Frank's words flowed more smoothly as he spoke.
"Silicon Valley Online appearing in the IE bookmarks of ten million computers—that's not a monopoly. It's the free choice of users and the market. Under the Department of Justice's antitrust investigation, this is the safest camouflage. If Steve Case dares to use underhanded tactics to demote us now, he'll be making an enemy of the entire open Internet ecosystem. In that case, he's the one who'll be having coffee in Washington."
"Go ahead," Takuya Nakayama decided. "But I suggest we don't do this ourselves. We shouldn't make a big deal out of it. Let another partner take the lead."
A brief silence hung on the line.
Takuya Nakayama tapped his fingers on the desk, mentally organizing the intelligence on North America's telecommunications infrastructure.
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"Steve Case's transition to a monthly subscription plan can only solve the immediate user loss," Takuya Nakayama said into the microphone, his voice steady. "America Online still has a fatal weakness. They've built the entire foundation of their empire on dial-up networking."
Frank answered on the other end of the line: "The physical limits of dial-up are set in stone. The 56K modem is the end of the line for analog signals over phone lines. No matter how much you optimize the protocols, the wait time for a user to open a high-resolution image won't get any shorter."
"ADSL technology has already proven to be vastly superior to dial-up," Takuya Nakayama added, providing the technical details. "The ANSI standard has been finalized. Bell Atlantic's field trials in Virginia, using a VoD prototype, have successfully demonstrated that ordinary copper wires can support megabit-per-second data transmission."
Tom Kalinske had a keen sense for the commercialization of infrastructure. "This technology is still sitting in the telcos' test labs. The Regional Bell Operating Companies are all just watching and waiting."
"They have their reservations," Takuya analyzed the resistance. "They're waiting for hardware chip prices to drop, and for the FCC to strictly enforce the unbundling of network access. More importantly, they're waiting for a knife to be held to their throats."
"Cable modems," Frank said, uttering the name.
Takuya Nakayama nodded. "The precursor to the DOCSIS standard is already circulating within the industry. Companies like @Home, backed by cable giants like TCI and Comcast—and even securing investment from KPCB—have already begun commercial broadband trials in select areas. Downstream speeds can reach 10 Mbps. While it's a shared node, it's still enough to absolutely crush dial-up. Most importantly, it doesn't interfere with phone calls."
Frank flipped through the technical briefing in his hand. "For cable networks to support two-way data transmission, they must upgrade their existing coaxial cable infrastructure. That's a significant expense. Many cable networks are still one-way broadcast architectures."
"The cost isn't unacceptable," Takuya pointed out the core issue. "As long as @Home's pilot projects prove the profit model, Wall Street capital will push cable operators across the U.S. to dig trenches and lay cables. At that point, telcos will have no choice but to bite the bullet and deploy ADSL on a massive scale to protect their home broadband entry points. The dawn of the broadband era isn't a question of whether it will replace dial-up, but who will blink first and decide to pour in the money."
Tom connected the dots. "Once ADSL and Cable Modems go mainstream, AOL's dial-up access nodes will become a pile of scrap metal. Once users get used to broadband speeds, they'll never go back to dial-up. The clock is already ticking on their core business."
"Time is on our side," Takuya Nakayama said, taking a sip of warm water from his teacup. "AOL is trying to build a wall with their $19.95 monthly subscription, but that wall is built on sand. When the tide comes in, nothing will be left. We don't need to fight them to the death in the dial-up era. We just need to stay open, focus on our content and services, and outlast them."
The tension on the other end of the line eased.
The strategic pressure weighing on Silicon Valley Online had been dispelled by this analysis.
"Since Steve Case has performed a 'financial bath' by writing off $385 million in deferred customer acquisition costs all at once, shedding his historical baggage, Wall Street will definitely buy into this," Frank offered his financial insight. "It will drastically improve their income statement in the short term, and AOL's stock price is bound to see a rally in the coming period."
"Money's being handed to us on a silver platter. There's no reason not to take it," Takuya Nakayama said, seizing the opportunity to arrange the next steps. "Have Sega and Silicon Valley Online's finance departments build a position in the secondary market. Buy up some AOL stock. Once they've fully cashed in on their monthly subscription bonuses, but before broadband technology truly starts its mass rollout, we'll find a suitable peak to sell."
"Using our competitor's money to subsidize our server expansion," Tom laughed on the other end of the line. "Goldman Sachs will be more than happy to execute this trade for us. They love short-term plays with a clear exit strategy."
With the work assignments finalized, Takuya Nakayama glanced at his watch.
It was already 9:30 AM in Tokyo.
"Proceed in this direction for now," Takuya said, preparing to end the call. "Also, compile a user persona report for AOL based on the data you've collected. Identify the most likely-to-churn user segments and leak some information about Silicon Valley Online's free services in offline communities and geek forums. Don't make a big fuss—just let the word spread subtly, like a gentle rain."
"Understood. I'll have the Public Relations Department handle the placement of these offline discussions," Frank agreed.
Takuya Nakayama pushed the memo regarding America Online aside.
The phone line was still open. It was almost time for Silicon Valley Online to clock out, and Takuya decided to use the opportunity to gauge the status of the war raging on the other side of the ocean.
"Frank, Tom, don't rush off just yet," Takuya said into the speakerphone. "Let's talk about Seattle and Mountain View. How have Bill Gates and Marc Andreessen been fighting for the past three months?"
On the other end of the line, the soft crack of Frank opening a soda can echoed.
"The war has entered the bloody phase, Boss," Frank said, taking a sip. "When Gates dropped IE 3.0 in August, everyone thought it was just a declaration of war. Now that we're in the fourth quarter, the market is starting to vote with its feet."
Tom Kalinske's voice cut in: "Netscape still has absolute dominance, but the cracks are starting to leak."
Takuya grabbed a blank notepad.
"Is IE 3.0 really that good?"
"Microsoft brought the real deal this time, not some rebranded knock-off like before," Frank's words quickened, his voice carrying the sharp insight of a tech expert. "This is the first commercial browser to support CSS. Web page layout finally doesn't have to rely on crude patches. They've also developed JScript, which is clearly aimed at Netscape's JavaScript, but it's already starting to branch off into Microsoft's own ecosystem."
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