replaced by packet technologies. While there are a few significant technical hurdles to be worked out, it could be the regulatory issues that get in the way. That's another way of saying that the folks in the telecom world who currently have all the power and money have not yet been satisfied that they will remain in power after the technological change.
Almost all of the technologies issues have been solved except one: variable packet latency. Here's the best way I've come up with describe what this means...
"Movies" on film are captured as a sequence of still frames. Film is typically shot at 24 frames per second (fps). As long as the projector showing the film plays it back at 24 fps, we accept it as a continuously moving image. But if the projector slowed down, or stopped for just a fraction of a second, it would break the illusion.
The same thing goes on with digital music devices, such as a CD player or an iPod. The music is sampled and stored in digital frames, and must be played back at the original sampling rate to sound natural. We have probably all experienced a CD skipping (in spite of read-ahead caching and error retry logic).
The circuit switched telephone network works much like the pathway between the music recording studio and your iPod. The sounds entering the phone network are sampled (at 8KHz) and converted to digital packets that are sent to the other end of the call. There it is converted back into analog sound so you can hear. One of the design criteria for the telephone network was that these 8KHz x 8 bit samples (hence the 64Kbps 'bearer' channel) get pushed through the network with a minimum of delay, and no varience in the interval between sample arrival times. Because of this, voice conversations through the telephone network has achieved ever increasing fidelity (e.g. the Sprint "Pin Drop" ad campaign).
But that audio quality has a cost. A wireline telephone call has 64Kbps of network capacity assigned in each direction (full duplex), even if neither party is speaking. There are some techniques to lessen the waste, but they can cause degregation in the audio quality. When you rip a CD to MP3 files, you make the same kinds of choices: high fidelity and big file, or a small file and less fidelity.
The issue with voice calls over a packet network isn't so much about the bandwidth required as it is the variability of packet arrival times. After all, many people have internet connections in their homes that exceed 100Kbps, much more than is needed to maintain circuit switched quality. But herein lies the fundamental difference between a circuit switched network and a packet network. As noted above, a circuit switched network guarantees constant packet arrival times by reserving 100% of the capacity needed for the duration of the call. A packet network consumes bandwidth only when it has a packet to transmit/forward. Each switch in the packet network waits for a packet to arrive, makes forwarding decisions, and retransmits the packet. This takes time, and the amount of time it takes can vary based on things like the number of other packets that it has to deal with at that moment in time.
When the packets are full of computer-to-computer communications, they can be delayed or even lost, and the software on each each (eg the TCP in TCP/IP) can recover without any loss. But if those packets contain sampled voice from a telephone call, variances and losses are like bad splices in that movie that's been shown 1,000 times. It doesn't take very much of this to be annoying.
But this problem will be solved. Quality of Sevice (QoS) protocols and algorithms along with faster switches and transmission media will be applied so that the latency variability can be kept below our threshhold of detectability.
The biggest obstacle will be about the power and money.
The breakup of AT&T and the emergence of competitive telephone companies started an evolutionary change (I'll write about evolution in another entry) that has not yet completely played out. Economists talk about "natural monopolies" when describing industries in which the cost of the infrastructure is so expensive that once a single company makes the investment, there is no economic reason for additional companies to jump into the fray. The traditional examples are utilities like the water/sewer services and the telephone service. In many countries, these agencies are operated by the national government.
When MCI won the regulatory battle to gain permission to compete with AT&T for long distance service, it invalidated the argument that telephone service was a natural monopoly, and eventually led to decision to break up AT&T. But there was a nasty problem to be solved. In exchange for its monopoly status AT&T was ordered to sell its services at "cost + a reasonable profit", and it was up to the regulators to approve the rates AT&T could charge. But AT&T argued, reasonably, that it cost a lot of money to run telephones out to the rural areas of the country, and if they charged those people the true cost, none would have a phone. So the FCC (which was set up on the model of the ICC, which was created to reign in the railroad barons) said AT&T could charge a premium for long distance service, which was viewed as a luxury, and use that premium to subsidize the cost of rural telephone service.
In the breakup of AT&T, the long distance service was separated from the local service company. To make sure the local companies still had the money to provide local service in rural areas, the FCC allowed the local companies to charge a "common carrier access fee" to the long distance companies. This was the mechanism used to transfer the long distance premium to the local phone companies.
When the data networks, like Tymnet, Telenet and CompuServe, started showing up in the early 1980s, the local companies felt they should be treated like a long-distance carrier and be required to pay the same access fee. Arguments were made to the FCC, led by CompuServe, and an exception was granted for data networks that remains in force.
As long as the data network carries only data, the phone companies could begrudgenly tolerate this. But with Voice over IP (VoIP) technology quickly gaining ground, the local companies again have a reasonable argument for ending the exemption. The trouble is that the telephone industry is reconsolidating.
When a regulated industry is cut loose to full competition, it seems a predictable cycle takes place. First there are many many little startups which appear to compete for a piece of the pie. Most don't make it, and the industry settles down to maybe ten players who are viable at the existing price levels. A problem with these capital intensive industries is that they have high fixed costs, but yet must maintain some growth capacity to take away market share from the others. The more companies who are competing, the more aggregate surplus there is in the industry. That surplus leads to price competition as the ten companies try to fill their "empty seats" -- as is the case with the airline industry. Only a few of those companies will have the capital available to survive a protracted price war, and the industy will probably resolve down to an oligopoly of three very large players. It happened that way with the auto industry (which was never regulated but is definitely capital intensive), and you can see it heading that way with the airlines.
AT&T is gone except as a brand name. AT&T Wireless is owned by Cingular (which is owned by SBC and BellSouth), and the rest of AT&T was just purchased by SBC. Quest, or someone else, is likely to buy MCI, which is what's left of the old MCI and Worldcom. All this consolidation is confusing the long-distance, local, and internet economics, and therefore the degree to which each component should be regulated. Do land-line common carrier access charges make any sense when many people in rural areas can get VoIP service via their cable TV vendor?
One would have to predict that we entering a time when local phone companies, long distance companies, and cable TV companies all get thrown into a big Cuisinart, and then poured out into three viable companies. Anyone want to guess what the names will be?
We're almost at the tipping point when the tried-and-true circuit switched telephone network gets replaced by packet technologies. While there are a few significant technical hurdles to be worked out, it could be the regulatory issues that get in the way. That's another way of saying that the folks in the telecom world who currently have all the power and money have not yet been satisfied that they will remain in power after the technological change.
Almost all of the technologies issues have been solved except one: variable packet latency. Here's the best way I've come up with describe what this means...
"Movies" on film are captured as a sequence of still frames. Film is typically shot at 24 frames per second (fps). As long as the projector showing the film plays it back at 24 fps, we accept it as a continuously moving image. But if the projector slowed down, or stopped for just a fraction of a second, it would break the illusion.
The same thing goes on with digital music devices, such as a CD player or an iPod. The music is sampled and stored in digital frames, and must be played back at the original sampling rate to sound natural. We have probably all experienced a CD skipping (in spite of read-ahead caching and error retry logic).
The circuit switched telephone network works much like the pathway between the music recording studio and your iPod. The sounds entering the phone network are sampled (at 8KHz) and converted to digital packets that are sent to the other end of the call. There it is converted back into analog sound so you can hear. One of the design criteria for the telephone network was that these 8KHz x 8 bit samples (hence the 64Kbps 'bearer' channel) get pushed through the network with a minimum of delay, and no varience in the interval between sample arrival times. Because of this, voice conversations through the telephone network has achieved ever increasing fidelity (e.g. the Sprint "Pin Drop" ad campaign).
But that audio quality has a cost. A wireline telephone call has 64Kbps of network capacity assigned in each direction (full duplex), even if neither party is speaking. There are some techniques to lessen the waste, but they can cause degregation in the audio quality. When you rip a CD to MP3 files, you make the same kinds of choices: high fidelity and big file, or a small file and less fidelity.
The issue with voice calls over a packet network isn't so much about the bandwidth required as it is the variability of packet arrival times. After all, many people have internet connections in their homes that exceed 100Kbps, much more than is needed to maintain circuit switched quality. But herein lies the fundamental difference between a circuit switched network and a packet network. As noted above, a circuit switched network guarantees constant packet arrival times by reserving 100% of the capacity needed for the duration of the call. A packet network consumes bandwidth only when it has a packet to transmit/forward. Each switch in the packet network waits for a packet to arrive, makes forwarding decisions, and retransmits the packet. This takes time, and the amount of time it takes can vary based on things like the number of other packets that it has to deal with at that moment in time.
When the packets are full of computer-to-computer communications, they can be delayed or even lost, and the software on each each (eg the TCP in TCP/IP) can recover without any loss. But if those packets contain sampled voice from a telephone call, variances and losses are like bad splices in that movie that's been shown 1,000 times. It doesn't take very much of this to be annoying.
But this problem will be solved. Quality of Sevice (QoS) protocols and algorithms along with faster switches and transmission media will be applied so that the latency variability can be kept below our threshhold of detectability.
The biggest obstacle will be about the power and money.
The breakup of AT&T and the emergence of competitive telephone companies started an evolutionary change (I'll write about evolution in another entry) that has not yet completely played out. Economists talk about "natural monopolies" when describing industries in which the cost of the infrastructure is so expensive that once a single company makes the investment, there is no economic reason for additional companies to jump into the fray. The traditional examples are utilities like the water/sewer services and the telephone service. In many countries, these agencies are operated by the national government.
When MCI won the regulatory battle to gain permission to compete with AT&T for long distance service, it invalidated the argument that telephone service was a natural monopoly, and eventually led to decision to break up AT&T. But there was a nasty problem to be solved. In exchange for its monopoly status AT&T was ordered to sell its services at "cost + a reasonable profit", and it was up to the regulators to approve the rates AT&T could charge. But AT&T argued, reasonably, that it cost a lot of money to run telephones out to the rural areas of the country, and if they charged those people the true cost, none would have a phone. So the FCC (which was set up on the model of the ICC, which was created to reign in the railroad barons) said AT&T could charge a premium for long distance service, which was viewed as a luxury, and use that premium to subsidize the cost of rural telephone service.
In the breakup of AT&T, the long distance service was separated from the local service company. To make sure the local companies still had the money to provide local service in rural areas, the FCC allowed the local companies to charge a "common carrier access fee" to the long distance companies. This was the mechanism used to transfer the long distance premium to the local phone companies.
When the data networks, like Tymnet, Telenet and CompuServe, started showing up in the early 1980s, the local companies felt they should be treated like a long-distance carrier and be required to pay the same access fee. Arguments were made to the FCC, led by CompuServe, and an exception was granted for data networks that remains in force.
As long as the data network carries only data, the phone companies could begrudgenly tolerate this. But with Voice over IP (VoIP) technology quickly gaining ground, the local companies again have a reasonable argument for ending the exemption. The trouble is that the telephone industry is reconsolidating.
When a regulated industry is cut loose to full competition, it seems a predictable cycle takes place. First there are many many little startups which appear to compete for a piece of the pie. Most don't make it, and the industry settles down to maybe ten players who are viable at the existing price levels. A problem with these capital intensive industries is that they have high fixed costs, but yet must maintain some growth capacity to take away market share from the others. The more companies who are competing, the more aggregate surplus there is in the industry. That surplus leads to price competition as the ten companies try to fill their "empty seats" -- as is the case with the airline industry. Only a few of those companies will have the capital available to survive a protracted price war, and the industy will probably resolve down to an oligopoly of three very large players. It happened that way with the auto industry (which was never regulated but is definitely capital intensive), and you can see it heading that way with the airlines.
AT&T is gone except as a brand name. AT&T Wireless is owned by Cingular (which is owned by SBC and BellSouth), and the rest of AT&T was just purchased by SBC. Quest, or someone else, is likely to buy MCI, which is what's left of the old MCI and Worldcom. All this consolidation is confusing the long-distance, local, and internet economics, and therefore the degree to which each component should be regulated. Do land-line common carrier access charges make any sense when many people in rural areas can get VoIP service via their cable TV vendor?
One would have to predict that we entering a time when local phone companies, long distance companies, and cable TV companies all get thrown into a big Cuisinart, and then poured out into three viable companies. Anyone want to guess what the names will be?
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