Ruminations on Russia

20 October 2004

Popular Telephony

Tom Keating has more interesting coverage of Popular Telephony's global numbering efforts ("GNUP"), also from James Enck on Popular's global numbering. I don't like this, read what someone else wrote blogging style but a comment and subsequent response from Peerio (the name of Popular's product) is worth covering;

In order to implement peering between disparate networks, this would need a media wrapper (or gateway) to exist between protocols, wouldn't it?
Posted by: Andrew at October 18, 2004 11:35 PM

Not really... There are no networks really... SIP or H.323 or whatever... it is all on the user machine isn't it?
Posted by: Peerio at October 19, 2004 10:52 AM

As a Mac user I have yet to check out their claims but it seems to me that they are way ahead of the crowd.

Update: Martin Geddes posts from VON with some great thoughts including why we should all be scared about communications. Key take aways;

Too many border session controllers = trying to make the IP network resemble the current TDM network
Popular are "hijacking and subverting" the global numbering plan (this was meant in a good way)
A lot of money will be lost in VoIP - see point 1 to understand the coming crisis - So if you’re putting your pension savings into the VoIP business, tread very, very carefully. This boom going to hurt as bad as the .com explosion. One way or another, there’s going to be a lot of roadkill, and a lot of get-rich-quick money from inflated promises.
VoIP is a classic separation of application from carrier and more importantly the financial relationship between the two - someone astutely commented that a key aspect of IP was not just decoupling of the applications from the service. It is also the decoupling of the financial relationship between the connectivity and service provider.

All this should apply to the mobile network as much as the fixed. However I recently saw a line in a RFP to a global service provider that said in effect that GPRS and 3G are not yet robust enough to support true VoIP connectivity - bomb shell. Put another way voice is going to continue to have its own protected piece of bandwidth until QOS issues can be resolved.

Timely Insights Into the Arrogance of Power

In today's FT (subscription required) is a fascinating review of Seymour Hersh's new book - Chain of Command - the road from 9/11 to Abu Ghraib by David Scheffer. Scheffer was apparently US Ambassador at large for war crimes issues (1997-2001). He finishes his review:

Chain of Command shows the critical need for evidence of illegal conduct by US forces to reach high levels quickly and elicit rapid responses. The White House needs a special prosecutor on international law to brief the President honestly and rein in officials who might forget or deliberately derail what the US stands for as a nation.

A nation at war, with itself?

07 October 2004

Packed Full of Information

Jeff Nolan has two excellent posts on the Vortex conference Day 1 and Day 2.

I'm not really going to comment on the specifics of the posts other than to say that his additional notes and commentary provide way more insight than the blog it as it's said stuff. This is super intelligent reporting that its impossible to buy. No journalist would ever know this much about a subject. I have printed them off and am reading more slowly for greater insight in to an area I understand only a little.

06 October 2004

As If It Really Matters

Copied below in its entirety is a research piece from UFG (40% owned by Deutsche Bank) on the legal games being played around Yukos. What murder being a sell-side analyst trying to paint a positive picture of what is clearly a mess;

An article in today's Vedomosti draws attention to speculation in the market about the possibility of Yuganskneftegaz passing automatically into state property. Such speculation should not be taken seriously in our view. Unless you should want us to pay us to short the stock - unfortunately you are likely to be using RenCap to do that.

The grounds for this scare are a provision in the relevant law (the Law on Enforcement Proceedings) that if an asset selected for the purpose of debt recovery has not been sold by the selling agent two months after being frozen, the creditor has the right to simply keep the asset in question. Yukos' 100% stake in Yugansk was first frozen on 14 July. A court decision of 6 August released the asset from the freeze, which was then re-imposed on 9 August by another court decision (procedurally dubious, as it turned out, but such details have long since ceased to matter). It follows that the two-month deadline expires next Saturday. We are quoting the law in the off chance that it makes a difference - we know it doesn't and our last sentence shows as much but we are like lawyers and paid by the word.

Our discussions with legal practitioners in the debt recovery field suggest that the standard practical application of the law is that the two month period begins from the moment the bailiffs hand an asset over to the selling agent. That moment has been on hold for weeks while DKW has been valuing Yugansk. Actually what our legal advisors said was; this is the law but given that the President couldn't give a damn for the constitution you might as well vote for the democrats in Florida.

Secondly, if the tax authorities did claim a right to appropriate Yugansk under the two-month rule, this would contradict another law - namely, the Tax Code, which states that tax liabilities (which is, of course, the nature of the debt being recovered) can only be settled in cash. As if they think that the law applies to them. A real estate report in the English language Moscow Times today reports that the most attractive Moscow real estate is owned by Government employees. Try this maths. "Golden Mile" real estate $5-7/km2, suburb real estate $500k-1.5mn. Average salary of government officials $100 - $2k month ($k applications are correct.)

On this basis alone, the authorities can be expected to at least proceed with the planned sale of Yugansk, rather than short-cut the whole process in what would be a scandal to put the whole of the Yukos affair to date into the shade. In any case, the law simply states that the creditor "can" appropriate the unsold asset as such. It does not oblige the creditor to do so. Apparently we can still be shocked by the application of power (sorry the law) in the Yukos affair.

05 October 2004

Pulver 100

Own investment promotion time. Congratulations to Tom Martinson and the team at jNETx on being chosen to the Pulver 100.

Also well done to Mera on also being chosen. Mera are very high on my would like to invest list - if I could come to a conclusion about value in the telco universe.

Whilst I am at the praising Russian-originated companies game; I would like to claim Dmitry Goroshevsky from Popular Telephony.

Softphones - but where's the value?

Andy Abramson posts pretty convincingly on the benefit of Softphones. All well and good so far. Then I have to link to this not quite outstandingly good post on GigaOm from Aswath Rao - an Open Letter to Steve Jobs. If the connection has to be pointed out Andy Abramson is praising the ease of configuring a piece of pure software rather than messing with a piece of hardware and software. Aswath is saying the technology exists - package it with a GUI and make it a universal communication device.

All of which I'll buy never having owned an ATA and clogging up my PC with softphone clients - my all time winner if you can get past the engineer's interface is SJ Labs. Native SIP and H.323 stacks make a real difference.

However, where is the value in engineering a great softphone? An OEM deal with Apple would be nice, but as an investment strategy is a little on the risky side.

I've seen plenty of soft-PBX's on PC's (all with engineer GUI/MMI's) so theoretically all of us could have all the "intelligence" we would ever need at the end point. Somehow feel that someone called David Isenberg got here before me.

I struggle to see the value in the engineering though. There will be some in hosting the always-on services (voice-mail etc) but if I can co-ordinate multiple sessions on my end point (PDA, laptop, etc) and the cost of my connection to mobile/PSTN reverts to the absolute cost of that service then there is little value in being a service provider.

I can see the IBMGS making $'s out of this at the enterprise level....

Thank goodness an all IP world is so far away and interoperability will maintain the ability to make $.

01 October 2004

Applied Tech Investing

Interesting piece on building VC communities. What struck me most was the thought somewhere down the page that:

First, technology VC is moving from turning science into products (core tech investing) to turning technology into businesses (applied tech investing). That's a trend that started 10 years ago but is now gaining steam across the technology and venture capital industries. In the emerging new world of technology, being located in Silicon Valley and Boston is less of an advantage and we are seeing more early stage venture capitalists locating themselves in places like NYC, Washington DC, Atlanta, Chicago, Denver, Seattle, and a host of other business centers that have not been on the venture capital map until recently.

Add Russia to that list.

VC Syndicates

Great post on VC types from Jeff Nolan. Jeff Nolan: Pick Your VC Carefully.

Everyone has followed up on it so no more comment from me.

13 September 2004

Left, Centre (sic) and Middle

I am no bleeding heat liberal but to hear Tim Oren describe himself as a centrist and have Fred endorse that view suggests to me that gravity moves in mysterious horizontal ways.

Re-classified in to UK terminology:
Fred would be an old-fashioned one-nation Conservative with slightly dodgy liberal theories or a champagne liberal - depends on your starting point.
Tim would also fit neatly in to the Consevative party grouping; that part which sits so far to the right of the one-nationers that they pass them having gone full-circle. This grouping would also hold that Gengis Khan was a little overly liberal.

None of which matters much (and its not intended as a criticism.) The point was more to demonstrate that the UK and the US have been separated by more than a similar language.

Notwithstanding, the supposedly left-wing Labour Party have sided with the Republicans (or Tony has sided with George W anyway) and the Conservative Party are trying to help Kerry (however given their (Conservative party) success recently I would personally leave them in the UK.)

10 September 2004

Terrorism on My Mind

Extracted from Philip Stephens OpEd piece in todays FT (subscription required);

�Hard power is needed to deal with those who have already turned to murder. But soft power is essential to prevent fresh recruits to murder . . . No steps could do more to outwit today's terrorists than serious efforts to establish in Chechnya, Palestine and Iraq governments which are supported, or at least accepted by, the bulk of the population.�
(with apolgies to FT - too important to miss)

Light Reading

I like these guys at Light Reading. It's real tell it as it is analysis and there are very few who who can stand the scrutiny of that claim. This piece The Softswitch Name Game. includes this incredibly apposite statement;

"If you look at the large carriers, everything they're doing in VOIP is layered on top of their [old] infrastructure."

Terrorism and Repression

I have held off commenting on Russia's recent spate of terrorism attacks and the response to them whilst I try to get my thoughts in order. Quoted below in it's entirety is a note to clients from Bernie Sucher the Chairman of Alfa Capital (one of Russia's leading asset management firms.) I agree with all of what he has written and the conclusion, but personally would take it further.

Given events, a number of people have asked after us these past days.
I answered this morning with some paragraphs that I thought you might want to see.

1. What we've seen over the last week is Pure Evil vs Absolute incompetence. The Russian State has plenty of evil left in it, but in facing monsters that kill children, the level of the State's incompetence, corruption, and myopia manages yet to prompt astonishment. The post-event signs are already discouraging -- there will be no salutary shock to the tragi-comic system of "security" in Russia, just more of what doesn't work: posturing, sloganeering, scapegoating, steelbooting and bruting.

2. You don't easily win any war without "society" as an active supporter of the war effort. The challenge for Russia remains the building of a Civil Society -- a set of relationships, rules and standards in which the People and their Institutions set the agenda, vent their frustrations, and in various ways collaborate to achieve common ends. Putin talks often about the construction of a healthy Civil Society, and I for one believe that he means what he says. But his rule stopped making detectable progress in this direction as the presidential "election campaign" began to hit its homestretch earlier this year. So today, everyone -- the security services, the government, the parliament, and the people -- all wait for the Czar to say what is to be done. This, despite the fact that it his direction of five years of the "not-war" that led up to last week's horror. In this terribly complex situation, where the most creative, collaborative, and diverse kinds of thinking and acting are required, we find Putin's Chechnya policy exposed for the shambles we all knew it to be, and the man himself standing all alone, without any in this cowed society daring to step forward and advise him, let alone act.

3. Until last week, the Russian government had before it a pressing agenda to push comprehensive reform. Reform of its choking bureaucracy, reform of its useless judiciary, reform of its antiquated military, reform of its inefficient natural monopolies, reform of its inadequate financial system -- to name just a few. Until last week, I was worried that the government's costly grasping in the Yukos affair had already drained too much energy from its reserves to support the realization of a meaningful part of the broad reform agenda. This week, I am certain that the twin hammer blows of Yukos and Beslan mean that any progress we see in Putin's second term in the main reform targets will be thanks more to accident than to design, thanks more to circumstance and forward inertia than to political will or conviction.

4. Given the high price of Russian natural resource exports, its economy will continue to grow, and at rates about which most large countries can only dream. Day-to-day economic policy is in good hands. So the lost opportunities of unrealized reforms will not bite the country until lower export prices become reality and/or the remorseless dynamic of globalization reaches deeper into the Russian economy.

5. Thus, remarkably, we can well imagine that as Russia becomes mired deeper and deeper in the bloody mud of its "new" war, and its children's best hopes choke slowly on unchecked corruption, waste, and incompetent leadership, the headlines from the financial sector will tell a different story. Foreign direct investment is rising, and as there should be no dramatic successor to Yukos as a scarecrow to ward off investors, we can expect more of the same. Speculators in thin Russian financial markets will see promise in a deeper shared commitment by the US and Russia in their crusade against the bad guys; they'll celebrate when Russia accedes to the WTO, and gush when President Putin of Russia plays the role of president of the rich men's club called the G-8. A country with more cash than debt will at last get its full investment grade credentials. A chronic lack of supply of paper in fixed income and equity markets, set against global liquidity and bottled-up domestic savings, will keep the prices of Russian securities bubbling. There will be lots of happy people writing lots of good things about Russia.

Previously, I commented on the incompetence of the ex-KGB thugs surrounding Putin. Security is their area of competence......... As always Gideon Lichfield at the Economist has written a much more balanced piece Economist.com | Terrorist attacks in Russia

Today's Moscow Times (Moscow's English Language newspaper) gives some insight in to the mess that is Russia's government. We should not be that surprised it's just that when the economy was booming (and it still is) and reforms were being pushed through left right and center it sort of felt that we were living in a normal country. We aren't. Anyway the MT's headlines (all free today and over the weekend and then subscription);

BTW, Indpendent Media MT's publisher has launched an appeal for the Beslan kids. They will need help. IM is trustworthy and should be supported.

I sat tight in Moscow after the 1998 financial crisis believing that Russia had the ability and the will to drag itself out of that hole and get itself moving again. It did so with some aplomb and then Putin needed to get himself re-elected and it's been downhill ever since.

I am sickened to my very core by the corruption and incompetence of this country. Time to move on?

01 September 2004

Meanwhile.....

The police find something useful to do. Looks like someone stopped paying for protection.
Narco Cops Smoking Out Weed Ware

28 August 2004

VC Business

Two great pieces from Always On (any you can't say that all the time). Mike Moritz, Eric Schmidt and Guy Kawasaki talk about staying awake and entrepreneurs, Part 1 and Part 2.

Vonage and VoIP

Vonage's latest infusion equity led to this first from Bill Burnham followed by this from Om Malik. As I know nothing about the online equity trading business I'll not add to sum of human wisdom being imparted in the similarities.

I had hoped that a comment that the company was cash flow positive before customer acquisition cost might inspire a Sage of Omaha type put down. Here's mine; my car costs nothing to run before petrol (gas), insurance, servicing and depreciation. If your business involves acquiring customers then stripping out the cost is at best duplicitous. Surely it is the job of the blogging community to point out such monstrous bullshit. Let the mainline press quote verbatim from press releases without thinking.

Anyway that was not the main point of the post. In my evolving thinking about sessions over IP my recent trip to Nizhny Novgorod, the centre of Russia's telecom technology industry, has taken me a step further. I am not smart enough to determine whether Vonage or Skype will be good investments. I am fairly sure that they won't be great companies.

This recent piece from the VON round up about BT becoming the European centre for VoIP interop testing would suggest that VoIP is not only not ready for prime time but that we have some time to wait before they are. The company that I was visiting in Nizhny's value proposition is building products that allow Nortel IP PBX's speak to Avaya etc. How can you expect to have an industry when there are no standards and no interoperability.

So I posit that there will be a crisis before we see the sessions over IP winners. If the owners of Skype and Vonage have cashed out before the crisis then great investments. I also posit that SIP will not spawn the winner; it's too large a signaling package and thinks like traditional telephony. Lets call this phase of the transition IP over TDM or new telephony like old telephony. The truly disruptive phase has not yet started and we don't yet know what it will look like - but keep reading Isenberg if you are looking for a clue.

27 August 2004

Fly Russia

The day after two Tupolev's, a Tu154 and a Tu134 were (allegedly) blown out of the air I found myself aboard a Yak 40 bound for Nizhny Novgorod. Two things struck me at the time; firstly nobody should ever have to pay money to get on to a Yak. Secondly that at the time I got on the plane I believed that the crashes had been caused by negligence or poor fuel. With a little rational thought it would have been clear that neither poor fuel nor negligence makes planes disappear from the radar screen. Nonetheless, my primary thought was negligence.

The FSB (successor to the KGB) was also hoping that it was negligence as they have told Putin that Chechen terrorism is under control.

Scanning the pages of the Komsomolskaya Pravda, a third rate producer of newsprint that does not justify the title newspaper, there was a picture of a sniffer dog at Domodeydovo Airport (the take off point for the two aircraft) with the caption "Sniffer dogs are better because they cannot be bought."

Entirely disabused of the negligence excuse, it struck me that the Chechen / fundamentalists will always be able to strike wherever and whenever they like because someone in uniform will always sell them a way around whatever security has been put in place to stop the terrorists - and will do so without any conscience.

19 August 2004

Sessions Over IP - Update

More on my previous post. Dan Dearing, VP Marketing at NexTone, another player in the border session controller space, believes that Carrier-to-residential (C2R) will amount to only 20% of the total revenue per port spend (from this article at Light Reading - Networking the Telecom Industry via Andy Abramson.

I sometimes get the feeling that conversations about the future of sessions-over-IP are held in two different planes. The "voice-will-be-free" crew are talking about residential voice. Those who see value in BSC's and feature servers in NGNs are more interested in enterprise sessions.

Telecom Quality / IT Ease of Use

It was cold, cold, cold in Moscow this weekend and dropped 22mm of rain on Saturday alone. The good news was that it allowed me to sit in a corner of my study and re-read a number of core think pieces including David Isenberg�s The Rise of the Stupid Network and his subsequent piece with David Weinberger, The Paradox of the Best Network. The end of the telecom company as we know them, as David Isenberg correctly identifies in this article for IEEE�s Spectrum Magazine The End of the Middle, is nigh. What comes next, and why, is significantly harder to fathom. Once you get beyond the �one sentence will cover it� CNN simplistic answers there remains substantial complexity. The good news is that in an industry undergoing significant tectonic shifts is the opportunity to invest in start ups that can become household names.

VoIP for early adopters has been viewed overly simplistically. It works pretty much all the time, it�s free as long as you don�t need to talk via a telephony network. So if it�s not working no great hassle, and pretty much all of us have a back up of some kind, even if we have junked our PSTN line. However, Vonage has had a couple of outages in the last two weeks that have caused some angst. Om Malik�s suggestion that this is The End of the Honeymoon seems to me right on the money. Someone, somewhere commented that he could remember the number of times that his (switched) phone system went down. On the flip side; whilst his telecom network never went down, his video conferencing never went up. Mercer Management Consulting forecasts (via The Register) that consumers will be happy to move to VoIP � provided that the quality is as good as their telephone line. It would be a good assumption that enterprise requirements are more demanding than those of consumers.

We backed a start-up in 2002 jNETx who built a next generation intelligent networking platform, or Open Convergent Feature Server based around a JAIN SLEE and OSA/Parlay that bridges the evolution from 2G to 3G mobile, and of course fixed platforms. Ensuring that the OCFS is a carrier grade product has required all the brilliance that a large room full of maths and science PhD�s can offer. Douglas Tait from Sun and the founder of the JAIN initiative posts here on the complexity of writing SS7/Voice signaling-to-IP gateways. (For more on the Service Delivery Platforms, JAIN SLEE�s etc I encourage you to read this 512 page, 16MB report from the Moriana Group. This link takes you to the download.)

Niklas Zennstrom CEO of Skype, a DFJ investment, has recently blazed a trail for the freeness of VoIP. Emphasizing the fact that Telephony is Just Software, which I blogged here. Rohan Mahy�s response covered here in The Register, has a go at the proprietary solutions such as Skype and begins to explain why SIP is a better solution � in the long term. Albeit that SIP has some issues that IAX may handle better.

In my immediate pipeline at the moment are two companies in the border session controller space and one in CPE / soft phone space. Both of them sit in so much of the pie covered by soft switches that definitions becomes difficult, if not meaningless. So this is not just an issue of connecting legacy networks to IP networks. To my mind the issue is ensuring that the mission critical data application otherwise known as voice is always available. One of the BSC companies spent considerable time educating me as to the very considerable issues running enterprise-quality voice over the Internet. I�m not there yet � let�s just say the problem won�t be solved tomorrow.

So what was the point of this link fest? I think that the point was to say;

The end of fixed line switched copper-based telephony is upon us � that much is clear.
It�s not a given that you can jump from there to free calls/sessions. Let me be specific; voice may be free but that does not mean that you won�t be paying for it somewhere, especially if you require quality of service. Video conferencing will not be a bundled all you can consume package for [10] years.
There will never be a global utility called The Internet.
Building networks and intelligence to provide enterprise quality mission critical applications requires significant tinkering with the Internet � it won�t come for free.
What the meaningful difference between soft switches, border session controllers, feature servers will be is unclear. It should mean the death of stovepipe applications but we are not there yet.
IBM GS is a more likely winner than Ericsson Services (or whatever they call themselves) because of their enterprise knowledge.
And don�t even begin to bring mobility in to this until we have clear answers to all of the above.

That�ll do for now.

18 August 2004

VC Skills

One post below is Bill Burnham on the skills needed to make a VC. His argument synthesized; if a VC is deep in a company they have made a bad investment. A good investment is getting all the parts right up front. Fred Wilson posts in my same assault on NewsGator about the value that a VC brings to the board, and the resulting discount in the next deal The Discount and the Work.

My take is the difference is one of emphasis not of substance. Getting involved beyond reading board papers is clearly massively important; but it should be at the strategic level. And management should be able to distill the advice - some good some bad, and act on it.

Operator vs Finance

Bill Burnham on what makes the The Perfect VC: Operator or Investor?

There's not much to argue with here, though I tend to believe that a good mix of skills across a Partnership is as important as the right skills in anyone person.

13 August 2004

VOIP Sub-Critical Dependency

This from Om Malik was going to be just another VoIP's not quite ready for prime time story's and was about to enter file 13 when I picked a comment from Andy Abramson "Outages like Vonage is having are to be expected, but not appreciated. With growth comes growing pains. Experience in a carrier is what one needs to look for, and a network that is fully redundant, fault tolerant. One has to ask, does your voip carrier have that?"

Andy then blogsOm's post w/o his comment. The post is not wrong, a very Russian way of putting things, but the comment is more correct. If, as Om says, he wants a form of communication that works all the time then VoIP's not there because the carrier network was designed to be best efforts only. To get fault tolerant VoIP we will have to pay a carrier who will give our voice carrying data packages QoS preference over the porn surfers. And that will carry a cost.

Whilst I believe in disruptive technologies and business models, it's part of the DFJ faith, fully fault tolerant VoIP is not as cheap and "free" as currently touted. Yes its an order of magnitude cheaper than circuit switched calls but it's not free. Free as a marketing trick in Russia does not work. Russians don't believe that something that's free is worth having - it's a communism thing. Now a shed load of Russians use cheap VoIP calling cards etc to call Israel and the US, but they expect the QoS that they get.

Bottom line; enterprise-VoIP will save companies a lot of cash - it won't be for free.

06 August 2004

Mmmmm

I want one of these, no camera, just a phone with Blackberry software. Siemens touts Blackberry-based business phone | The Register

Stupid Network; Intelligent Client; Stupid User

I believe in the first statement. The rise of the Stupid Network has happened and is happening. As processor power improves more and more intelligence is being moved to the client. The question is how much, and how much does it rely on an intelligent user. The early adopters are mostly intelligent enough to work through the issues. The mass market won't happen until the how the f*** do I make this work issues are ironed out.

So, my question for now; how much intelligence ends up in the client and how much stays at the edge?

Russia

Yesterday in the FT (subscription required) was a very good piece on the path that is being taken by Russia. Among the people heavily quoted is Al Breach, Brunswick UBS' (a leading investment bank) economist and a big Russia bull. The other, respected, huge Russia bull eating his words is Eric Kraus in this piece The Summer of Our Discontent. You may struggle to hear the munching as the words are masticated - I assure you that they are there.

The long and short of the pieces is that the Silovki (people of power - i.e. the ex-KGB and Putin's friends) have taken control of the economy. Their underlying reasoning is correct What happened during Yeltsin's time was mayhem - it was fun, but it was mayhem. They want in a strong state and a lack of mayhem - oh and substantial bank accounts (their own.) However, as they have taken control of the reigns of power the country has moved from an imperfect quasi-liberal economy to a corrupt natural resource economy. And it has done so in less than a year. KGB school seemingly teaches control for controls sake and fails to go on to explain consequences.

Lets consider the right of the Silovki (ex-KGB) to run Russia. Since the death of Brezhnev in the mid-80's the head of the Central Committee of the Communist Party were two septuagenarian ex-heads of the KGB, followed rapidly by Gorbachev. The septuagenarians died pretty rapidly - they were pretty-much figure heads anyway. As an aside, Gorbachev is revered in the West for his reformist tendencies that lead to the end of the Cold War. Actually he did not have a clue what he was doing - it all happened without his input. Crucially though, it was the hard liners in the Politburo - the Silovki - who hastened the collapse through their complete lack of understanding of what was happening in country that they believed that they ruled and controlled. The actual event was the 1992 coup. My take on the legacy of the Soviet Union after the death of Stalin and the removal of Kruschev is that it was a state run by the KGB. Brezhnev was allowed to stay in power long after he was officially useless because he was a puppet of the guys who thought that they ran the country - the KGB. They replaced him with two of their own; only for them to die. Gorbachev was the chosen successor because he was deemed to be controllable (southern town hick without a power base.)

The Soviet Union had some fantastic achievements during its 70-odd years of existence. It also had some fairly miserable failures. You can directly attribute the failures to the KGB. In particular Brezhnev's era is best remembered for it's economic stagnation. Almost complete control, almost complete stagnation. This legacy of success is what qualifies them to run Russia.

Fourteen years later, the successors to that legacy of failure have emerged from the hole that they had to hide in after the 1992 coup. Since their re-emergence Russia has suffered the Yukos crisis, a manufactured banking crisis, the return of capital flight (hint - buy real estate in desirable and warm places. Russians are exporting their money from Russia again and they believe in real estate, and football clubs) a stalling of reform and a very badly bungled withdrawal of social security from pensioners and veterans whilst increasing them for bureaucrats. It would appear that during their 10+ years in the wilderness they failed to read any Adam Smith.

What next? There is no opposition, the Silovki can fix elections, so there is no one to provide an alternative view of the facts. I previously believed that Putin would step down at the end of his second term to preserve his place in history. His place in history will be as the President who undid all that was working in Russia - so not stepping down pretty much cements that position.

It's also increasingly clear that he is not in charge. I have previously written that he is primus inter pares of a group of like-minded people. It would appear that he no longer holds that position. German Gref, the reformist Minister of the Economy, has made a number of very critical remarks recently. Putin will be loathe to fire him. It removes the pretence that he is trying to undertake liberal reforms. Loyalty to the party line is pretty much Silovki 1.01 so I would expect that he will be taking a long holiday somewhere warm this winter.

So after that bout of happiness I am heading to my dacha to enjoy Russia's summer and swim in the Moscow river.

Update; even previously loyal members of the Duma are speaking out.

04 August 2004

Vonage Outed or IT & Telecom Converges

Andy Abramson blogs Vonage's Outage which may or may not have been caused by Global Crossing. In an attempt to get through some 1,000 unread blog's courtesy of much loved NewsGator sitting in the inbox I skim read, deleted and then brought it back and started writing here;

We have an investment in a next generation IN / feature sever play jNETx which is putting in a replacement IN system in to an Irish mobile provider - when the system was launched with a new HLR and various other bits and pieces the whole system went down for 3 hours. I'm pleased to say it was not jNETx that caused it but it was A BIG DEAL with as many expletives as you want to add.

I am not saying that Vonage's outage was or is the cause of calling the end of VoIP - it's not; Vonage et al will continue to take business from PSTN's. However, service includes being available nearly all the time. Is that 99.999 or some lesser number - no idea. What seems logical is that enterprises will demand the same service levels from a full VoIP sytem as they got from the PSTN's, and that is built around 99.999% availability. So whilst Vonage is principally a retail / SoHo play a few hours spent at the beach is OK. To go mainstream it's not.

Whilst I am here a link to a previous post Go South Young VoIP'ers. Yesterday I was in a meeting with a company that claims to have solved the feature issues caused by SIP passing through IPPBX's passing through border session controllers (my middle name is esoteric.)

Andy makes the point that the S. American governments are trying to protect their local PSTN's by regulating out VoIP providers. Same thing happened here in Russia. In an attempt to get the highest price for Svyazinvest, the all controlling super-telco, they force all long-distance to pass through Rostelecom - the long distance carrier. Thus a number of local enterprise CLEC's wanted to move their clients on to full VoIP systems however, they found that when a VoIP call was made via SIP that passed through a BSC and then via an IP PBX (100% of legitimate enterprise VoIP traffic) they lost the features of the call when the IP PBX diverted the call / session to an internal "number". The call went through it just lost any "intelligence" - call forwarding, voicemail (?). Thus the Russian government's desire to protect revenues caused a Russian technology company to overcome a global problem. The law of unintended consequences strikes again.

08 July 2004

Yukos and the Banks

Politics are not my normal terrain, and to be clear both Yukos and the Banks are about politics.

For ever and a day the Investment Banking analysts have been telling us that the Yukos affair is about humbling Khordokhovsky and not about taking Yukos to bankruptcy. Well its effectively bankrupt and the only way that it's not going to be bankrupt is politics. That way the portfolio investors can maintain their navel gazing shortsightedness and pretend they did not lose too badly.

The banking crisis is an oxymoron - to have a crisis you need a banking sector. Anyhow it too has been driven by politics. I have on my desk (somewhere) the banking blacklist. It comprises 38 banks including 2 of the 4 leading non-state owned banks. That I can get my hands on it somewhat goes to prove that its meant to be seen. And causing a run on the banks who you can't control is a pretty good way to get them to come in to line.

It might amuse you to know that there was a queue outside Citibank's branch yesterday. So strong is the public's faith in private banks.

The Russian menatlity is stronly zero-sum-game; and it is now being played out in front of our eyes for all to see. I am afraid to say that Putin's government has gone from partial reform to failed authoritarianism.

Valuation

Two good posts on valuing an early stage deal. First from Fred Wilson which is philospohical here. The second from Brad Feld on deal algebra here Feld Thoughts: Venture Capital Deal Algebra.

What the second post does not go on to say is that by the time you factor in a. liquidation preferences (VC's get there money out first and sometimes in a multiple of what they invested) b. potentially a coupon on the preferred stock c. penny warrants etc. that the implied pre / post-money valuation is a lot different from the headline number. To borrow some algebra from Brad Feld:

Implied post-money = (invested amount)/(return to investors / total return). For the implied pre-money subtract the amount initially invested.

Thus if you invested $2mn at $3mn pre-money (assuming no further dilution) you would expect the investor to receive 40% of the proceeds of a sale. Actually the % of the return that an investor gets after liquidation preference et al can be a lot higher.

As Brad Feld points out many serial entrepreneurs don't always follow the math - try this on a whole nation of first time entrepreneurs. Add to it the national characteristic that lawyers don't matter its the handshake agreement and you are open for all sorts of interesting discussions.

02 July 2004

Skype Under Attack

A much more cogently argued piece from The Register on what is wrong with Skype via David Isen than my rant yesterday. Isen argues that David Mahy is demonstrating "bellheadedness" and goes on to say "the "industry" that will bring VoIP to most of us is the Internet Industry."

I am not entirely sure that the two are disagreeing. The article's introduction says "and focused on the difference between the instantaneous gratification of Skype for private individuals and the safe and efficient enterprise wide VoIP implementations, reliant mostly on the SIP protocol." We are all very happy to pay nothing for personal or small-business calls. Can't see IBM doing the same.

Skype's business model is based on selling VAS. As Mahy points out that is very unlikely "That's missing the point, don't you think? Say a Skype user in India wants to communicate with me in California on a SIP network. He can make a basic call through 2 gateways with international toll charges. Its unlikely that I will see his correct caller ID, and dead certain that we can't exchange IM, video, presence status, or do file transfers. A pair of implementations using SIP could do this for free over the public Internet."

And then we return to the security issue - which has some legs but may be as much about the easy line for journalists as any real concern.

I have seen a number of recent firewall implementations that ban cross-firewall p2p sessions - I think it will be a standard feature in 2005 enterprise releases.

Ridiculous
ITunes has finally launched in the UK - hurrah. If you don't have a US registered credit card you can't buy ITunes from the US website.

However, my wife tells me that a song in the UK costs 75 pence. At the current exchange rate that's $1.42. Which is just plain ridiculous. Did the Apple execs think that we would not notice?

The Bizarre

I rarely blog the bizarre Russian happenings but here's one. From about 5a.m. this morning a car alarm from what could only be a very small car went off incessantly. It was still going when I headed off to work. Only it (it being a badly-parked Nissan Micra) was now surrounded by 6 Militsia (policemen.) Who had succeeded in opening its passenger door - but clearly not in turning the alarm off.

Usually you only see 6 policemen together when there are some Azerbaijani, Armenian, Georgian etc., market traders to be beaten up.

Q. Why do the Militsia travel in threes. One who can read, one who can write and one to guard the two dangerous intellectuals.

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20 October 2004

Popular Telephony

In order to implement peering between disparate networks, this would need a media wrapper (or gateway) to exist between protocols, wouldn't it?
Posted by: Andrew at October 18, 2004 11:35 PM

Not really... There are no networks really... SIP or H.323 or whatever... it is all on the user machine isn't it?
Posted by: Peerio at October 19, 2004 10:52 AM

As a Mac user I have yet to check out their claims but it seems to me that they are way ahead of the crowd.

Update: Martin Geddes posts from VON with some great thoughts including why we should all be scared about communications. Key take aways;

Too many border session controllers = trying to make the IP network resemble the current TDM network
Popular are "hijacking and subverting" the global numbering plan (this was meant in a good way)
A lot of money will be lost in VoIP - see point 1 to understand the coming crisis - So if you’re putting your pension savings into the VoIP business, tread very, very carefully. This boom going to hurt as bad as the .com explosion. One way or another, there’s going to be a lot of roadkill, and a lot of get-rich-quick money from inflated promises.
VoIP is a classic separation of application from carrier and more importantly the financial relationship between the two - someone astutely commented that a key aspect of IP was not just decoupling of the applications from the service. It is also the decoupling of the financial relationship between the connectivity and service provider.

Timely Insights Into the Arrogance of Power

Chain of Command shows the critical need for evidence of illegal conduct by US forces to reach high levels quickly and elicit rapid responses. The White House needs a special prosecutor on international law to brief the President honestly and rein in officials who might forget or deliberately derail what the US stands for as a nation.

A nation at war, with itself?

07 October 2004

Packed Full of Information

Jeff Nolan has two excellent posts on the Vortex conference Day 1 and Day 2.

06 October 2004

As If It Really Matters

An article in today's Vedomosti draws attention to speculation in the market about the possibility of Yuganskneftegaz passing automatically into state property. Such speculation should not be taken seriously in our view. Unless you should want us to pay us to short the stock - unfortunately you are likely to be using RenCap to do that.

The grounds for this scare are a provision in the relevant law (the Law on Enforcement Proceedings) that if an asset selected for the purpose of debt recovery has not been sold by the selling agent two months after being frozen, the creditor has the right to simply keep the asset in question. Yukos' 100% stake in Yugansk was first frozen on 14 July. A court decision of 6 August released the asset from the freeze, which was then re-imposed on 9 August by another court decision (procedurally dubious, as it turned out, but such details have long since ceased to matter). It follows that the two-month deadline expires next Saturday. We are quoting the law in the off chance that it makes a difference - we know it doesn't and our last sentence shows as much but we are like lawyers and paid by the word.

Our discussions with legal practitioners in the debt recovery field suggest that the standard practical application of the law is that the two month period begins from the moment the bailiffs hand an asset over to the selling agent. That moment has been on hold for weeks while DKW has been valuing Yugansk. Actually what our legal advisors said was; this is the law but given that the President couldn't give a damn for the constitution you might as well vote for the democrats in Florida.

Secondly, if the tax authorities did claim a right to appropriate Yugansk under the two-month rule, this would contradict another law - namely, the Tax Code, which states that tax liabilities (which is, of course, the nature of the debt being recovered) can only be settled in cash. As if they think that the law applies to them. A real estate report in the English language Moscow Times today reports that the most attractive Moscow real estate is owned by Government employees. Try this maths. "Golden Mile" real estate $5-7/km2, suburb real estate $500k-1.5mn. Average salary of government officials $100 - $2k month ($k applications are correct.)

On this basis alone, the authorities can be expected to at least proceed with the planned sale of Yugansk, rather than short-cut the whole process in what would be a scandal to put the whole of the Yukos affair to date into the shade. In any case, the law simply states that the creditor "can" appropriate the unsold asset as such. It does not oblige the creditor to do so. Apparently we can still be shocked by the application of power (sorry the law) in the Yukos affair.

05 October 2004

Pulver 100

Own investment promotion time. Congratulations to Tom Martinson and the team at jNETx on being chosen to the Pulver 100.

Also well done to Mera on also being chosen. Mera are very high on my would like to invest list - if I could come to a conclusion about value in the telco universe.

Whilst I am at the praising Russian-originated companies game; I would like to claim Dmitry Goroshevsky from Popular Telephony.

01 October 2004

Applied Tech Investing

Interesting piece on building VC communities. What struck me most was the thought somewhere down the page that:

First, technology VC is moving from turning science into products (core tech investing) to turning technology into businesses (applied tech investing). That's a trend that started 10 years ago but is now gaining steam across the technology and venture capital industries. In the emerging new world of technology, being located in Silicon Valley and Boston is less of an advantage and we are seeing more early stage venture capitalists locating themselves in places like NYC, Washington DC, Atlanta, Chicago, Denver, Seattle, and a host of other business centers that have not been on the venture capital map until recently.

Add Russia to that list.

VC Syndicates

Great post on VC types from Jeff Nolan. Jeff Nolan: Pick Your VC Carefully.

Everyone has followed up on it so no more comment from me.

13 September 2004

Left, Centre (sic) and Middle

10 September 2004

Terrorism on My Mind

Extracted from Philip Stephens OpEd piece in todays FT (subscription required);

�Hard power is needed to deal with those who have already turned to murder. But soft power is essential to prevent fresh recruits to murder . . . No steps could do more to outwit today's terrorists than serious efforts to establish in Chechnya, Palestine and Iraq governments which are supported, or at least accepted by, the bulk of the population.�
(with apolgies to FT - too important to miss)

Light Reading

"If you look at the large carriers, everything they're doing in VOIP is layered on top of their [old] infrastructure."

Terrorism and Repression

Given events, a number of people have asked after us these past days.
I answered this morning with some paragraphs that I thought you might want to see.

1. What we've seen over the last week is Pure Evil vs Absolute incompetence. The Russian State has plenty of evil left in it, but in facing monsters that kill children, the level of the State's incompetence, corruption, and myopia manages yet to prompt astonishment. The post-event signs are already discouraging -- there will be no salutary shock to the tragi-comic system of "security" in Russia, just more of what doesn't work: posturing, sloganeering, scapegoating, steelbooting and bruting.

2. You don't easily win any war without "society" as an active supporter of the war effort. The challenge for Russia remains the building of a Civil Society -- a set of relationships, rules and standards in which the People and their Institutions set the agenda, vent their frustrations, and in various ways collaborate to achieve common ends. Putin talks often about the construction of a healthy Civil Society, and I for one believe that he means what he says. But his rule stopped making detectable progress in this direction as the presidential "election campaign" began to hit its homestretch earlier this year. So today, everyone -- the security services, the government, the parliament, and the people -- all wait for the Czar to say what is to be done. This, despite the fact that it his direction of five years of the "not-war" that led up to last week's horror. In this terribly complex situation, where the most creative, collaborative, and diverse kinds of thinking and acting are required, we find Putin's Chechnya policy exposed for the shambles we all knew it to be, and the man himself standing all alone, without any in this cowed society daring to step forward and advise him, let alone act.

3. Until last week, the Russian government had before it a pressing agenda to push comprehensive reform. Reform of its choking bureaucracy, reform of its useless judiciary, reform of its antiquated military, reform of its inefficient natural monopolies, reform of its inadequate financial system -- to name just a few. Until last week, I was worried that the government's costly grasping in the Yukos affair had already drained too much energy from its reserves to support the realization of a meaningful part of the broad reform agenda. This week, I am certain that the twin hammer blows of Yukos and Beslan mean that any progress we see in Putin's second term in the main reform targets will be thanks more to accident than to design, thanks more to circumstance and forward inertia than to political will or conviction.

4. Given the high price of Russian natural resource exports, its economy will continue to grow, and at rates about which most large countries can only dream. Day-to-day economic policy is in good hands. So the lost opportunities of unrealized reforms will not bite the country until lower export prices become reality and/or the remorseless dynamic of globalization reaches deeper into the Russian economy.

5. Thus, remarkably, we can well imagine that as Russia becomes mired deeper and deeper in the bloody mud of its "new" war, and its children's best hopes choke slowly on unchecked corruption, waste, and incompetent leadership, the headlines from the financial sector will tell a different story. Foreign direct investment is rising, and as there should be no dramatic successor to Yukos as a scarecrow to ward off investors, we can expect more of the same. Speculators in thin Russian financial markets will see promise in a deeper shared commitment by the US and Russia in their crusade against the bad guys; they'll celebrate when Russia accedes to the WTO, and gush when President Putin of Russia plays the role of president of the rich men's club called the G-8. A country with more cash than debt will at last get its full investment grade credentials. A chronic lack of supply of paper in fixed income and equity markets, set against global liquidity and bottled-up domestic savings, will keep the prices of Russian securities bubbling. There will be lots of happy people writing lots of good things about Russia.

01 September 2004

Meanwhile.....

The police find something useful to do. Looks like someone stopped paying for protection.
Narco Cops Smoking Out Weed Ware

28 August 2004

VC Business

Two great pieces from Always On (any you can't say that all the time). Mike Moritz, Eric Schmidt and Guy Kawasaki talk about staying awake and entrepreneurs, Part 1 and Part 2.

Vonage and VoIP

27 August 2004

19 August 2004

Sessions Over IP - Update

Telecom Quality / IT Ease of Use

The end of fixed line switched copper-based telephony is upon us � that much is clear.
It�s not a given that you can jump from there to free calls/sessions. Let me be specific; voice may be free but that does not mean that you won�t be paying for it somewhere, especially if you require quality of service. Video conferencing will not be a bundled all you can consume package for [10] years.
There will never be a global utility called The Internet.
Building networks and intelligence to provide enterprise quality mission critical applications requires significant tinkering with the Internet � it won�t come for free.
What the meaningful difference between soft switches, border session controllers, feature servers will be is unclear. It should mean the death of stovepipe applications but we are not there yet.
IBM GS is a more likely winner than Ericsson Services (or whatever they call themselves) because of their enterprise knowledge.
And don�t even begin to bring mobility in to this until we have clear answers to all of the above.

That�ll do for now.

18 August 2004

13 August 2004

06 August 2004

Mmmmm

I want one of these, no camera, just a phone with Blackberry software. Siemens touts Blackberry-based business phone | The Register

20 October 2004

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06 October 2004

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01 October 2004

13 September 2004

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28 August 2004

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01 October 2004

13 September 2004

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28 August 2004

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