IEEE Internet Computing

originally published in IEEE Internet Computing, Mar/Apr 1997

What's Wrong with the Internet: It's the Economy, Stupid

"The Internet is the Information Age. Business people know that, even if they don't have a clear idea of what the business model is. The Internet is the hope of the future."

-- Bob Metcalfe

Bob Metcalfe, self-described technology pundit, eminently successful engineer-entrepreneur, and International Data Group Vice President and InfoWorld columnist is the subject of this month's Internet Computing interview. Metcalfe's invention of the Ethernet in the early 1970s grew out of work that had begun with his 1973 thesis at Harvard, Packet Communications (republished in 1996 by Peer-to-Peer Communications, San Jose, Calif.), and his study of the Alohanet, a radio packet communications network created by Norman Abramson and Franklin Kuo at the University of Hawaii. With David Boggs, Metcalfe developed the first Ethernet interfaces in 1973 that led to the landmark paper, "Ethernet: Distributed Packet Switching for Local Computer Networks," to a patent application in 1975, and ultimately to the formation of 3Com and the adoption of Ethernet as an IEEE 802 standard in 1982.

After leaving 3Com in 1990, Metcalfe has continued to serve the field of networking through his role as a journalist. Clearly a believer in the watchdog role of the press, Metcalfe has been in the media spotlight for the past year because of his flamboyant predictions of Internet "collapse." In an interview with IC's EIC Charles Petrie and staff editor Meredith Wiggins, Metcalfe said that people would read his columns and say, "What is he doing?" We hope this interview will answer that question.

We spoke with Metcalfe on February 10 in Indian Wells at the DEMO conference sponsored by IDG. In preparation for the interview we had sent him a copy of our interview with George Gilder, contributing editor to Forbes and prominent author, which appeared in our first issue. Metcalfe began the interview with IEEE Internet Computing's Charles Petrie by picking up the magazine and saying . . .


Metcalfe:You know, the more Gilder and I talk, the more I see we have so much in common. We're both very conservative. And then technologically speaking we agree on almost everything. He makes a big point of my saying that we lack bandwidth, whereas he believes bandwidth is in abundance. Well bandwidth is in abundance and can be in abundance and will be in abundance--in time. It's a question of time frame.

The biggest point of disagreement that I've noticed between us--and I hasten to reemphasize it's a very small disagreement--is on the issue of wireless technologies. He's very gung ho about wireless, and I'm very pessimistic.

IC: Why are you pessimistic? There is certainly a lot of investment going on.

Metcalfe: Because I've heard the story before. I mean, I've been to this ball game, and the main problem is we all desperately want everything to be wireless. We want it so bad that we're willing to believe anything anyone tells us about wireless.

Especially in product magazines like InfoWorld, look and you'll see that we're already in a wireless world. (Points to an ad in InfoWorld.) Oh! there's wireless. Even personal computer products in ads are wireless already. Advertisers have figured out that people want their equipment wireless so they take the wires out of the pictures. Show me the wire. Here's a picture of a PC for sale. There's no wires in it.

There's not even a mouse wire. But evidence of wishful thinking still isn't proof that wireless won't work.

Metcalfe: No. It explains why the story is eternally with us that wireless is going to solve all our problems. Every time a random guy shows up and says, "I'm gonna make you wireless," we want it so desperately that we pump it up. And my conjecture is--and once again I'm talking about a one percent disagreement--that George Gilder has been suckered because, like all of us, he wants it to be wireless. And while the people who are peddling wireless technology are sincere in their efforts, they're exaggerating its effectiveness. Oh, there will be wireless, there is wireless. Look what I have on my belt. I have this wonderful wireless device. (Produces a cellular phone.) I'm trying to make it a prosthetic, the way my glasses are, so that it's always with me.

See my glasses are always with me, and my pen, and I'm trying to be this wireless guy. But really, this StarTAC is gorgeous and wonderful. Of course, it doesn't work all the time. If you open it up, a large part of this device is dedicated to proving that it doesn't work. See these lights? These lights are important; they tell you if it's working now.

And then there's the battery. The battery doesn't really work. So there's an enormous number of lights dedicated to proving that the battery doesn't really work. It doesn't work so often that you have to be constantly aware that it's about to run out.

But seriously, what I'm saying is that in the future, computer networks (which is where I am expert, as opposed to cellular telephones where I'm a pitiful user) won't be wireless. In fact I've attracted the ire of the wireless community in saying that there will be wireless mobile computers, but they'll be just like pipeless mobile bathrooms. I'm trying to make an analogy between bathrooms and computers. There'll be as many mobile wireless computers as there are mobile, pipeless bathrooms. There are mobile pipeless bathrooms in airplanes, in ships, construction sites, sporting events. But in fact most of the networking in the world will be like bathrooms are. There'll be pipes.

What's the basis of your prediction?

Metcalfe: Well, take satellite. I've recently been out to visit Hughes, who has DirecPC, which is wireless satellite distribution of data. It's a very exciting product; I'm rooting for it. And they have a new follow-on product which they call Spaceway which I'm very enthusiastic about. But they need help in encouraging themselves to make the $3 billion investment to put up these eight satellites. And when it's all said and done, the amount of bandwidth that would be provided by such a system is a drop in the bucket. It's a few gigabits per second. One optical fiber strung from here to New York would provide much more bandwidth. To satisfy the Internet's needs for bandwidth you'd have to blacken the sky with satellites.

If you do the arithmetic, the satellites won't "win" against optical fibers, because the capacities are orders of magnitude out of whack. That doesn't mean they have to win. We're going to see satellites being very useful for broadcast applications, for highly mobile applications, and for highly remote applications. But you're not going to eliminate optical fibers with satellites.

Will wireless then need a different pricing structure?

Metcalfe: Yes. The simple fact is that wireless uses one copy of the ether. There's only one copy of it, and they all have to use it, and eventually they'll run out. Whereas each optical fiber is its own copy of the ether; when you run another one, you have a whole new spectrum. You can duplicate the ether.

Now wireless people by cellularizing are hoping to reuse the ether, and there's promise in this. And this is where George Gilder might turn out to be right, although I don't think so. If they cellularize down to cells that are really small, like this room here, then they get to reuse the ether; they're making copies of the ether in a geographical way. And now we're slipping into intuition: My intuition is that using the real ether as opposed to copies of the ether in coax and in copper and optical fibers will always be much more expensive and much slower.

These guys brag that they're now running at 9.6 or 19.2 kilobits per second. In the LAN world, where I was raised, 10 megabits per second was hot stuff. Now 100 megabits per second is de rigueur, and gigabit Ethernet is coming. Those numbers are astronomically higher than 19.2 kilobits per second, which these guys think is the greatest thing that ever happened. I'm sorry, there will always be a huge disparity, which means that we should not plan on the world being entirely wireless. It will have a mix of wireless and wired, but the predominance of data transmission will be optical fibers.

Do you agree with Gilder that transmission times through optical fiber are going to be radically improved using techniques like wavelength-division multiplexing? Is this another reason you don't think wireless will win?

Metcalfe: There's great progress in optical fibers. Just speeding everything up with digital is great progress, then you have multiplexing, you have solitons and doped fiber and it's gonna be great. Of course transmission is not the whole game. There's this other thing called switching. One of the funny phrases I laugh about is "dark fiber." Telephone companies talk about dark fiber and the Internet people talk about dark fiber. By that they mean this fiber is all over the world, it's everywhere. It's just not being used. It's excess capacity. And were it not for the fact that they haven't connected up the lasing diodes and the switching systems, all that bandwidth would be there.


This is a little bit like--now I'm going to make a joke--it's a little bit like talking about dark silicon. I mean there's silicon all over the place! Look at Saudi Arabia, look at the desert. It's dark silicon! It's right out there! So Pentium chips and Power PCs and optical fibers are made of silicon. And it's just all over the place! The trouble is, there's a long way from dark to useful. Now I admit, a dark fiber that's been installed is a long way from dark silicon, but it has that same sort of futile pregnancy about it. I know there's a lot of dark fiber, but look at how much work has to get done to convert it into real bandwidth. All the switching has to get done, and the customer support, and all the telephone poles. So dark fiber is a joke.

So George is right, and I agree with him. As I agree with him on most other things. There will be abundant bandwidth, but it's all dark silicon. It's just so far from fruition.

What's going to take it to fruition? We need an economic model for that. And Gilder and I would agree again that the way to do it is through free market processes, investment capital, and the technological advance fed thereby.

Now I figured out recently that I agree with what Al Gore says about most things related to the Internet, which is a big surprise because he's a Democrat. But for a long time he's been saying words that I agree with: that the Internet is not going to be built by government. It's going to be built by private industry. Now we're finding out what he means: Government regulation is going to force private industry to build the Internet. He's recently come out in favor, and the FCC and Reed Hundt have recently come out in favor, of forcing Internet service providers to provide Internet access to schools and libraries. Forcing them to give discounts to schools and libraries. That's not free enterprise.

And the telcos are encouraging this because it protects their monopoly.

Metcalfe: You're right, the telcos love this idea because it drags the Internet under this regulatory umbrella that they know how to manipulate. It's a terrible idea. Now the ISPs will begin to be reimbursed out of the Universal Service Fund, that artifact of the outmoded and discredited regulatory regime that the telcos flourish under. It's like a bear hug for the Internet under the guise of schools and libraries, and gee, it's so hard to say I don't want schools and libraries connected to the Internet.

There's a lot of controversy about universal service right now.

Metcalfe: That's right. The term universal service got invented decades ago to describe the deal that we make through the federal government with the regulated monopolies. That is, in return for universal service we give them a monopoly, and then out of the monopoly profits that they're able to make, we insist that they cross-subsidize. Urban subsidizes rural, rich subsidizes poor, business subsidizes residential. It's a deal, and it's a deal that basically has not worked, as the Internet has revealed. Here we are now with computers millions of times faster than they were recently, but the bandwidth isn't there. The digital services aren't there. ISDN is barely there, and it's too expensive. And what I love to do is talk about this in terms of Moore's law and Grove's law. What Moore's law says in essence is that microcomputers get twice as good every 18 months. Grove's law (Intel's CEO Andy Grove) on the other hand, says that bandwidth doubles every 100 years. And the reason it doubles every 100 years is because we have this malfunctioning, underperforming regulatory regime, that most people agree now is malfunctioning and that's why we have the Telecommunication Act of 1996.

Which contradicts Gilder's prediction that bandwidth actually increases faster than computer speed.

Metcalfe: But we're confusing what we're talking about here. Gilder, when he says that, is talking about technological advance. When Grove and I talk about it, we're talking about what's available, what's deployed, what you can buy. And so there is in the lab all this technological advance, but you can't buy it. It's not for sale because this regulatory environment refuses to invest in deploying it. So we didn't get ISDN during the 1980s. We barely have it now, and it's expensive, and all that's being done under government supervision.

ISDN did get deployed in Europe, where there's even more regulation of the telecommunications industry.

Metcalfe: And would you like to compare telephone rates in Europe with telephone rates here?

Well, that's a good point. . . .

Most people at home use their modems over voice lines to connect to the Internet. We hear it said that the local telcos are very slow in responding to the new usage patterns this is creating as local connections are left open for extended periods.

Metcalfe: Well first of all, Internet connection should not be going through the dial-up network. That's a basic problem, and it needs to be fixed. The reason it's going through the dial-up network is that the telcos have not invested properly in digital services, so we have a 100-year-old voice system that we invent these kludgy modems to get through.

We don't want the local telephone companies investing in additional voice-switching capacity to carry additional Internet lines. That would be a stupid waste of money. And trying to get the ISPs to pay access charges, to contribute to the Universal Service Fund, to boost the investment in voice services to carry Internet, is futile. Now the telephone companies would love this, because once again it would bring the ISPs under their regulatory regime. And these telephone companies own the 51 Public Utilities Commissions. They can't wait for the FCC to get out of this, and then they can just do battle with the ISPs at the PUCs--to use a lot of initials. No, no, no, no. We don't want this.

Is that what's happening?

Metcalfe: What's stopping it is the ruling that the FCC just made that says if you're a local telephone company, you must provide access to your cable plant to anybody who wants it, so that ISPs can bypass all that voice-switching stuff and connect directly to all those cables with their routers and IP stuff. That's what should happen. And that's what the law was supposed to enable, and that's what Reed Hundt asked to have happen, and that's what the telephone companies are apparently fighting tooth and nail.

So what you're saying is there really is no free market. It's all a matter of lobbying and laws and who can get there first.

Metcalfe: Right. I think the PUCs and the FCC need to be bulldozed. The minor alterations that we're making to those regulatory structures are not going to get us anywhere, because they're gonna fight us in the courts for years and years and years. And they're going to use the schools and libraries as little pawns in this game. I'm so depressed by the subject.

Do you think that in the long run we will end up changing our pricing structure for local calls and charge by the call as they do in Europe?

Metcalfe: I think the local flat-rate telephone service which has been mandated by the universal service regime--the PUCs and the FCC--is a bad idea, because basically it's not reflective of cost. People should pay for what they use. It's a basic principle of market economics. People should pay for what they use, and they should be able to choose from competing choices, and that will drive prices down and keep them viable.

You don't want a government body deciding what the prices should be, you want competition. Can you imagine if a government body regulated prices in the computer industry? You'd still be paying millions of dollars per month for your computers, because that would be "fair." And the computer companies would all be in the business of proving how expensive computers are so that they could justify charging us lots of money for them, and so the government would let them do that. The more they spent, the more profitable it would be because the government would give them a fair return on higher costs. What we need is competitive services in telecommunications, and those prices will start going down. Gilder's right; the technology to drive those prices through the floor is there, it's just not getting through because it's not in the interest of the regulated monopolies to drive the prices through the floor.

What needs to happen in terms of economic models to the Internet itself?

Metcalfe: Well as a beginning step we need measurement, management, and money. The three M's. First, there's nobody measuring it. Management also needs to be added, but the Internet intelligentsia is opposed to management. They love this idea of anarchy, and that the Internet is biological. These are the people who say in horror, "You want to centrally manage the Internet?" I say, well, I don't see that we're in danger at the moment of overmanaging the Internet. When we get to that point I'll join you on that side. And money. Everyone wants it to be free or flat rate or as close to free as they can get. So they won't move to fix the Internet in these three important ways.

Talk to us about measurements.

Metcalfe: The first question is, "So where are the measurements?" Let's go find the measurements. Where would we find measurements on the operational performance of the Internet? I know where we'd go. We'd go to the North American Network Operators Group, where we should find a hotbed of measurement activity. And there is measurement activity there, but it's very controversial. In particular at all the NANOG meetings, the big ISPs show up, and they say, "Those measurements are no good and those measurements are no good, and we refuse to participate in those measurements because they contradict our measurements." What are your measurements? "I can't tell you our measurements. That's proprietary." The secret measurements!

I recently wrote a column about NetNow, a measurement project out of the Merit Network by which they measure packet losses and delays through various access points in the network and publish them on the Net. The trend is horrible. According to NetNow, the packet losses were averaging 2­4 percent in a 24-hour day. And during busy periods they were routinely hitting 30 percent.

Now TCP was not designed for 30 percent losses. It's robust and it keeps working, but it's not optimized for that, and they are now modifying it to accommodate higher rates of packet loss, which is good. For example, the Internet Engineering Task Force has something called selective ACK. With TCP if you send 10 packets and one gets lost, you have to retransmit all 10. That multiplies errors. When you then think about 30 percent packet loss, suddenly it gets, whoa, big! Selective ACK is a way for TCP to say, "Well I got this one and this one, but I didn't get that one. Could you please send me that one?"

But anyway, the people at NetNow put text up on their site saying, in essence, "We're now losing 30 percent during our peak hours and some of this is due to the perverse engineering by the ISPs," a very damning statement.

So I sent out a sort of RFP. I took the quote that I just summarized for you, and I e-mailed it to NANOG and a bunch of other people I know and I said, "What do you think about this? What's going on here?" Now the ISPs uniformly said, "This data is wrong." In particular, one very famous ISP guy came and said, "This data's bogus. It uses pings, it measures round trips, and it's inconsistent with our data. You should throw it out. Forget it, don't worry, this is just more of your collapse hysteria. Leave us alone, go away, you're clueless."

Well, I checked with the NetNow people and they don't use ping data, and it wasn't two-way, and--not only that--this ISP wouldn't give me their data that contradicts the public data. So I say, something's gotta give, either the data gets fixed or the network gets fixed.

It's normal, though, for businesses to have proprietary data that they withhold from the public.

Metcalfe: It is detrimental to the health of the Internet not to have a higher degree of cooperation among the ISPs. The analogy I make is with the airline industry: It's as though each airline had its own airports, airlines investigated their own crashes, and the industry found it profitable to run ads that said, "Fly our airline. We crash less than our competition." This is the state of the Internet industry. It's crude. It needs to be refined. And we need a higher degree of cooperation.

What did the NANOG people say about the NetNow data?

Metcalfe: Something like 30 of them responded because they're on that NANOG list every day. Most of them hate my guts. But they all responded, and there was no consistency in their response; they do not agree. Some blamed it on slow servers, some blamed it on routing stability, some blamed it on lack of capacity, some blamed it on route computation, and some agreed with me that it was lost packets. They were all over the map. Some said it was the speed of the circuits going in and out. They have 100 different explanations. We need to measure it. I'm not saying I have the measurements; it just seems that no one knows. No one knows. And the people who are in the best position to know are not talking for normal commercial reasons. MCI, Sprint, they have data.

Let's talk about your prediction that the Internet would collapse in 1996.

Metcalfe: Well, it's interesting. The people who always thought I was a jerk think I'm really a jerk now because the Internet didn't collapse. And there are other people who think it did collapse and that I was completely right. I'm discovering again anew that what people look for in the press is confirmation, not truth. They look, and if they see something that they disagree with they tend to discount it. If they see something that they agree with, they tend to adopt it as truth.

What I've learned about my high-profile collapse theories of last year is the people who didn't think there was going to be a collapse last year didn't think one happened, and the ones who were inclined to take the warning and believe that there might be trouble ahead, think that horrible things happened to the Internet, and that I was somehow prophetic. And so nothing changed.

Has this changed the way you think about your role as a journalist?

Metcalfe: Yes, I now focus more on people who have not made up their minds. I try to explain what I've found out. The experts on both sides of an issue are generally beyond help.

What was driving you when you made your collapse predictions?

Metcalfe: Well I'm a journalist, a pundit is the right word, maybe. I'm not sure if that's a kind of journalist, but I'm a technology pundit. Now I have a substantial advantage over my colleagues who work for this and other newspapers in that I'm also a technologist and I know a lot of what's going on here. I also have another substantial advantage in that I'm 20 years older than they are and I can't be bullied as easily as they can be. So, in regard to collapses, (a) I believe I'm onto something, and (b) my highest goal is to serve my readers.

My readers use the Internet, they are gung ho on the Internet. They're buying Internet services, they're looking for advice. My column is now number two in this magazine. These readers want to know about the Internet. So what drives me is being of service to them.

InfoWorld's business is evaluating vendors for buyers. We look at products and we evaluate them and we help our readers buy. ISPs are a kind of vendor, and I'm looking at them on behalf of my readers. But the fact is I'm also a former vendor and a former Internet person. So in addition I'm also kind of trying, in my own way, to help the ISPs get their act together. And I believe their act is not together.

So you're making these predictions both as an engineer and as a journalist.

Metcalfe: I think the Internet is tragically flawed. I'm trying to accelerate its being fixed. I've identified a series of problems that I'm working on. So I'm trying to provoke, and to advise the process for fixing the Internet because I'm very optimistic about it, and my readers are depending on it more.

You are deliberately being controversial, trying to fan the flames.

Metcalfe: I am a journalist now, I'm not an engineer. My job is to provide food for thought, and food tastes better when it's spiced. And so I spice it up to make it interesting to people and provocative, and to stimulate discussion, and I get it. And I get readership too, and I'm not ashamed of that. In fact, now one of the metrics of success for me is to build readership. I'm happy when the readership surveys come in and they say that my readership is up. It's been going up for six years, and I just passed a half million readers a week. But that doesn't negate my other aims.

Let's turn to the problems that you've identified in the Internet. In December 1995, you predicted a spectacular, supernova collapse, much bigger than the 50,000 lines down for over an hour that the FCC requires to be reported.

Metcalfe: What happened was that in December 1995 I wrote a largely tongue-in-cheek, sarcastic column, which you can still read because it's on the Internet. Then I began to refine this prediction and escape the sarcasm and funniness. A lot of people asked me what would constitute a collapse, and so I began to quantify it, and I used this 50K number, which happens to be an FCC guideline on telephone outages. That's a 50 kilolapse: 50,000 users for an hour.

Then in August it started happening. Netcom, in August of 1996, suffered a 5.2 megalapse: 400,000 users were denied Internet access for 13 hours. And then on August 7th America Online suffered a 118 megalapse. That is, its then 6.2 million users lost Internet access for 19 hours. And it was at that point, quite late in the year, that I went out on a really long limb and said "This is just the beginning. We're gonna see a gigalapse this year." And that in fact is the prediction that did not come true.

Your original prediction was the spectacular supernova collapse, which was unquantified. Do you think we had a spectacular supernova collapse?

Metcalfe: No, I would tell you that in my meaning, the spectacular supernova collapse of the Internet--and by that I don't mean AOL--did not occur. The Internet, however, bogged steadily down and it continues to bog down. It's getting worse every day, and it's conceivable that the spectacular supernova collapse of the backbone will occur.

But there's another point here. I changed my prediction during the course of the year from singular collapse to plural collapse, because too many people began to attribute to me that I was predicting the "death" of the Internet, which I don't believe I ever predicted. In my mind it was going to suffer catastrophic collapses, recover, collapse again, recover, collapse again, until it got fixed. I almost regret choosing the word collapse, because I'm a big fan of the Internet. I've never meant to suggest that it was going to die.

I think if I had played it differently and suggested there would be a 100 megalapse in 1996, most people would have agreed that was horrible enough. The August AOL outage was 118. And that was a router collapse, by the way, not a front-end problem.

Many of the technical people are saying even if one site has a huge problem it will not propagate through the Net, and so far none has done so.

Metcalfe: Well, wait a second. In the case of Netcom it propagated through all of Netcom, from Cisco router to Cisco router to Cisco router, and again in the AOL case it propagated through all their Cisco routers. We were fortunate, lucky is the way I would phrase it, that it did not propagate through the Netcom boundary. And, by the way, I don't think that the users of AOL are unimportant. It matters if they lose access.

Why do you believe we were lucky?

Metcalfe: Because I know from talking to experts that the routing configuration process is ad hoc, highly complicated, and Cisco is working very hard to automate, simulate, and protect that process.

There are many kinds of catastrophic collapse, and some of them not traffic-related. In fact, the ones I'm most worried about are not traffic related; they're fragility related. Bugs in code. The DNS (domain naming system). If the nine DNS servers were somehow put out, the whole Internet would be gone. Packets would still be able to flow, you just wouldn't be able to access anything because you wouldn't know where it was. And another one of these NANOG guys, my arch enemy, a real flaming jerk on NANOG who shall remain nameless said in an interview, "There are 100 people who know enough to bring down all nine DNS servers, and I'm one of them." And the worrisome part about what he said was that he was one of them. This guy is nuts and he was asserting that he knew enough to bring down those nine servers.

Lucky. I submit we were lucky, and I was wrong about a 1996 gigalapse of the Internet, and at the Sixth World Wide Web conference in Santa Clara on April 10th I'm going to eat my column because I was wrong.

We'd like your opinion on the following issue. European sites appear to take substantially longer to download than domestic sites, and download times from Europe to the US are even slower. Is anyone studying router policies to see if they advantage some people and disadvantage others?

Metcalfe: Oh yes. They clearly do. When traffic comes into an ISP router, there's this thing called "fastest exit routing" or "hot potato routing," by which they say, "I'm not going to send this traffic by the shortest possible route to its destination because then it would travel on my circuits. Since I don't get any revenue for this, I want to get rid of this packet as soon as possible. Therefore, I'm going to dump it on that ISP over there. However, if this is from one of my customers--take AT&T as an example--if this is an AT&T customer coming onto an AT&T backbone, they go right on through.

Right now there is no settlement mechanism among the characters. Routing policies are being put in the network that distort where the traffic goes, as was just reported by Merit network, because there is no settlement mechanism.

The other problem that's now emerging in the Internet because of this is that the big guys are refusing to peer with the little guys. The little guys, in order to go across town, have to go through these contorted paths because no one will peer with them because there's no money in it. There's no economics, so I'm not going to carry your traffic for free. More and more the big guys are doing bilateral peering, and they're failing to peer effectively at the network exchange points (NAPs), which is causing traffic to take very long, distorted paths. And so it's conceivable that there is an asymmetry there between, say, the ISP in France and the ISP in the United States because of this.

Do you think that this is going to cause problems severe enough to change the governance of the Internet?

Metcalfe: Well, despite the misunderstandings that are rife in the reportage, the malfunctioning of AOL and the Internet are now big news. This week, in fact, you're reading about the spillovers from the Internet to the local telcos, you're reading about AOL's busy signals.

My biggest fear is that because the Internet is both so poorly managed and so important, government agencies are going to step in. Instead of having cooperative management of the Internet by ISPs, we could get regulated management by the FCC.

If the Internet isn't governed according to an economic model that makes sense, why is so much money being invested in it?

Metcalfe: Well first of all, the Internet is infinitely cool. And the Internet is the Information Age. I know that, and these business people know it, even if they don't have a clear idea what the business model is. The Internet is the hope of the future.

Do you believe this?

Metcalfe: Yes, I believe it. I've been working on the Internet for 25 years, and I see that while its potential is far from achieved, it is the Information Age. That's why we're investing all this money. The real question is whether anyone is making any money on the Internet.

There are certainly many, many millionaires in northern California.

Metcalfe: Now wait a second. Are you talking about the Andreessens of the world? Now you know that these guys are all transients. These companies could be gone year after next. And these people haven't sold their stock. They're rich on paper--a lot of them can't sell their stock.

There are very few companies that are profitable on the Internet, and most of them, the ISPs in particular, are losing money hand over fist. They're investing on the come. And they're assuming that many of the problems that I'm whining about are going to get fixed.

Can you give us an economic model that you think would work?

Metcalfe: Well, here's a partial answer to your question, and it points out the problem of pricing. A couple of columns ago I suggested that we should start paying for e-mail. You know, we have e-mail, we should have e-postage. Postage is a time-honored way of paying for mail. E-postage would create a revenue stream for the people who provide mail. Mail isn't exactly free.

Now e-mail is usually an add-on as part of a flat fee structure. And we're back to flat fees again, and flat fees are on the run this week anyway.

I should say that basically I'm not interested here in short ASCII messages. The issue is where e-mail's going, which is multimedia--that requires much higher qualities of service. Creating a revenue stream for the people who provide e-mail service seems to me to be a good idea. Now the flat fee is likely to persist. As long as you're willing for your flat fees to be very high, then they can persist. If you tell me, "I really like flat fees, I'm going to pay $10,000 a month for my e-mail," well, go right ahead. But if you want e-mail to be cheap and Internet access to be cheap, then it's going to have to be pay as you go.

The other reason for e-mail postage, by the way, is to discourage Spam or junk mail. One of the reasons we have junk mail and we'll have much more in the future is that it's free.

So with e-postage you would have the opportunity to subscribe to e-mail services where you could pay per message according to how big the message is, or how fast it goes through, or for whether you get a return receipt, or for how far it's going. Mail to India should cost more than mail to Mountain View.

I think the marketplace will tolerate a wide variety of pricing mechanisms. My prediction is--and my advice is--that we should welcome experiments which attempt to approximate cost and value in the prices. And they won't be perfect. As I say, flat fees will persist. Some things, like the small ASCII messages, may be free forever, I don't know. But the big "Here's a copy of Windows 95" e-mails--somebody's going to have to start paying for those pretty soon. And "Here's a copy of Windows 95, Bombay," those are going to start to cost money.

What I'm saying is there should be a marketplace, and it should be rational. There should be pricing. Pricing in markets that have choice and competition. It's not that I think only one particular pricing structure will work. I'm saying the current structure is inadequate because it's either free or flat. It does not approximate cost or value or competition anywhere near close enough to be a viable economic model.

I get e-mail from people who tell me this betrays the real purpose of the Internet. "The Internet was not built to serve the money-grubbing capitalist corporations of America."

You know, I was around when the Internet was built. And it doesn't matter what the original purpose of the Internet was. That's moot. *

Bob Metcalfe is vice president of technology for International Data Group and writes a weekly column about the Internet for InfoWorld magazine. Metcalfe invented the Ethernet local-area network in 1973 and founded 3Com Corporation in 1979. Most recently, he was elected to the US National Academy of Engineering. He received the IEEE Medal of Honor in 1996 for his exemplary and sustained leadership in the invention, standardization, and commercialization of Ethernet.