The Last Time Investors Really Got Excited For Tech Infrastructure

0:00Your best bottling plant employs 3 ,300 people. How do you get 3 ,300 people working at peak efficiency? Your best store has reduced waste, water, and energy usage. How do you make every store like your best store? Your best property has every guest raving. How do you make every property like your best property? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. Okay, I have 30 seconds to explain Canva. That's impossible, but here's a glimpse. Canva can take your presentations to another level. With Canva Video, you can generate awesome videos with one prompt.

0:41Canva Docs lets you create stunning visual documents, reports, plans, whatever. MagicWrite can write in your voice using AI. And Canva Sheets makes spreadsheets people will actually like. Canva lets you bring your big ideas to life as fast as you can think of them. Put imagination to work at Canva.com. Did my card go through? Oh, no. Your small business depends on its internet. So switch to Verizon Business. And you could get LTE Business Internet starting at$39 a month when paired with select business mobile plans. That's unlimited data for unlimited business. There we go. Get the internet you need at the price you want.

1:21Verizon Business. Starting price for LTE Business Internet, 25 megabits per second unlimited data plan with select Verizon Business smartphone plan savings. Terms apply. Hey there. Don't go just yet. We want to tell you about a new series from our colleagues here at Bloomberg. It's called Levittown. It's about a technology that's moving faster than the law, about dozens of young women in a New York suburb who discover manipulated photos of themselves on a porn website. Told there isn't much the police or anyone else can do, they decide to fight back, joining a global battle against deepfakes. Please note, the trailer for the show you are about to here features adult themes.

2:06Five years ago, this was a vast checkerboard of potato farms on New York's Long Island. Today, this is Levittown, one of the most remarkable housing developments ever conceived. Levittown, New York, America's first suburb. Row after row after row of cookie-cutter her homes. The picture of the American dream. But recently, underneath the facade of perfect order, a group of young women found themselves in an AI-fuelled nightmare. Someone was posting photos of many of the girls that we had gone to school with. There was one picture of me in a bathing suit and I didn't have a bathing suit on anymore.

3:03It was just me naked. Well, not me, but me with someone else's body parts that looked exactly like my own. Over the last few years, rapid breakthroughs in machine learning have made it a lot easier and cheaper to make real-looking photos or videos of pretty much anything you can think of. But innovation comes at a price. I felt gross. I felt like I needed to take a shower. I felt like I wanted to cry. I wanted to throw up. I wanted to scream. This is a story about a technology that is moving faster than the law, where everyone is a suspect, even your neighbours. It was always in the back of my head like, oh, it's someone that I know.

3:51But how do you find out who that someone is when you know so many people from school, soccer, all these things?

4:02What we discovered in Levertown led us on a winding journey. I just always had in the back of my mind that any of them could be the one. Through the darkest corners of the internet. They call it an arms race between law enforcement and technology. It's just, we're losing. We are absolutely losing. Where online vigilantes and enterprising detectives are joining forces. If you're given prey, you want to go and get it? In this story, the victims flip the script, band together, and fight back, alongside some unexpected global allies. I'm Margie Murphy. And I'm Olivia Carville. This is Levittown, a new podcast series from iHeart Podcasts, Bloomberg and Kaleidoscope.

4:56Listen to Levittown on Bloomberg's Big Take podcast. Find it on the iHeart Radio app, Apple Podcasts or wherever you get your podcasts.

5:15Podcasts Radio News.

5:28Hello and welcome to another episode of the Odd Lots podcast. I'm Jill Weisenthal. And I'm Tracy Alloway. Tracy, as you know, I am a sucker for any conversation that, you know, involves reminiscing about the dot-com bubble or the telecom bubble or really anything in the late 90s. when I came of age as a young man. Well, that makes sense. I think a lot of people tend to do that. I like just bubbles in general. I do not put a time period on my bubble interest. Any bubbles all the time. Let's do it. One thing that I think is really interesting about that time period is obviously there was a bubble.

6:04But I think right now, obviously, people are really curious about the AI build out. And that really was the last time, the late 90s, when there was a specific costly CapEx tech infrastructure part of the story, because at that time it was the telecom bubble, everyone laying all the broadband to power the high-speed internet that we have today. It's not a perfect analog, but it's something that I've wanted to talk about and probably want to talk more about on the show just because of, yeah, some of the parallels to what we're seeing right now. Right. It is the analogy that everyone uses, primarily because of that big, expensive capital buildout that you just mentioned.

6:42I will also say the telecoms bubble, it's kind of mixed up with the internet bubble, right? Or people tend to mix them up. Just lump it all up. Yeah. And actually, it was different in many ways. So we should talk about that too. Totally. Well, I'm really excited. Tracy and I were recently down in Washington, D.C., where we recorded a live show, and you've already heard some of them if you've been listening to the podcast. But this was a really fun little chat that we had. We spoke with Blair Levin. He's currently a policy advisor at Newstreet Research, but he was actually the chief of staff at the FCC in the late 90s.

7:18And so he was involved in some of the deregulation that gave rise to all of the telecom bubble build out, all of the telecom build out. Then he went to work on Wall Street. So he really had like a front row seat at the story that we're talking about. And so take a listen to our chat with Blair.

7:42People do forget that. Like they talk about the internet bubble, but it really was like it started, or at least a huge part of it was the telecom. It was a dual bubble. That is to say there was a bubble relating to internet applications, but there was also a bubble related to telecommunications infrastructure. So other people could debate whether there is an AI bubble happening right now, but there is certainly an AI boom in terms of infrastructure spending. We talk all the time about data center build out, et cetera. Arguably, I mean, it's been going on for a while. Arguably, the sort of the catalyst, the moment that it captivated everyone was the release of ChatGPT in late 2022.

8:22What was the moment or what was the catalyst in the late 90s that suddenly got people so excited about building out broadband infrastructure? It was a release of Netscape, an operating system that caused people to understand what the Internet could actually be. It, of course, had existed previously. But with Netscape, Silicon Valley got very excited. Wall Street got very excited. And a few political leaders like Al Gore, who was then vice president, got very excited because he had always wanted the information highway to connect the child in Carthage, Tennessee, to the Library of Congress. And now there was really a vehicle that could do it.

9:03Joe knows a lot more about this topic than I do. But one thing I do know is when people talk about the telecoms bubble, I mean, the thing that comes up is the Telecommunications Act of 1996. It goes almost like hand in hand. Yeah. Walk us through the connection there. Why does the axe get the blame for a lot of this enthusiasm? Or the credit. Or the credit. Yeah. Look, so I think people have to understand back in 1913, let's do a little history. Everyone's doing history tonight. Back in 1913, the government essentially allowed AT &T to continue its monopoly. If Andrew had been there, maybe he would have opposed it, but he wasn't there.

9:44And that continued until it was broken up. And then once it was broken, we had the long distance guys and you had the local guys. And the local guys wanted to get in the long distance business and the long distance guys wanted to get in the local business and the cable industry wanted to get into both of their businesses. And so during the 80s and early 90s, there were a lot of efforts to say, instead of having one judge in charge of the whole thing, let's do this differently. And the key idea, and one embraced really in a bipartisan basis, but really seen clearly by Gore and by the chair, Reed Hunt, was right now we have these analog networks that are protected and they just offer a single service.

10:25You have analog video coming over cable. You have analog voice going over the copper networks. Wireless was kind of a protected thing, long story, but there were only two wireless providers. So less than 10 million people used wireless services. And the idea of the 96 Act in a way was let's blow this all up by making everything go digital. That was the key because once they're digital, they all compete with each other. We didn't express it quite that way, but that was the real idea behind it. And I would argue, you know, you can say it was a success or it was a failure, but for those of us, I'm showing my age, I was a 10-year-old kid in 1964, stood in line for two hours in New York at the World's Fair to watch, you know, a video conference that was like three bucks a minute.

11:12Well, we all do, you know, I do this with my grandkids for free now. So I view it as a success, you know, that basically by going digital, we have faster, cheaper, better communications through competition than we've ever had. What specifically did that telecom deregulation allow such that we got this incredible boom in laying fiber, laying copper, whatever it was? It gave the FCC a lot of authority, though that authority was challenged. And we did lose a case at the Court of Appeals where the states challenged it because they wanted to have the power. But then the Supreme Court gave the power back to the FCC.

11:52But it gave the FCC a lot of authority to do things which are not commonly recognized, but turn out to be very important. For example, one of the most important things we did was wireless number portability. People didn't think about it at the time, but the question was, who owns your phone number? Do you own the phone number or does the company own the phone number? If Verizon owned your phone number, you would never leave them. And therefore, no matter how many competitors you have, there really wouldn't be competition. Another very big one goes to a very obscure thing, which are called access charges.

12:24So you're on one network and you call a different network. What does network two charge network one to complete that call? The most important thing for wireless was when we said to the wireline guys who had, you know, were connecting, completing 95 % of the calls, you have to charge your real cost, not, you know, not 10 cents a minute, but your real cost is zero to connect. And then suddenly big plans started to come in and wireless really took off. Here's another one. In 95, before the act was passed, the bell companies were trying to say to Congress, we really need to charge access charges to this new dial-up internet thing.

13:07And we said to Steve Case, we had a meeting with him, we said, you know, here's what's going on on Capitol Hill. They want you to charge you like five cents a minute. Imagine what that would have done to AOL, though. I'm not sure people in the audience can remember AOL. They remember AOL. They've read about it. Yeah, it was kind of like back in Genesis. But in any event, Steve Case got the message. If I recall correctly, within 48 hours, there were 400 ,000 emails hitting the hill, not the charge access charges, and we were able to continue that thing. So there were obscure things. We weren't breaking up monopolies in the way that the government is currently thinking about doing with Google, but rather by saying we're going to create competitive situations.

13:53by looking at what is essential and then making sure that those are not barriers to competition.

14:15Your best restaurant location gets five-star reviews. How do you make every location like your best location? Your best paper mill has been operating at peak productivity. How do you make every mill like your best mill? Your best data center has optimized every drop of water. How do you make every data center like your best data center? The answer is Ecolab. Better performance, better outcomes, better impact. Ecolab. Now every location is your best location. For enterprise organizations, managing all your food needs is a tall order. But with Easy Cater, you get a single workplace food vendor with the tools and resources to make it easy, giving teams across your organization an easy way to order from a huge variety of restaurants, all on one platform, all while consolidating your corporate food spend so you can control costs, streamline billing and payment, and simplify reporting.

15:11Easy Cater, your business tool for food. To learn more, visit easycater.com slash podcast. you're thoughtful about where your money goes you've got your core holdings some recurring crypto buys maybe even a few strategic options plays on the side the point is you're engaged with your investments and public gets that that's why they built an investing platform for those who take it seriously on public you can put together a multi-asset portfolio for the long haul stocks bonds, options, crypto. It's all there. Plus an industry leading 3.8 % APY high yield cash account. Switch to the platform built for those who take investing seriously.

15:56Go to public.com and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com. Paid for by public investing. All investing involves the risk of loss, including loss of principal. Rokeraid services for US listed registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc. Member FINRA and SIPC. Crypto trading provided by Backed Crypto Solutions, LLC. Complete disclosures available at public.com slash disclosure. Okay, so people think they have an entry point into that market. There's deregulation. There's potentially more competition for new players.

16:28Why did investors want to fund what seems like a very expensive undertaking so badly? And here I have to say, the one thing I do know about the telecoms bubble. I used to be a capital markets correspondent, talked to a lot of old school bond investor guys. It was funded with a lot of debt. Huge amount of debt. Yeah. And if you ask some of those old school guys about like the big moments in their career, it's okay. The 2008 financial crisis, but easily like the 2001 telecoms crash, which was huge for the bond market. Why were people so eager to pour money into this? So, so first of all, you have to understand that at the beginning of any new really big thing.

17:10There was in the early 1900s a lot of money going into car companies and in the 70s there was a lot of money going into computer companies because people see what the opportunity is. So in the case of telecom what happened was we were deregulating and increasing this digital competition at the same time that the market understood that the future is not these copper networks that the old AT &T local exchange carriers had, but big fiber digital networks. And at that point in time, MCI and other people were saying digital traffic is doubling every quarter. Turned out it was every year, which is a lot of difference.

17:58But if you're an investor and you believe one thing to be true and it turns out the other thing is true, you can make a really big mistake. And they made some mistakes. But I think, you know, there's a difference between what happened with the big networks and what happened to pets.com, right? Pets.com went under, investors lost money, and that was the end of it. But those networks, which were built with that debt and then had to be refinanced, and I remember there was a famous, I think it was a Forbes cover, about a company called Quest, which was building these. Quest, an old ILEC, an old phone company, and everybody thought it was genius and that the cover story was making money at the speed of light.

18:40And everybody kind of was buying off on this. Well, those networks still exist. And those are the networks which actually made Google and Facebook and others lots of money when they bought them on the cheap years later. Okay. So you have this environment of deregulation in the 90s during the Clinton administration. You have the sort of realization that the internet is going to be a big deal. You have these inflated claims in retrospect. Turns out it's still incredibly fast, but doubling every year is not quite the same as doubling every quarter. What was the first cool breeze that came in? When was the first moment from a telecom perspective where it's like, okay, maybe we're not quite so excited because what people are wondering about with AI is there going to be something.

19:29So far, we haven't seen any of the major platforms, the major hyperscalers, they were like massively pulling back on CapEx or whatever. But people are looking out for that moment. What was the first sort of like, what's going on here? So in a way, you're thinking about there was a kind of a false moment with AI with DeepSeek. Yeah, yeah. Where there was that moment where NVIDIA stock went down hugely one day. But then people started to think, well, wait a minute. We're still going to need the chips. By and large, everyone is still, despite the market sell-off, no one has actually changed any of their investment commitments.

20:03There are lots of smaller companies that are not public because going public is different than it was in 2000. So we don't really know what's going on with them. But I would say somewhere, actually, where I would place it was the day after Time Warner made probably the worst deal of all time and bought AOL. That's when people like me started to go, wait a minute. Someone is really smoking something here. And that really doesn't make sense because, you know, from our perspective, AOL was kind of an obsolete company because broadband was coming on. And in a broadband world, the logic of AOL was not true.

20:43too. And then the applications started to fold. And then about a year later, a lot of the data network started to fold. So one of the things I remember from, I think it was Jason Calacanis, when we interviewed him, was he pointed out something interesting about a lot of the latest startups, which is that it's not that they couldn't necessarily make money in the good years. It was that investors weren't asking them to. Investors wanted them to grow as quickly as possible, grow market share, the sort of network effect that we were talking about earlier. And then suddenly, you know, investors start saying, actually, you need to monetize this and you need to kind of show us where the money is.

21:25And so that change in behavior means that now there's pressure to be cash flow positive. Was there a sort of similar moment or similar change in investor behavior where it didn't become about growth and the build out, but it became about actual reality and monetization. Well, again, I would distinguish between the networks, which can run for a while, but they can't run forever, and the applications. I do remember Eric Schmidt, Reid and I had dinner with him shortly after he became CEO of Google, and he said, ubiquity first, monetization later. That works in an advertising model. It does not work in a lot of other models.

22:02and one of the challenges for network folks is how do you build this network which is supposed to last for 30 years or 50 years or whatever and not run out of money before the revenues start coming in and we saw this with various wireless companies and we saw it with fixed terrestrial wired companies and it's interesting because if you look at what the world looked like in 2000 a lot of the companies on the network side are the same it's the cable companies it's the wireless companies, and it's the traditional Lex. But they've changed their business model. But when you look at the device companies and the applications companies relative to 2000, totally different set of companies.

22:42What were the CLECs, the CLECs? What were they? So the CLECs were the competitive local exchange carriers. And the idea was, as one Wall Street analyst said, they are the construction companies for the long distance company. Because the idea was the long distance companies, what Congress really envisioned. I forgot about long distance. Yeah, as most people, as well you should. But when I was in college, again, back in the days of Genesis, you know, we stood in line to call our parents because it was really expensive and we would call and talk for 30 seconds, just, yes, I'm okay. Talk to you later.

23:17Bye. You know? And now, has anyone paid a long distance? Is there anyone here paying a long distance bill? No, of course not. It was all a matter of regulatory arbitrage back in those days. But the idea, I think, of the act was that there would be three competitors. You would have the cable guys, the incumbents, and the long-distance guys. Everybody knew that the incumbent local exchange carriers could easily go into long-distance. So the challenge was, how do we create a path for the long-distance guys to essentially build out new networks that'll be superior networks, and then they'll compete with the old guys who have the advantages of incumbency and the cable guys are going to get in this business.

24:00Wireless was not really seen as a competitor. Now it is. And there are, again, a lot of regulatory reasons. Spectrum auctions played a big role in that kind of stuff. And we had a plan. Now, that plan was reversed by the Republican chairman of the FCC, Michael Powell, a very good guy. And he basically had the view that that's really, it's not going to work. The other problem, which is kind of something you can't legislate around, Bob Allen who was the CEO of AT &T was shall we say my age as opposed to the young whippersnappers of SBC at Whitaker or Ivan Seidenberg of what was then called 9x and in the middle of just after the kind of the law passed we're in the middle of saying here's how we're going to make it so that the CLEX can build these networks for AT &T to eventually buy and blah blah blah.

24:54Allen tries to merge with SBC because he wanted to retire. And people have forgotten this little episode, but it showed up on the newspaper. And a couple of days later, my boss, Reed Hunt, gave a speech at Brookings saying such a deal would be unthinkable. Actually, Alan, we were trying to figure out what to do. Alan gave a speech saying such a deal would not be unthinkable, which gave us the opening to say, oh, really? And Reed, who was a former antitrust lawyer just went through this, you know, very intense antitrust analysis, why we cannot let them merge. Eventually they did merge. And that was the end kind of of the CELAC dream.

25:33This is great. And Joe loves reminiscing and war stories, as he said. So I got to ask, what was the craziest thing in retrospect that you saw from this era? Oh, gosh. You know, what was crazy about it, but totally wonderful was, and this will sound odd, Congress gave us ridiculous deadlines. Ridiculous deadlines. And a Republican guy said, you know, Blair, we gave you deadlines. You're never going to meet them. And then you're going to be so screwed. And I said, thank you. Great. But Reid understood that deadlines, particularly if you're like a chief of staff, are a great thing. So the day after the act passed, we had all the lobbyists in.