William L. Schrader, founder, chairman and chief executive of PSINet Inc., has bet his fast-growing, heavily leveraged company's future on his conviction that the Internet boom is just starting.
The Herndon-based company provides Internet connections and Web hosting services in 90 of the 100 largest U.S. metro areas and 17 of the 20 largest global telecommunications markets.
Through rapid acquisitions, it has acquired 1 million miles of fiber-optic cable to carry Web traffic between 90 major U.S. metro areas and 17 of the largest global telecommunications markets. It is building 2 million square feet of computer center space to host Web sites.
Schrader discussed his company's -- and his industry's -- future in a recent conversation with Washington Post editors and reporters.
Q. Start by telling us where you think the Internet is headed.
A. This is the biggest Christmas for electronic commerce ever. This is also the smallest Christmas we will ever see on the Internet -- a sample of what you're going to see for the next 10 years. My prediction is that 80 percent of commerce from business to business and business to consumers in four years is totally dependent on the Internet, either in the pre-sales marketing cycle, the actual selling and transaction support or the post-transaction customer interaction. Statistically I think it'll be all of them.
And if you don't have an Internet environment and you're in commerce -- and who isn't in commerce? -- then you aren't in business anymore.
You're going to see your anecdotal evidence of major meltdowns and, you know, "My whole Web page went south!"
Well, those people spent $3,000 -- they built a [poor] Web site. The guys who get in soon understand it best, invest properly, win. Those guys that get in late do not understand and invest poorly, lose. And when you lose you end up working for somebody else.
How much fiber do you think you're going to need in the next three to five years?
The answer is, always a lot. It's a big number. So you should get it while you can because in a couple of years there won't be any to get.
We own fiber all around the globe. The idea is to focus on nothing but Net, so that PSINet is the largest pure-play Internet service provider.
Isn't there the possibility of an oversupply of Internet capacity?
There is a different school of thought that says there's a fiber glut coming, it's going to get cheaper, the price will fall.
The availability of bandwidth is going to be increasing at an exponential rate, no question. If the demand case is growing at 1,000 percent a year and there is [still] no voice yet on the Internet, there is no video on the Internet, statistically. Okay, wait till it's full screen, it's filling up your whole living room and you've got six of them running. There is such a demand case that it makes the supply increase sound weird.
I've noticed a correlation between those that have money and [those that don't]. Everyone with money is buying fiber, everyone without money isn't. And I'm telling you [the companies that are not buying] are wrong.
Has UUNet -- MCI WorldCom's Internet division -- been buying fiber as aggressively?
Well, they can't because they're owned by WorldCom, which sells fiber, and they don't want [UUNet] to be competing [by buying from other suppliers]. So what you've got here is our freedom of action versus their non-freedom working in our favor.
But the fact is they have more political power, they have more market power, they have certainly more financial power than we have. There are only two players in this space though -- WorldCom and PSINet.
If MCI WorldCom merges with Sprint Corp. and has to sell Sprint's Internet backbone . . .
And I think they will.
Would you be a buyer?
Most likely we would not be a buyer. . . . We already have everything Sprint has and ours is much better, so the only thing we'd be buying would be customers.
How do you stay current on all this?
That's my biggest challenge. I have colleagues who tell me anything that is important, even though they know I might get it from 20 sources. E-mail or Web referrals.
How many e-mails a day?
Two hundred, approximately.
How important is the networking with other tech CEOs?
Well, we certainly stay in touch. All our [area's] CEOs know each other. For defensive purposes and offensive purposes. We talk more often in nontraceable ways mainly, not with e-mail.
My whole world is balanced, and it's driven by a combination of reactivity to incoming stimuli: Are we still in business?
First question I ask myself when I wake up is, are we still in business? I don't know, I'll have to check the fax machine because [MCI WorldCom CEO] Bernie Ebbers might have sent me a nasty fax.
You say some things you can see and some things you can't see. What about the features on cell phones in four years? Will we be downloading from the Web?
You need a science-fiction analyst to come up with that. But imagine if I told you three years ago you would have a cell phone that would be able to store 15,000 phone numbers that you can go coursing through. And instead of dialing somebody when you wanted to check your stock price, you did that [directly]. You'd be laughing at us.
Now I was too dumb to think of it.
Talk a little bit about DSL versus cable -- the competition to supply Internet connections over high-capacity direct subscriber telephone lines versus linkages over cable television systems.
DSL is available and right now, but it's statistically not available because the telephone monopolist pigs do not make it available.
Ivan Seidenberg [Bell Atlantic's chairman and chief executive], this is on the record, is a monopolist. He thinks like a monopolist. He acts like a monopolist and always will. He needs to be forced to follow the law. The law says you are deregulated and you cannot be a monopoly. We want you to encourage competition, so where's the competition? Ivan says well, it's coming. He slowed it down intentionally so he might be able to defend himself against the onslaught of Mike Armstrong in AT&T in the cable operation [using cable television networks to provide Internet access].
So will we be getting to the Internet over our televisions sets or our PCs?
In some areas if the cable guy invests properly, you'll have a really good cable plan. If not, he might go bankrupt.
If the DSL is provided by the local Bell operating company and they did it early and they did it openly, it might be as good as the cable.
But cable is a shared medium. . . . You get high speed if nobody else is on. If everybody's on, you don't. In the end, we don't care who wins.
What's a TV in four years?
You'll have the same device up in your bedroom where you're doing your tax returns and sending e-mail as you will down in the living room where you're downloading your sports video highlights.
The device you carry in your belt might emit a small signal of your preferences as you walk into a room. If your preference is to have CNBC, it turns on "the TV," which is really just a big PC with a flat screen sitting on your wall. And it turns it to the right channel, to the right volume, okay?
So the traditional channels that you've been flipping through are not there anymore.
I don't gamble . . . but if you're a gambler and you like to watch what's going on in gambling things, casinos or horses or whatever you do, you'll have that stuff up. If you're watching pornography, why would you be limited to whatever is available on the local channels? I don't do the porn thing, but if you want porn on the Internet you can get anything you want, anywhere you want, any time you want with the exception of what's illegal. So why would you limit yourself?
Where are you going to be on December 31 at midnight?
I'm at the beach smoking a cigar.
This is not our legal answer, okay? The legal answer sounds the way that all legal answers should. But there'll be no problem. The Internet will work. Computers will work. All the banking works. The government will work. Everything works. No problem.
What else is changing?
The one that hasn't been felt yet is politics. The impact of the Internet on politics has not been touched. You're not even seeing the tip of the iceberg yet. I think you will in the very near future.
Governments are going to have more influence in the evolutionary process than they have in the past simply because they have to disengage from the regulatory environments and it's very painful.
What happens, for example, if a well-meaning politician, or WMP -- sometimes I abbreviate it as WIMP -- wants to pass a law that says we're going to tax Internet transactions in a state? So let's say there's only 2 million people who are on the Internet in that state. They'll know about it within 48 hours. What happens when 2 million registered voters who are of the demographic group that owns computers all feel the same way? What happens? The guy changes his mind or he's voted out of office.
That will happen. Count on it. People are going to keep using this stuff. Great. I just love it.
A Look at . . .
Business: Internet service provider
Chairman, chief executive: William L. Schrader
President: Harold Wills
Ticker symbol: PSIX (Nasdaq)
Local employees: 500
Web address: www.psinet.com
Source: Company reports, Bloomberg News