Access to next-gen Internet uneven

By PETER SVENSSON

The lack of high-speed Internet access in some areas of the U.S. has been hotly debated, even as that digital divide has narrowed. But a new, wider gap is being created by technology that will make today's broadband feel as slow as a dial-up connection.

Much like broadband enabled downloads of music, video and work files that weren't practical over dial-up, the next generation of Internet connections will allow for vivid, lifelike video conferencing and new kinds of interactive games.

But while access to cable and phone-line broadband has spread to cover perhaps 90 percent of the U.S. in the space of a decade, next-generation Internet access looks set to create a much smaller group of "haves" and a larger group of "have nots."

The most promising route to superfast home broadband is to extend the fiber-optic lines that already form the Internet's backbone all the way to homes. Existing fiber-to-the-home, or FTTH, connections are already 10 times faster than vanilla broadband provided over phone or cable lines. With relatively easy upgrades, the speeds could be a hundred times faster.

In the U.S., the buildout of FTTH is under way, but it's highly concentrated in the 17-state service area of Verizon Communications Inc., which is the only major U.S. phone company that is replacing its copper lines with fiber. Its FiOS service accounts for more than 1.8 million of the 2.9 million U.S. homes that are connected to fiber according to RVA LLC, a research firm that specializes in the field.

FTTH is also offered by some small phone companies, cooperatives and municipalities, like Chattanooga, Tenn. The other major phone companies, like AT&T Inc. and Qwest Communications International Inc., are laying FTTH in "greenfield" developments, but aren't pulling fiber to existing homes. Some cable companies are doing the same.

Graham Finnie, chief analyst for the telecom research firm Heavy Reading, believes 13 percent of U.S. households will be connected to fiber by 2012. Since Verizon is the major builder, the vast majority of those will be in Verizon territory on the East Coast, Texas and California.

"That does beg the question: What happens to everyone else? There's going to be a huge community of people who are not getting FTTH in the next five years," Finnie said.

"A quarter of the U.S. is going to get one of the best networks in the world," said Dave Burstein, editor of the DSL Prime newsletter.

The rest of the country, he said, is going to be stuck with slow DSL or cable, though the latter is due for upgrades in the next few years that will boost top speeds fivefold.

Still, it's not entirely clear that people on fiber connections are going to have a big advantage over slowpokes on regular broadband. Today, there is not much that can be done on a fast connection that can't be done on a standard one. Fiber is already available to a third of South Korean homes, but that hasn't revolutionized society there, at least not yet.

Increased used of video, particularly high-definition video, is seen as the future of the Internet, but most cable modems and high-end DSL are already capable of streaming HD video downloads. However, fiber connections support higher upload speeds, potentially making for better video conferencing from the home, which in turn creates opportunities for distance learning. Games also could get a jump in realism and online interactivity, Burstein said.

Not only are U.S. regions going to differ tremendously in how fast they get fiber, the differences between countries will also be huge. Apart from South Korea, Finnie cited Japan, Taiwan, Hong Kong and Sweden as other front-runners. He estimates that almost half of all Swedish households would have fiber by 2012, for instance.

"This is not a market where there's a smooth progression across countries and regions — it's going to be extremely variable," said Finnie.

Considered as a whole, the U.S. will be "middling" in the international comparison, trailing the pioneers but well ahead of other developed nations like Finnie's home country, Britain, which he estimates will have 3 to 4 percent fiber-connected homes in 2012.

The fiber buildout is going to take more time and be more patchy than the introduction of broadband because it's so much more expensive, Finnie said. Cable modem and DSL connections are retrofits to links originally laid down to provide video and phone service, respectively. Fiber-optic lines will be the first links that are built for data to reach U.S. homes.

The costs will remain high, because getting permits for the buildout and drawing the physical lines is "a hugely physical, human-type activity," said Joe Savage, president of the FTTH Council North America. While the cost of the equipment keeps dropping rapidly, two-thirds of the cost of connecting a home are labor, he said.

Microsoft Joins Low-Cost Laptop Project

By STEVE LOHR

After years of conflict, Microsoft and the computing and education project One Laptop Per Child, have reached an agreement that will put Windows on the organization’s computers.

Laptops running Microsoft's operating system will be tested next month in limited trials.
Microsoft long resisted joining the ambitious project because its laptops used the Linux operating system, a freely distributed alternative to Windows.

The group’s small, sturdy laptops have been hailed for their innovative design. But they are sold mainly to governments and education ministries in developing nations, and initial sales have been slow partly because countries were reluctant to purchase machines that did not run Windows, the dominant operating system.

Education ministries want low-cost computers to help further education, but they often see familiarity with Windows-based computing as a marketable skill that can improve job prospects.

“The people who buy the machines are not the children who use them, but government officials in most cases,” said Nicholas Negroponte, founder of the nonprofit group. “And those people are much more comfortable with Windows.”

The alliance between Microsoft and O.L.P.C. comes after long stretches of antagonism, punctuated by occasional talks, between the two sides. Mr. Negroponte, a former computer researcher at the Massachusetts Institute of Technology and a new media pioneer, said he first talked to Bill Gates, Microsoft’s chairman, three years ago.

But at the time, Microsoft was fiercely opposed to anything that might promote the use of open-source software, like Linux. Since then, Microsoft has become more comfortable in competing against Linux and at times running its products on the same machines in data centers, desktops and laptops, Mr. Negroponte noted.

Back then, he added, the nonprofit laptop project did not have a working machine.

Last year, Mr. Negroponte said he contacted Mr. Gates again, and this time the Microsoft chairman was receptive. He instructed Craig Mundie, Microsoft’s chief research and strategy officer, to work out a deal with Mr. Negroponte. Those talks began in January in private meetings, when both men were attending the Consumer Electronics Show in Las Vegas.

The first of the project’s child-friendly XO laptops running Windows XP will be tested next month in limited trials in four or five countries, said James Utzschneider, manager of Microsoft’s developing markets unit. He declined to name the countries, but said XO laptops running Windows would be generally available by September.

The pact with Microsoft is not an exclusive agreement. The Linux version will still be available, and the organization will encourage outside software developers to create a version of the project’s educational software, called Sugar, that will run on Windows.

Windows will add a bit to the price of the machines, about $3, the licensing fee Microsoft charges to some developing nations under a program called Unlimited Potential. For those nations that want dual-boot models, running both Windows and Linux, the extra hardware required will add another $7 or so to the cost of the machines, Mr. Negroponte said.

The laptops now cost about $200 apiece, and the project’s goal is to eventually bring the price down to about $100.

The project’s agreement with Microsoft involves no payment by the software giant, and Microsoft will not join One Laptop Per Child’s board.

“We’ve stayed very pure,” Mr. Negroponte said.

But the alliance with Microsoft has brought some turmoil within the project. Walter Bender, the president who oversaw software development, resigned last month. His departure, Mr. Negroponte said, was “a huge loss to O.L.P.C.”

Inside the project, there have been people who, Mr. Negroponte said, came to regard the use of open-source software as one of the project’s ends, instead of its means.

“I think some people, including Walter, became much too fundamental about open source,” Mr. Negroponte said.

In an e-mail message, Mr. Bender wrote that he left the project because he decided his efforts to develop and support the Sugar open-source learning software “would have more impact from outside of O.L.P.C. than from within.” Outside the constraints of working on a single hardware platform, like the XO laptop, his work, he wrote, should “lead to a broader base, more options, and a better set of tools for children.”

Icahn may run Yahoo proxy campaign

By Dane Hamilton

Billionaire investor Carl Icahn is considering mounting a proxy campaign to replace Yahoo Inc (YHOO.O: Quote, Profile, Research) board members after the company failed to reach a deal to merge with Microsoft Corp (MSFT.O: Quote, Profile, Research), a source close to the matter said on Tuesday.

The veteran investor has built up a stake in Yahoo in the last week and would run a slate in an effort to force the company back to the negotiating table with Microsoft, the source said, asking for anonymity because the decision to go ahead with the move has not yet been made.

It is unlikely that Icahn, a veteran of numerous proxy battles, will join with other hedge funds in the campaign, the source said. A decision to run a proxy slate this year must be made by Thursday to qualify for the July 3 annual meeting.

Still, other activist hedge fund managers may try to get involved, including Scott Galloway and his investment firm Firebrand Partners LLC, the Wall Street Journal reported on Tuesday evening, citing people close to the matter.

Galloway won a seat on the New York Times Co (NYT.N: Quote, Profile, Research) board last month after hedge fund Harbinger Capital Partners spent half a billion dollars to bankroll his campaign to try to force change at the newspaper publisher.

Galloway, a professor at New York University's Stern School of Business, declined to comment on the report. A Harbinger representative was not immediately available for comment on whether it would back Galloway if he were to wage a campaign against Yahoo.

Microsoft walked away from its Yahoo bid this month after the Internet company turned down its offer to raise it to $47.5 billion, or $33 per share. Yahoo demanded $37 per share.

A Yahoo spokesman declined to comment on Icahn's potential moves. Microsoft executives have said they were done with their pursuit of Yahoo, and one person close to Microsoft on Tuesday said that remained the case.

The size of the stake Icahn has built could not immediately be determined. He had no Yahoo shares as of early last week, the source said. The Wall Street Journal said Icahn has amassed a stake of roughly 50 million shares, or less than 4 percent of the company's roughly 1.44 billion shares outstanding.

One lawyer who has worked with Icahn in previous campaigns said such a campaign could have good odds of success, providing Microsoft is willing to come back to the bargaining table, which he said is probable.

"The odds are pretty decent," said Marc Weingarten, an attorney with Schulte Roth & Zabel, who said he is not involved in any plans for a Yahoo proxy campaign.

"Yahoo has a lot of unhappy shareholders. And if someone could press the company in getting something done, I would think there is a decent chance at a transaction."

One hedge fund manager who heads a large activist fund said it is "a likely possibility" that Icahn would run a Yahoo campaign. The manager, who has worked with Icahn on previous campaigns, asked to remain unidentified.

Should he decide to get involved, Icahn could be in a position to force the companies to restart the talks. Not only does he have the resources to spend the millions of dollars needed for a successful proxy campaign, he also has experience in pressuring companies back to the bargaining table.

Last year, for instance, Icahn was successful in getting Oracle Corp (ORCL.O: Quote, Profile, Research) to return to the bargaining table to buy BEA Systems (BEAS.O: Quote, Profile, Research) after those talks collapsed.

Yahoo shares surged 5.1 percent after news of a possible Icahn move on Yahoo was reported by CNBC on Tuesday afternoon. The stock closed up $1.30 at $26.56 on Nasdaq.

The possibility of a proxy battle has loomed since Yahoo rejected Microsoft's offer, sending Yahoo shares tumbling.

One Yahoo shareholder, Eric Jackson of Ironfire Capital, said last week he was working to line up support to run a dissident director slate. Jackson said on Tuesday he could not line up financing for a proxy campaign that he said could cost at least $1 million. He told Fox Business Channel he would likely support an Icahn slate, depending on who Icahn proposes.

"It basically came down to dollars and cents," Jackson said in an interview. "The SEC hasn't enacted some sort of open proxy access and that makes it difficult for a shareholder like me to belly up to the bar and put up $1 million. That's the bind I'm in."

Jackson said he still plans to run a "no vote" campaign against current directors, which basically entails reaching out to shareholders and asking them not to endorse the company-sponsored slate.

Jackson was instrumental last year in a campaign to have former Yahoo Chief Executive Terry Semel replaced.