At 8100 Boone Boulevard in Tysons Corner, Virginia, sits a small data center, across the street from AT&T Government Solutions. Nobody would slow down to look at it. According to the people who were there, this is where MFS set up MAE-East in 1992, with UUNET, PSI and Sprint-ICM as its founding networks.Three terms recur through the rest of this book. A Network Access Point (NAP) was the NSF's name for the four exchanges it designated in 1994 to carry traffic between commercial networks after NSFNET shut down. An Internet exchange point (IXP) is the general term for any place where networks swap traffic, usually across a shared switch; the NAPs, MAE-East, MAE-West and PAIX were all IXPs. A carrier hotel (or "telecom hotel") is a building, often an old telegraph, telephone or industrial building, where many carriers rent space to house their equipment and connect to each other. An exchange is the switch. A carrier hotel is the building it lives in. Over time the terms blurred, because the exchanges always ended up in the hotels. Local lore says the site was carrying around half of the Internet's traffic in the early 1990s. That claim comes hedged, with a "said to have" in front of it, and I'll treat it that way.The traffic-share claim appears in the Center for Land Use Interpretation's site entry for 8100 Boone Boulevard, which says the building is "said to have" carried around 50 percent of Internet traffic in the early 1990s (paraphrased from a fetch-tool summary). Loudoun County's economic-development timeline says half the world's traffic passed through MAE-East by 1997. That is promotional copy. I have not found a primary source for either claim.
Lore or not, here is what interests me about that building. In Chapter I, the personal computer emptied out the glass house. Computing left the raised-floor machine room and moved onto millions of desks. By 1990 the mainframe looked like a museum piece. But the desks wanted to talk to each other, and the networks that carried their conversations had to meet somewhere. Each meeting place was a room. Each room needed power, cooling, security and, above all, other networks. Without anyone planning it, the network was about to pull computing back into buildings.
This chapter is the story of those first rooms. The National Science Foundation stepped back from running the Internet and blessed four Network Access Points, one of them run by my employer. Scott Yeager, a data guy from MFS Houston, and Rick Adams of UUNET sparked MAE-East. A Digital Equipment researcher named Brian Reid, touring California's missions with his daughter, decided that bandwidth was the new railroad, and he put an exchange in the basement of Palo Alto's old phone building. Paul Vixie kept one of the Internet's root servers there. In New York and Los Angeles, landlords discovered that Western Union's palace, a Port Authority freight terminal and a downtown office tower had a second life. And in the farm fields of Loudoun County, UUNET and AOL planted the seeds of what Chapter VI will call Data Center Alley.
I had a front-row seat for part of this. From 1991 to 1996 I worked at MFS, which built MAE-East and much of the dial-up plumbing for UUNET and AOL. As I wrote in Bandwidth, I knew nothing about the Internet when I joined MFS. Neither did anyone else.
NSFNET—Stephen Wolff and the Four NAPs#
The Internet started as a government project, and for most of the 1980s the government ran its backbone. As I wrote in Bandwidth, the NSF launched NSFNET, which funded regional research networks that collectively became the first Internet backbone. Bill Schrader, who later founded PSINet, built the first NSFNET backbone linking the national supercomputer centers. In 1991 Al Gore championed a $1.75 billion spending package for his vision of an information superhighway. While others chased the money, the NSF allowed UUNET and a few rivals to interconnect. Commercialization was underway.
That created a problem the NSF had to solve. If commercial networks were going to carry the Internet, where would they hand traffic to one another? The government's answer was the Network Access Point, or NAP.Three terms recur through the rest of this book. A Network Access Point (NAP) was the NSF's name for the four exchanges it designated in 1994 to carry traffic between commercial networks after NSFNET shut down. An Internet exchange point (IXP) is the general term for any place where networks swap traffic, usually across a shared switch; the NAPs, MAE-East, MAE-West and PAIX were all IXPs. A carrier hotel (or "telecom hotel") is a building, often an old telegraph, telephone or industrial building, where many carriers rent space to house their equipment and connect to each other. An exchange is the switch. A carrier hotel is the building it lives in. Over time the terms blurred, because the exchanges always ended up in the hotels.
The NSF put the idea in writing on May 6, 1993, in Program Solicitation 93-52. A NAP, it said, was "a high speed network or switch to which a number of networks can be connected via routers for the purpose of traffic exchange." The solicitation named California, Chicago and New York City as priority locations. Washington, D.C., made only the second-tier list of "desirable" sites. Two lines in the document mattered more than the rest. Networks that attached would pay "both an initial and an annual fee," an early ancestor of the cross-connect charge. And the traffic would be open to all comers: it "will not be restricted to that which is in support of research and education." With that clause, commerce was in.The solicitation set expected funding for all its awards, including the routing arbiter and the very-high-speed backbone, at "approximately $18,000,000 per year." That is a different measure from the Times's "$12 million in annual subsidies" for the backbone being retired. Proposals were due August 17, 1993. Backbone providers got no subsidy at all: "costs of operation of the NSPs will be recovered from users."
On March 2, 1994, Stephen Wolff, the NSFNET program director, posted the winners to the com-priv mailing list. Under Program Solicitation 93-52, the NSF picked MFS Datanet to run a NAP in Washington, D.C. Sprint got New York, though its NAP sat across the river in Pennsauken, New Jersey. Bellcore would manage two more: one in California, operated by Pacific Bell, and one in Chicago, operated by Ameritech. The reaction was immediate. Karl Denninger, who ran a Chicago network, asked the list what this meant for ANS, the nonprofit backbone operator, whose salespeople had been confident of winning most of the NAPs. They won none.
The money involved was small. The NSF award record for the MFS Datanet NAP lists a budget period from July 1994 to June 1996 and $211,587 actually obligated, against an estimated total of $664,966. The principal investigator was Steve Feldman of MFS Datanet in San Jose. The whole federal backbone subsidy that was ending amounted to "an estimated $12 million in annual subsidies," according to the New York Times. Hold that number in your head. In a couple of years, the private companies sitting at these meeting points would trade for billions.
The handoff took longer than planned. In its October 24, 1994, article "U.S. Begins Privatizing Internet's Operations," the Times reported that the plan had been announced in 1992 and was running late. On October 31, the regional networks were to be cut off from the NSFNET backbone and connected to "four new commercial network hubs, in San Francisco, Chicago, Washington and Pennsauken, N.J." The NSF's Don Mitchell was candid: "Quite frankly, this has taken longer than expected."
The Times described three of the hubs as the "primary" NAPs: Pacific Bell, Ameritech and Sprint. The fourth, in Washington, was "operated by Metropolitan Fiber Systems Inc." The San Francisco and Chicago NAPs used ATM, a switching technology that had never been tried at Internet scale, and they were lagging in signing up customers. ANS's Jordan Becker warned that, if the cutover went badly, "you could have islands of connectivity."
The phone companies built the NAPs the way phone companies build things: on new, elaborate technology, at their own pace. The Washington NAP was different. It was already running.
MAE-East—Scott Yeager, Rick Adams and MFS Datanet#
The NSF did not invent the Washington exchange. It adopted one.
John Curran, a BBN technology chief in the 1990s, set the record straight years later on an Internet history mailing list. MAE-East, he wrote, had been set up at MFS in Tysons Corner in 1992 by UUNET, PSI and Sprint-ICM, before the NSF got involved. The NSF's solicitation then proposed a no-cost NAP model based on MAE-East, and MAE-East was named one of the four NAPs while it was already in operation.Insiders disagree about how long MAE-East predated the NAPs. Bill Woodcock says about a year; Scott Bradner, in the same 2021 mailing-list thread, says several years. Curran, Woodcock and the CLUI entry all put MAE-East's founding at 1992.
How did a metro fiber company end up running the Internet's most important switch? As I wrote in Bandwidth, the spark came from Houston. When MFS acquired Network Communications in 1989, its cofounder, Scott Yeager, became the city manager of MFS Houston. Yeager developed a new kind of data service using customer equipment that ran on Ethernet, the same protocol that connected computers inside an office. He shared the idea with Rick Adams of UUNET. That conversation sparked MAE-East. It also led MFS to create a new business unit, MFS Datanet, focused on data. Bill Woodcock of Packet Clearing House, another veteran, has named Steve Feldman as MAE's principal engineer.
The mechanics were simple. MFS already had fiber running into the buildings where the networks were. Put an Ethernet switch in one room. Let every network run a line to it. Each network plugs in a router, and traffic flows between them across the switch. What the networks owed each other was a separate question, and in 1992 the answer was nothing.
John Sidgmore, who ran UUNET and later became my boss, remembered the founding ethic. In 1997 he told the Washington Post how it worked four years earlier: "Instead of creating billing systems, we said, 'Let's just interconnect the network and not charge one another.'" A handshake among a handful of small networks became the Internet's first business model for interconnection. It was called peering.
A story repeated online says MAE-East's first switch sat in a parking garage. I could not find it in any primary source, so I'm not telling it here as fact.
What I do remember from those years is the culture. As I wrote in Bandwidth, Kevin O'Hara hired me in 1991 to lead MFS's metro network expansions, after his predecessor handed him my résumé with the advice that "The last thing MFS needs is a Bell head." MFS Development was raw, blue-collar and fearless. We went from fourteen networks at the end of 1993 to forty-two U.S. markets by 1994. MFS had three business units: MFS Telecom for fiber, MFS Intelenet for voice and MFS Datanet for data. I was building the roads. Datanet was building the intersections. I didn't fully appreciate at the time which of the two would turn out to be more valuable.
I do remember the day the Internet showed up in our executive suite. Jim Crowe, our chairman and CEO, gathered his senior team in MFS's twenty-story blue glass building in Oak Brook, outside Chicago. Instead of clicking through slides, he went online in front of us. "The Internet is going to be a powerful force in all of business," Crowe said. Then he asked who had heard of Yahoo. Eight hands went up. Mine was not one of them.
MAE-West and the Crunch
MFS ran a second exchange in San Jose, MAE-West. Feldman's NSF award was filed from MFS Datanet's San Jose office. By the second half of the decade the two MAEs anchored the coasts: MAE-East in Tysons Corner, MAE-West in San Jose.
MAE-West lived in a fifteen-story office and telecom tower at 55 South Market Street. Years later, the building's owner told its history in a prospectus: "a predecessor to Verizon Communications installed one of the nation's first internet network access points, or NAP, in the property known as the MAE West." An affiliate of the Carlyle Group bought the tower on February 2, 2000, five weeks before the Nasdaq peaked. It became the first property of a company called CoreSite.
By 1996 they were overwhelmed. In August of that year, in an article headlined "Web Crunch: Slow Crawl on the Internet," the Wall Street Journal described a major interconnect in San Jose peaking above 95 megabits per second against 100 megabits of capacity, until a new switch eased the jam. The Journal didn't name it, but I'd bet on MAE-West. At peak hours, according to University of Michigan researchers, backbones were losing more than 10 percent of their packets. MCI tripled its backbone to 155 megabits per second and planned 622 by year end.
The equipment couldn't keep up either. "You can't just buy the next bigger [router] box, because there is no next bigger box," said BBN's John Curran. A Cisco executive, Peter Alexander, went further: "the Internet is going to become the CB radio of the '90s."
By then the NSF had shut down its backbone, and the business had passed mainly to seven companies: ANS (now owned by AOL), AGIS, BBN, MCI, PSINet, Sprint and UUNET. UUNET, by then, was owned by MFS. The big providers would now exchange traffic only with peers that had a minimum number of high-speed lines.
The handshake didn't last. In May 1997, the Washington Post reported that UUNET, by then owned by WorldCom, would start charging some networks for traffic it once exchanged for free. UUNET had spent more than $100 million on its own fiber. Most of the roughly three thousand Internet service providers leased theirs. Sidgmore, the same man who had remembered the free handshake, now explained why it had to end: "when [ISPs] say they want to 'peer,' they're saying they want to use your network for free." ANS was screening its peers too. Vint Cerf, by then at MCI, called it "purely a business situation."
The big networks were learning that a meeting place was worth fighting over. MAE-East's run in Tysons had a few years left. According to Loudoun County, it moved to Loudoun in 1998.Loudoun County's timeline says MAE-East relocated to Loudoun in 1998. The Washington Post's July 1999 AboveNet article still places MAE-East in Tysons Corner, operated by MCI WorldCom, and says AboveNet had an operation "in the same Tysons building." The two may describe different parts of a distributed exchange. But the lesson was already clear. Whoever controlled the room where networks met controlled a choke point on the Internet.
PAIX—Brian Reid, Paul Vixie and Digital Equipment#
If MAE-East was the exchange a fiber company built, the Palo Alto Internet Exchange was the one a computer company built. That distinction would matter a great deal in the next chapter.
The story as I told it in Bandwidth begins in 1991, when PSINet and UUNET cofounded a trade association of Internet providers. The association set up an early exchange point, where providers swapped traffic through a router operated by PSINet. That router moved from its original home in Santa Clara to Palo Alto, and the site became known as the Palo Alto Internet eXchange, or PAIX. Paul Vixie, the Internet pioneer whose work underpins the Domain Name System, was among its cofounders.Bandwidth and the 1997 New York Times account emphasize different things. Bandwidth describes PAIX as the descendant of the PSINet-operated trade-association router, moved from Santa Clara to Palo Alto, and names Paul Vixie as a cofounder. The Times credits Digital's Brian Reid with the vision and describes the exchange as Digital's facility. The two accounts are compatible if the association's router moved into Digital's building, but I have not confirmed it. The Times says the building was full in July 1997, ten months after opening, which implies an opening around September 1996; Chapter III's sources date Digital's commercial opening to July 1996. A December 9, 1997, Times correction noted that the missions Reid toured date from the eighteenth century, not the sixteenth.
The New York Times told the building's side of the story. In its December 8, 1997, article "Old Man Bandwidth; Will Commerce Flourish Where Rivers of Wire Converge?" John Markoff explained that the NAPs, "established in the early 1990's," had developed "a growing traffic jam" by 1995. That jam gave rise to the idea of a private exchange that bypassed them.
The man with the idea was Brian Reid, a Digital Equipment researcher and Arpanet-era pioneer. In 1994 Reid was touring California's Spanish missions with his fourth-grade daughter. That trip, according to the Times, is where the idea came to him. "Bandwidth in the late 1990's is important for commerce in the same way that railroads were important in the 1890's," he told the Times.
I'll admit I'm partial to a man who sees the world in bandwidth.
Digital found its junction in an unglamorous spot. The city of Palo Alto finished a $2 million, fifteen-mile fiber ring that, in the Times's words, "culminates in Digital's new Internet Exchange." The exchange itself sat "in the basement of the building that was once the local telephone company's switching office, just half a block off University Avenue." Four phone companies brought in 14.9 gigabits per second of capacity. The building was 100 percent occupied ten months after it opened. Thirty-five Internet providers had moved in, including @Home, WebTV, Deutsche Telekom, Hongkong Telecom, IIJ and UUNET. WebTV's Steve Perlman put it in Reid's terms: "It's like being right on top of the nexus of five major railroads."
Digital pitched the exchange as "a neutral meeting ground." No carrier owned it. More than half the world's Internet traffic was said to pass through Northern California. To prove the exchange could take the load, Digital used the AltaVista search engine, then handling twenty-five million queries a day, as what the Times called an "attractive nuisance."
Vixie was the exchange's most famous resident. Since about 1988, he had run Root Server F, one of the thirteen computers at the top of the Internet's address book. In September 1997 the Wall Street Journal asked, in a headline, "Is the Internet Outgrowing Its Volunteer Traffic Cops?" Thirteen root servers were kept by eight volunteers. Vixie ran his through the nonprofit Internet Software Consortium in Woodside. The rumor in the industry said Root Server F lived in somebody's basement. Vixie set the record straight: "I built the hardware ... in my basement, but that particular basement had no Internet connection." The server lived "at the Digital Internet Exchange, a facility maintained by Digital Equipment Corp. that provides high-end switching services for Internet service providers."
"This is very much a public-trust kind of thing," Vixie said of the job.
Think about what that means. One of the master directories of the Internet sat in the basement of an old phone building in Palo Alto, kept there because that was where everyone else's networks were. The machine room had come back. It had just changed landlords.
As I wrote in Bandwidth, Digital didn't keep PAIX. AboveNet bought it, and when Metromedia Fiber Network acquired AboveNet in 1999, PAIX came along. Vixie served as CTO of the combined company from 1999 to 2001. The people who had run that basement for Digital will return in Chapter III, with a different idea about what a neutral meeting ground was worth.
The Carrier Hotels—60 Hudson, 32 Avenue of the Americas, 111 Eighth Avenue and One Wilshire#
The exchanges needed buildings, and the buildings that worked best were old ones. A thread on an Internet history mailing list once passed along an observation from Hunter Newby: everything is where it is because it was there before. The networks of the 1990s followed the cables of the 1920s, which followed the telegraph.
60 Hudson Street
Start with Western Union. As I wrote in Bandwidth, Western Union was an early backer of Teleport, MFS's archrival in New York, and then lost interest and sold its 40 percent stake to Merrill Lynch for $4.7 million. Teleport later sold to AT&T for $11.3 billion. Western Union's timing was poor in fiber. Its taste in buildings was better.
The Western Union Building at 60 Hudson Street is a twenty-five-story landmark, built in the 1920s in what was then a dairy-and-warehouse district and tied to the undersea cables. By the 1980s, as the New York Times put it, Western Union "is no more." The building was still there, and so were the cables.
By 1995 the leasing agents knew what they had. The Times described 60 Hudson that summer as "the telecommunications industry building at Thomas Street." Audrey Novoa of Williams Real Estate was courting small telecom tenants, and she wasn't picky about their balance sheets: "So if they have lousy credit we'll rent them four walls, with minimum buildout."
Four walls and a riser to the cables turned out to be a business. By 1999, dozens of phone and Internet companies had moved equipment into 60 Hudson. Its owner, Hudson Telegraph Associates, whose general partner was Ken Carmel, was planning a new electrical substation. The Times called the building "one of the telecommunications hubs of the East Coast, a major Internet node and a passageway for a great deal of trans-Atlantic phone traffic."
The neighbors had a different description. TriBeCa loft dwellers now lived beside a building full of generators and cooling equipment. "The noise is just unbelievable," said Bruce Ehrmann, who lived nearby.
32 Avenue of the Americas
A few blocks away stood AT&T's Long Distance Building at 32 Avenue of the Americas. In 1932, every overseas call to or from the continent ran through it. The building ran to 1.16 million square feet.
In December 1999, just past the period this chapter covers, the Rudin family took title and planned to spend about $250 million to buy and renovate it. Wells Fargo lent $168 million. The Rudins rebranded it the "New York Global Connectivity Center." The roof would get fourteen generators and ten cooling units. Down in the subbasement vault, John Gilbert III tried to count the four-inch copper cables. "We stopped counting at 600," he said.
The neighbors were already fighting 60 Hudson, which the Times called "another mesalike Art Deco landmark by Mr. Walker." The same architect had designed both. Councilwoman Kathryn Freed didn't want a second one making noise: "One is bad enough."
111 Eighth Avenue
Then there was the biggest of them all. 111 Eighth Avenue was the Port Authority's Inland Freight Terminal, built in the early 1930s. It covers the entire block from 15th to 16th Street, between Eighth and Ninth Avenues, with 2.3 million square feet of space.The Wall Street Journal (March 8, 2000) gives 111 Eighth Avenue as 2.6 million square feet. The New York Times (January 25, 1998) gives 2.3 million. I've used the Times figure, which is the earlier and more detailed account. Its floors are 175,000 square feet each, with fifteen-foot ceilings. Its truck elevators could lift a twenty-ton, thirty-foot truck.
The freight was gone, but the elevators found new cargo. In January 1998, the Times reported that telecom tenants were using them to hoist battery clusters "so heavy that the building floors must be reinforced with steel." Seven diesel generators sat on the roof with seven days of fuel. Rents ran in the high teens to low twenties per square foot, against about $40 in midtown.
Taconic Investment Partners, formed by Charles Bendit and Paul Pariser on September 1, 1997, teamed up with Blackacre and Goldman Sachs to buy four Sylvan Lawrence buildings, including 111 Eighth, for $387.5 million. Bendit called 111 Eighth "a sleek battleship." The Wall Street Journal later reported that when Taconic bought the building it "inherited three telecom tenants," and that five carriers already had fiber inside. So Taconic went looking for more telecom and Web-hosting tenants. A developer explained the logic to the Journal in a single line: "If no fiber cables go within five miles of a center, it doesn't do the tenants much good."
One Wilshire
On the West Coast, the equivalent was One Wilshire in downtown Los Angeles. By 1999, telecom companies had leased 1.1 million square feet of downtown Los Angeles office space, about 3 percent of the stock. They made up two-thirds of all downtown leasing that year. In August 2000, the Journal explained why: "Companies are clustering downtown to be near One Wilshire, a key switching center."CoreSite, the best-known colocation operator at One Wilshire, was a tenant there, not the owner. Its 2010 prospectus describes a lease that began in August 2007 and covered 172,970 square feet of the 664,108-square-foot, thirty-story tower, with more than three hundred customers and service providers interconnecting in the building. The carriers paid about $2 per square foot per month, often a third above market, for buildings others considered decrepit.
The city wasn't thrilled. It floated the idea of a "telecommunications switching district." Councilman Nick Pacheco's complaint summed up the problem: in these buildings, "only two or three people are working."
That was the whole point. A carrier hotel is a building for machines.Three terms recur through the rest of this book. A Network Access Point (NAP) was the NSF's name for the four exchanges it designated in 1994 to carry traffic between commercial networks after NSFNET shut down. An Internet exchange point (IXP) is the general term for any place where networks swap traffic, usually across a shared switch; the NAPs, MAE-East, MAE-West and PAIX were all IXPs. A carrier hotel (or "telecom hotel") is a building, often an old telegraph, telephone or industrial building, where many carriers rent space to house their equipment and connect to each other. An exchange is the switch. A carrier hotel is the building it lives in. Over time the terms blurred, because the exchanges always ended up in the hotels. The Journal would later describe the breed as "windowless buildings with reinforced floors, super electrical feeds and wiring to the max." The architecture hardly mattered. The other tenants did. Every network that moved in made the building more attractive to the next one. Telegraph palaces, freight terminals and phone switching offices had what no new building could offer: the cables were already there.
Northern Virginia—UUNET, AOL and the Internet Capital#
The meeting places of the East Coast settled in Northern Virginia for the same reason. That was where the networks already were.
Start with the companies. As I wrote in Bandwidth, Rick Adams joined the Center for Seismic Studies in Northern Virginia in 1982, where he worked on nuclear test-ban verification and became an ARPANET user. In 1987 he convinced a nonprofit of Unix programmers to put up $250,000 for Cisco hardware, and UUNET was born. The Washington Post says UUNET started "in a borrowed office in Arlington County in 1987." In 1989 Adams moved the hub into his home. UUNET had four employees on its first day as a business. "If people were begging you to take their money for this, that's the business I want to be in," Adams said.
America Online grew up a few miles away. In August 1994, the Post called it "the Vienna-based on-line computer service." AOL expected to reach a million households by the end of that summer, after tripling its base in a year. Subscribers dialed in and received information "sent over telephone lines from central AOL computers." The whole industry was adding about twenty-two thousand new customers a week.
Central computers. In the age of the personal computer, AOL's customers were connecting their PCs to someone else's machine room. The glass house was coming back through the phone line.
AOL kept growing, and it moved. By 1996 it had relocated its headquarters from Vienna to Loudoun County, with eleven hundred people at Dulles. By December 1997, according to the Wall Street Journal, it had more than nine million members, and its North American support calls were routed through "a routing system in Virginia."
Then UUNET followed. On Christmas Eve 1997, the Washington Post ran the news on its front page: UUNET planned a Loudoun headquarters with more than three thousand workers by 2000, on a roughly 400-acre site just north of Dulles. The land was the "Glenwood" farm near the Dulles Greenway, where Jack Kent Cooke had once hoped to build a stadium for the Redskins. Bernie Ebbers had walked the candidate sites himself. UUNET's work force had grown from 450 to nearly one thousand in a single year, spread over four buildings in Fairfax and Tysons. Virginia offered $1 million to $10 million in grants. The Post said the campus would "become the control center for much of the world's online traffic."
Loudoun's leaders could hardly believe their luck. "It's exciting to think we could become the Internet capital of the world," said Supervisor David McWatters.
He undersold it.
Others saw the same pull. In July 1999, the Post reported that AboveNet, the San Jose exchange operator, had agreed to buy a nine-acre tract in Reston for a 250,000-square-foot "Internet Service Exchange," where the servers of Internet providers and content companies "can sit next to each other." AboveNet already had an operation in the Tysons building that housed MAE-East. Its executive vice president, Stephen Belomy, explained the choice of Northern Virginia: "topologically, it's central to the Internet." The area had "a lot of networks that have some kind of presence in the area." The new building would house fewer than one hundred people, where an office of the same size would hold a thousand or more. It would cost "hundreds" of dollars per square foot. As the reporter paraphrased Belomy, it was a building for computers, not people.
As I wrote in Bandwidth, the pull outlasted the companies that created it. When WorldCom emerged from bankruptcy in 2004 as MCI, it moved its corporate headquarters to Ashburn. We'll come back to Loudoun County in Chapter VI. By then the farmland would be known by a different name.
The Build-Out—Project DAN, Modems and the Trash Can#
Behind the exchanges and the carrier hotels was a simpler story. The networks were buying hardware as fast as they could install it, and they were installing it in rooms.
UUNET
As I wrote in Bandwidth, augmenting capacity on the UUNET network was expensive. Dozens of servers sat in data centers across the country, connected by lines leased from fiber companies, many of them from MFS. UUNET's chief scientist put it best: "The project was swallowing cash by the trash-can full. We had to put hardware everywhere."
UUNET's appetite for bandwidth made it one of MFS's biggest customers. The Washington Post later reported that local phone fees made up about 40 percent of UUNET's costs, and MFS had fiber in the big cities. In February 1993, Crowe offered Adams $8 million for the company. "I wanted $12 million, and they wouldn't consider spending that much," Adams recalled in Bandwidth. "Everyone thought I was crazy to walk away, but I was having fun and I thought the Internet business was a good bet."
Venture money followed instead, and with it a professional manager, John Sidgmore, from GE. Sidgmore convinced Microsoft to take a 17 percent stake and use UUNET as the backbone for its online network. A month later he signed AOL. In May 1995 UUNET went public. The Post reported that the shares priced at $14 and closed the first day at $26. By November the stock hit $93.25, and UUNET was worth close to $3 billion.
Wall Street had found a new industry. In February 1996, Morgan Stanley's Mary Meeker and Chris DePuy published The Internet Report, a research report on the companies building the Internet that was later published as a book.Accounts differ on the date. Some put the report in 1995; I have used February 1996. I have not read a copy, so I don't quote from it here.
Project DAN
My own part of this story ran through the phone switch. In 1993, as I wrote in Bandwidth, Royce Holland handed me an assignment to open local voice competition. The technical name was cocarrier: a competitor and a Baby Bell would interconnect as equals. My team negotiated the nation's first cocarrier agreement, with Ameritech. In 1996 MFS became the first competitive local exchange carrier in the United States to receive approval from the FCC.
The voice business taught me to stay away from voice. But the same platform turned out to be perfect for the Internet. In the dial-up era, consumers reached the Internet through phone calls. At busy hours in the evening they would try over and over to log in. Once connected, they never logged out. Under the cocarrier rules, the Bell companies paid their rivals by the minute to complete those calls. Modem traffic drained the Bells' cash flow and enriched MFS.
UUNET had an initiative called Project DAN, for dial-up access network.In the dial-up era, the Internet was reached through modems attached to phone lines. A dial-up access network was the collection of equipment and data links that answered those modem calls and connected them to the Internet. Responsibility for executing it was assigned to my team, which led most people to believe the project was named after me. It wasn't. The work was network planning, network implementation and endless pestering of the Bell companies for more capacity between their networks and ours. We turned up capacity across the country and watched the revenue pour in.
That platform, as I wrote in Bandwidth, was why Sidgmore said yes to Crowe the second time. In late April 1996, MFS came back with $2 billion. The Wall Street Journal reported that MFS would double its capital spending to $1 billion a year, build its own long-haul fiber and reach eighty-five cities. Sidgmore explained the logic: "This is a scale game, and to prevail you have to get big fast."
Let's do the arithmetic. In February 1993, Crowe offered $8 million. Three years later he paid $2 billion. Adams had held out for $12 million and ended up with a stake worth far more.The sources disagree on Adams's payout. Bandwidth puts his take at $138 million. The Washington Post (Swisher, May 1996) reported that Adams, then thirty-nine, owned almost 15 percent, worth close to $300 million at the deal price, and that about forty UUNET employees had become millionaires. The difference may reflect shares sold or held before closing. Bandwidth's bibliography also dates the Swisher article May 5, 1996; ProQuest shows May 6.
Within months, the buyer was bought. In August 1996, as I wrote in Bandwidth, Crowe and Walter Scott sold MFS to Bernie Ebbers's WorldCom for $14.3 billion. A year earlier, Crowe had asked me to figure out why MFS's revenue was growing while its profits shrank. I told him. The sale was his answer.
AOL's Busy Signals
On December 1, 1996, AOL switched to a flat rate of $19.95 a month. Its customers had no reason to log off, and they didn't. Two and a half weeks later the Wall Street Journal reported the results. Peak load had tripled in a year to 230,000 simultaneous users. AOL added 8,400 modems and planned to spend $250 million on capacity by June. Pacific Telesis expected to spend up to $103 million handling Internet traffic, because online calls tied up lines about eighteen minutes longer than voice calls.
One frustrated subscriber, Raymond Toronto, gave the Journal the best description of the strategy: "This is like loading a million railroad cars full of merchandise and then deciding to build the tracks." AOL's Robert Pittman saw it differently: "People like to go to crowded places."
He was right, and the crowds needed somewhere to land. As I wrote in Bandwidth, UUNET's deal with AOL meant it carried most of the Internet traffic for the two largest Internet brands, and BBN signed a $55 million contract to provide backbone services to AOL that grew to $400 million a year.
The Modem Wave
WorldCom kept pouring money in. In February 1997 the Journal reported that WorldCom would invest $300 million in UUNET out of a $2 billion infrastructure budget. UUNET served more than fifty thousand businesses. People familiar with the plan said its modems would grow from 80,000 to more than 300,000. Sidgmore was blunt about the industry's capacity: "Everybody has been caught with their pants down."
By the end of 1997, WorldCom had paid $1.2 billion in stock and $175 million in cash for the networks behind AOL and CompuServe. The Post reported that the combined WorldCom, MFS and UUNET deal had been the fourth-largest merger in U.S. history.
PSINet, the third of the founding networks at MAE-East, ran the same race on less money. As I wrote in Bandwidth, Bill Schrader financed it at first with credit-card loans and the sale of a family car, and he took it public on May 1, 1995, at a valuation of $362 million. Schrader had a simple plan. "We're going to kill the phone companies, and we're going to be bigger than AT&T, and it will be a lot of fun," he told one executive.
Every one of these companies was building the same thing: rooms full of routers, modems and servers, wired to as many networks as possible. Most of them thought of those rooms as a cost of doing business. A few people were starting to think of them as the business.
The Building Is Worth More Than the Networks#
Look back at the numbers in this chapter. The federal government spent an estimated $12 million a year subsidizing the backbone it handed off in 1994. The NSF's award record for MFS Datanet shows $211,587 obligated. Crowe offered $8 million for UUNET in 1993 and paid $2 billion in 1996. WorldCom paid $14.3 billion for MFS a few months later.
Here is what I didn't understand at the time. At MFS, I thought our fiber was the asset. Fiber was hard to build and easy to price. But fiber could be overbuilt, and by the end of the decade it would be, many times over. The rooms where the fiber met could not. A network could be duplicated. A meeting place was valuable because everyone was already in it. Western Union's palace, the old Palo Alto phone office, a Tysons office building with an Ethernet switch: each one became more valuable with every tenant that moved in, and none of them could be copied by a competitor with a bigger budget.
The early operators gave away the most valuable part. MAE-East started as a free handshake. PAIX belonged to a computer company that sold it. The NAPs were run by phone companies with much bigger businesses to mind. Even MFS, which had built the most important exchange of all, thought of itself as a fiber company. We thought we were selling roads. The intersection turned out to be the prize.
Markoff's headline put the question in my own vocabulary. Will Commerce Flourish Where Rivers of Wire Converge? By 1997 the answer was obvious to anyone who walked into one of these buildings and listened to the generators.
The glass house had died on the desktop in the 1980s. In the 1990s, the network quietly rebuilt it, one basement, freight terminal and telegraph tower at a time. Only this time the glass house belonged to no single company. It was a place where everyone came to meet.
Somebody was about to start charging admission. A few years later, the Wall Street Journal would describe developers "scrambling to capture the bricks that house the clicks." The Gold Rush was coming, and it would start in the buildings.