Lucent’s lesson? Get too comfortable with high margins, a near-$80 stock price, and lending to customers and you’ll soon get hammered.
Today, Lucent finds itself selling high-end gear that no one needs anymore.
Its telephone switches have been replaced by Internet telephony and “soft switches” from companies like Sonus. Lucent also sold Sonet cards, interfaces for fiber-optic long-distance lines, for $10,000, even though they only contain $100 worth of components. Venture-backed upstarts like Ciena and Corvis, and killers like Cisco, quickly figured out how to send Internet packets directly over fiber to get around the priced-for-monopolists Sonet.
Now as the next wave of Internet infrastructure gets built, companies are bypassing Lucent gear in favor of newer, cheaper technology.
The result? Lucent’s stock, which spun out from AT&T in 1996 at a split-adjusted $7, was right back there on Friday, and the company was denying bankruptcy rumors.
Slaying Giants
Now another upstart technology, ironically with help from a Lucent spinoff, may slay some bigger giants. Try Verizon, AOL and AT&T Wireless for starters. But this time, instead of power to the venture capitalists, it’s power to the people.
Despite the rivers of bandwidth built into our “telco” networks in recent years, privileged monopolies have been slow to deliver it that last mile to consumers. So people are told that they’re too far from the phone company to get DSL service. Their cable boxes are too dumb to work with Tivo-like personal video recorders, but the cable companies don’t offer such devices themselves. And my Sprint PCS cell phone doesn’t work at my house, though I would gladly host a cell site in my attic to improve my service. No one at Sprint will return my calls.
These protected industries preside over supposedly scarce resources, like wires to your home or spectrum, and charge accordingly. They don’t know how their customers use their service, and don’t seem to care. Just pay your bills. The edge of these networks is teeming with new intelligence and demands; it just doesn’t seem to penetrate the thick heads of these government-like bureaucracies. But the walls are crumbling. Very, very fast.
Technology itself, you see, has no clue whether we are in a bull or bear market. It just marches ahead. Chips get cheaper, bandwidth gets more abundant, and new, fun things, not previously imaginable, become real.
How about 11 megabits of bandwidth out of thin air? In just the past six months it has become cost effective to do wireless networking, in offices or in homes, because the chips to handle high frequencies finally got cheap enough. Competing standards have narrowed down to one, called IEEE 802.11b High Rate, which fortunately has a cooler name — “Wi-Fi,” for wireless fidelity. It uses the 2.4 gigahertz spectrum the Federal Communications Commission set aside for things like microwave ovens and cordless phones.
So if you want to share files or printers throughout your house, and your wife won’t let you tear up walls or run ugly blue wires, wireless, with its indoor range of 100 to 500 feet, is perfect. Wireless networks have gone up in offices too, so you can bring your laptop to conference rooms and surf for recipes while your boss drones on about scheduling future meetings.
Yet with the right outdoor antenna from the Lucent spinoff Agere, Wi-Fi has a range of two to 10 miles. You can bring your laptop to surf while sipping mocha lattes at the local coffee shop, networking back to your nearby home or office, and using the Internet connection there. So can anyone else in the coffee shop, for that matter, using your Internet connection. The grass-roots network is born.
In San Francisco, antennas are popping up that allow anyone within range to have free Internet access. That’s right, free. These 802.11 networks have also sprung up in Seattle, with close to 100 nodes, Boston, London and Australia, and they’re spreading like wildfire. Bet Lucent wishes they hadn’t let this market go.
This technology is early, and is pooh-poohed by most as gadgets for amateurs. But remember when PCs were considered toys and cell phones only for the chauffeured?
These are broadband connections, after all — up to 11 megabits per second of data. Voice calls work over these networks. Video works over these networks. No wonder old Lucent products are obsolete. Anything that can be done on the Internet works, without any controlling authority like AOL, or their monthly fees. Airwaves grow clogged? No problem, just add more cells, one per block instead of one per neighborhood. It is what SprintPCS refuses to do for my neighborhood, and for that they will pay dearly. My Wi-Fi node is almost done. Just pray I don’t fall off my roof.
The list of likely victims is long. Because the monopoly phone and cable guys have held back last-mile deployment, we are stuck with 56K modems, or at best 500K DSL or cable modems. Video needs one to two megabits per second to be TV quality. Well, imagine what 11 megabits can do. Local TV stations could become obsolete. Cable systems will seem quaint with only 75 channels. True video on demand becomes reality TV.
The phone companies ought to be nervous too.
A portable phone with 802.11 built in might actually be cheaper than today’s cordless. And cellular companies have also been overpaying for so-called 3G licenses around the world, mainly to keep upstarts without huge sums of capital away from their cozy oligopoly. But 3G’s main improvement over current generation cellular networks is high-speed data access. Who’s gonna pay for that when they can log in over Wi-Fi for free?
The New Internet
This grass-roots movement is already turning commercial, as Microsoft and Starbucks recently announced a Wi-Fi rollout to allow customers to surf at Starbucks locations across North America. The telcos and cellular guys will fight Wi-Fi, much like the record companies are fighting Napster, to buy time. But probably not time enough for Lucent.
Tough luck, it’s too late to go back. The FCC should set aside some not-for-profit spectrum specifically for wireless access, probably at the same time they auction 3G licenses in the U.S., and keep encouraging the grassroots to run with new technology.
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