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 Levetttown.
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.
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Why Five years ago this was a vast checkerboard at Potato.
Farms on New York's Long Island.
Today this is Levittown, one of the most remarkable housing developments ever conceived.
Livettown, new York, America's first suburb, row after row after row of cookie cutter 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 fueled nightmare.
Someone was posting photos of many of the girls that we had gone to school with.
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Over the last few years, rapid breakthroughs and machine learning have made it a lot easier and cheaper to make real looking photos or videos, pretty much anything you can think of, But innovation comes at a price.
I felt gross, I felt I don't need to take a shower.
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This is a story about a technology that is moving faster than the law, where everyone is a suspect, even your neighbors.
It was always in the back of my head, like, oh, it's someone that I know, But how do you find out who that someone is when you know so many people from school, soccer, all these things.
What we discovered in Leavertant 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, and it's just we're losing.
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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 Carvill.
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Hello and welcome to another episode of the Odd Lots podcast.
I'm Jill Wisenthal and I'm Tracy Alloway.
Tracy, as you know, I am a sucker for any conversation that involves reminiscing about the dot com bubble or the telecom bubble, really anything in the late nineties when that 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 you know it was a bubble, but I think right now, obviously people are really curious about the AI build out, and that really was the last time the late nineties when there was a specific costly capax 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. I will also say, the telecoms bubble, it's kind of mixed up with the Internet bubble, right or people tend to mix your Yeah, and actually it was different anyway, 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 New Street Research, but he was actually the chief of staff at the FCC in the late nineties and to who's 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 the story that we're talking about. And so take a listen to our
chat with Blair. People do forget that, like they talk about the Internet bubble, but it really was like it started or at least a huge party with 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 buildout, et cetera. Arguably, I mean it's been going on for a while. Arguably, the sort of the catalyst, the moment that it captivated captivated everyone was the release of chat GBT in late twenty twenty two.
What was the moment or what was the catalyst in the late nineties that suddenly got people so excited about building out te broadband infrastructure.
It was a release of Netscape, an operating system that caused people to understand what the Internet could actually be, and 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. Right now there was really a vehicle that could do it.
Joe knows a lot more about this topic than I do. But one thing I do know is when people start age Joe, when people talk about the telecomps bubble, I mean, the thing that comes up is the Telecommunications Act of nineteen ninety six. It goes almost like hand in hand, walk us through the connection there. Why does the Act 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 nineteen thirteen us to do a little history's doing history back in nineteen thirteen, the government essentially allowed AT and T to continue its monopoly. If Andrew had been there, maybe he would have opposed it, but he wasn't there, and 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 a local business, and the cable industry wanted to get into both of their businesses. And so during the eighties and early nineties 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 on a bipartisan basis, but really seen clearly by Gored by the chair Red Hunt, was right, now, we have these analog networks that are protected and they just offer a single service. You have analog video coming over cable, you have analog voice going over the copper net. Wireless
was kind of a protected thing. Long story, but there were only two wireless providers, so less than ten million people used wireless services, and the idea of the ninety six 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 ten year old kid in nineteen sixty four 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. Well 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 a lit wow such that we got this incredible boom in laying fiber, laying copp or 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, But 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 of 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 on the phone number. If Verizon owned your phone number, you would never leave them, and therefore, no matter how many competitors do you have, there really wouldn't be competition. Another very big one goes to a
very obscure thing, which are called access charges. So you're on one network and you call a different network, what does network two charge Network one complete that call. The most important thing for wireless was when we said to the wireline guys, who had you know, we're connecting completing ninety five percent of the calls. You have to charge your real cost, not you know, not ten 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 ninety five, 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. And 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 able remember 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 forty eight hours, there were four hundred thousand 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 position, competitive situations by looking at what is essential and then making sure that those are not barriers in the competition.
Okay, so people think they have an entry point into that market, there's deregulation, there's potentially more competition for new players. Why did investors want to fund what seems like a very ex 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, talk to a lot of old school bond investor guys.
It was funded with a lot 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 two thousand and eight financial crisis, but easily like the two thousand and one telecoms crash, which was huge for the bond market. Why were people so eager to pour money into this?
So first of all, you have to understand that at the beginning of any new, really big thing, there was in the early nineteen hundreds a lot of money going into car companies, and in the seventies 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 in increasing this digital competition at the same time that the market understood that the future is not these copper networks that the old AT and 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 grow, is doubling every quarter. Turned out it was every year, which.
Is a hard difference.
But 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 dot com. Right, pets dot Com went under. Investors loft money and that's what 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 about these yeah w right and they ended up buying 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, and 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 nineties during the Clinton administration, you have this 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 exciting because what people are wondering about with AI is there going to be something? So far we haven't seen any of the major plays forms, the major hyperscalers. They were like massively pulling back on KPAX 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 deep Sea where there was that moment where maybe a stock went down hugely one day, but then people started to think, yeah, well, wait a minute, we're still going to need the chips, and.
Why large everyone is still despite the market sell off.
No one is actually like changing either investment commitments. Yeah, though there were lots of smaller companies that are not public because going public is different than it was in two thousand, 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 who's 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 right true. And then then the application 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 Callicanus when we interviewed you, was he pointed out something interesting about a lot of the latest startups, which is the 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. And 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 aware 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 ben with them 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. And one of the challenges for network folks is how do you build this network which is supposed to last for thirty years or fifty years or whatever, and not run out of money before the revenue 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 two thousand, 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 les, but they've changed their business model. But when you look at the device companies and the applications companies relative to two thousand, totally different set of companies.
What were the Selex the cles?
What were so the sea lex 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? Would Congress really envisioned?
I forgot about long distance?
Yeah, here it go. 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 thirty seconds, just yes, I'm okay, talk to you later by you know. And now has anyone paid a long distance? Is there anyone here paying a long distance? Bell?
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 come be with the old guys who have the advantages of incumbency, and the cable guys are going to get into this business. Wireless 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, 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 is the CEO of AT and T, was shall we say my age as to the young whipper snappers of SBC at Whitaker or Ivan Seidenberg of what was then called nine X. 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 sea Lects can build these networks for eighteen t to eventually buy and blah blah blah. Alan 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 days later, my boss, Breetheind 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 open You say, oh really and read who was a former anti trust lawyer just went through this, you know, very intense anti trust analysis why we cannot let them merge. Eventually they did merge and that was the end kind of of the sea Lect dream.
This 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 guys said, you know, Blair, we gave you deadlines. You're never going to meet them, and then you're going to be so screwed. I said, thank you. That great, But Reid understood that deadlines, particlally 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. We had here's all the rulemakings, here's where we're going to do everything, you know, like just and went to the other commissioner offices and said, with each of these things, you're going to have five days to read the stuff, you know, like no excuses. And so we felt enormously energized and pressured. The over the heating bill at the FCC for like one month was like an extra four hundred thousand dollars. That's a
good detail. We were all working so hard, but it was truly it was a wonderful spirit and we thought we were doing something important. And by the way, at the same time, we were negotiating World Trade Organization agreement to enable digital traffic to travel much more cheaply around the world. It was really exciting and fun time.
All right, I have one last question, which is there are various ways to play a boom. Right, So some people were buying shares and corning the glass company because I have to lay a lot of glass based fiber. Some people were buying AOL, Some people were buying pets dot com. You know, various different like sort of ways into it. Is it the ISP, is it the website, is it the glass, et cetera. Obviously with AI it's this sort of same thing. Is it going to be
the model makers. Is it going to be the companies to make the chips? Is it going to be the companies to make the cooling systems for the data centers? Various different ways into any sort of boom from the telecom era. What is the takeaway about who makes the money in the end, Because who makes the money in the end the lawyer of that story, yeah, Bessess, the lawyers, Yeah, the heat and the heating.
Company and the heating companies.
You know, I will give you my answer, but I have to tell you, if I actually knew the real answer, you'd have to pay me a lot more money.
I'm not even asking for the AI. I'm just like, you know, like.
Because I'm just I'm the Wall Street analysis. But I'm just telling people what the policies are going to be.
I'm not telling you people paid fifty dollars to get Oh.
That's right, fifty five dollars. You deserve a better answer. No. Look, what I love about Wall Street is you have these debates every day, and you know, one of the big debates in my space is what is Charlie Ergan going to do? Or should the telcos the wireless guys buy more fiber? All those kinds of debates. What I would say about that is number one, infrastructure always has value. But it's also true that, as every real estate developer knows,
it's often the third owner who actually makes right right. So, but the data centers are going to have value forever. There will be a couple of applications that capture the market share and that the you know, twenty years from now, the FTC will be saying why didn't we stop these people, you know, back in twenty twenty five when we could have. And whether it's Open AI or it's Perplexity or it's
any of the others, who knows. But if you capture that the market, you know, the return on scale is tremendous. The difference now is you do have these really well established companies Amazon, Microsoft, Alphabet, Meta, Who are who are in the space?
You know?
One answer to would be the cloud guys. I think Cloud is just going to be incredibly important in all of this and they win no matter what.
Blair Levin a real treat. So great to chat with you. I love reminiscing. Thanks for all coming down last live.
That was our episode looking back at the Telecoms Bubble with Blair Levin. I'm Tracy Alloway. You can follow me at Tracy Alloway.
I'm Joe Wisenthal. You can follow me at the Stalwart. You can follow Blair at Blair Levin. Though I don't think he's posted in eight years, maybe if a bunch
of people follow him, he'll start posting again. Follow Our producers Kerman Rodriguez at Kerman armand dash O Bennett at Dashbot and kil Brooks at Kelbrooks from our oddlotscontent, go to Bloomberg dot com slash odd lots, where we have all of our episodes in a daily newsletter, and you can chat about all of these topics, especially including AI and bubbles and stuff like that in our discord discord dot gg slash odlines.
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