SUPERCOMM:
Crowe: 'We Have Not Yet Scratched The Surface'
Level 3 chairman offers optimistic vision of the future of IP

ATLANTA, June 6, 2001 -- If the crowd at this year's SuperComm convention needed a pep talk, Jim Crowe was glad to provide one.
The chairman and CEO of broadband network builder Level 3 Communications used his keynote address Wednesday to offer his optimistic vision of the future of optical IP (Internet Protocol) networks and their role in the economy.
"I think the opportunity we all have is just beginning," Crowe told conferees at the Georgia World Congress Center. "We remain one of the fundamental industries in the economy.
"We have not yet scratched the surface of demand for communications services, if we can build networks that drop the cost and stimulate demand," he said.
That's a big "if," he acknowledged, but one that telecom companies must address if they are to successfully leverage dramatic advances in the Internet and optical networking technology.
But in his opening comments, even the upbeat Crowe made note of the industry downturn that made this SuperComm a slightly more introspective event for the telecom crowd.
"I can assure you I was smarter and better looking a year ago," Crowe joked. "What a difference a year makes.
"The unqualified support and enthusiasm of the analyst community at that time didn't mean that all these companies would succeed," he added. "The unconditional unraveling of the support of that community doesn't mean that the future of all these companies is in doubt.
"Easy money isn't healthy for our industry. Free capital isn't healthy for our industry. It created a bubble."
The bursting of that bubble has left even the largest and best-funded IP network builders working overtime to calm nervous investors. Earlier this year, Level 3 had to issue a press release to deny groundless market rumors that it was having trouble complying with loan covenants.
Crowe argued that the growth of digitized entertainment - including gaming and streaming audio and video - will energize demand for bandwidth in coming years, exceeding the industry's ability to keep pace.
To capitalize on that opportunity, Crowe said, the telecommunications community must find ways to make cutting-edge equipment and technologies affordable to a larger pool of users.
Using the personal computer market as an example, Crowe argued that this "elasticity of demand" was the key to creating larger markets for communications products and services. As prices fell, Crowe noted, use of PCs surged dramatically, spurring enormous growth in markets for software and peripherals.
According to Crowe, a 1 percent drop in a product's price can generate a 2 to 3 percent increase in demand, offsetting any potential erosion of profit margin.
But while the computer market has seen huge drops in price even as technology improved, telecommunications has not. He called for new approaches to improve costs, saying telecom companies must shed the utility mentality and begin thinking like computer companies.
"We need entirely new systems to rebuild networks while we operate them," said Crowe. "That's hard problem," he added, especially since many network administrators are focused on protecting the reliability of the existing network infrastructure.
"We think the shift from a utility industry to a technology industry is unstoppable," said Crowe. "Our business is clearly a business which has the potential for high price performance and high elasticity of demand."
If the communications industry can live up to that potential, it can become the distribution mechanism for huge industries that currently deliver products using trucks and retail store chains.
"There are whole industries that will be disintermediated by improvements in communications technology," he said, citing software, music and video as examples. "The economic reality is that over time it will be transported over communications networks.
"Ninety nine percent of the bits that move in and out of a household goes over cable," Crowe said. "They will move to optical IP networks. It's only a matter of time."