Standing Alone and standing fast, as the allies fled.
The boldest, bravest action I have ever witnessed in business (where self-sacrifice is rare), is the antitrust lawsuit initiated by Todd Gould, Founder of Loren Data Corp, against the PE-funded B2B leviathan, GXS Inc.
The EDI Communications market predated, then adopted Internet Protocol as the bearer of EDI data. All original Value Added Networks began life as circuit switched and leased line (PSTN) modem pools that were the original progenitors of A2A routing. In the 1970’s, as EDI became established in manufacturing supply chains, interconnection physical via bisynch – but all of it taken together was a replacement for telex and twx (the original global message system for manufacturing) – these were tariffed teletype services, i.e., regulated by the FCC, as common carriage, and each message had bailment attached ….(each message was considered valuable and the carriers took responsibility for timely delivery of each message.) Telegraphy services could not refuse to relay traffic to competitive carriers – thus one component of Common Carriage is Interconnection).
Computers and Data networking was a new concept to the regulators; non-voice, packet store and forward using computers as switching and application host, was not only novel, but it gave rise to new innovations and potential abuse. FCC undertook “The Computer Inquiries”, a grand colloquy of testimony from experts and industry leaders, with the goal of determining if new regulations would be required to steer the FCC’s system of bureau-based enforcement, and the administrative law panels that heard testimony and adjudicated petitions for Common Carrier, Wireline Competition, Broadband, and several other communications markets. The Telecommunications Reform Act of 1996, which deregulated a most of the content and pure data infrastructure of the IP universe, created and compounded confusion arising amongst EDI networks, or VANs, that were application layer 7 data messaging services. The FCC erred terribly in failing to tariff EDI Communications, and left a fallow field to wither under the 96 Act. Any company participating in the EDI driven supply chains, from the largest retailers to the tiniest suppliers, now has an AT&T style, most toxic monopoly to contend with – and this all courtesy of the FCC, and more recently, the USDOJ….now in my estimation the most ineffective competition regulators in the entire Milky Way…along with Great Britain’s Office of Fair Trading. Exactly what does a true monopoly look like to these “govt chair sitters”.
“Non-Settlement” is the key Term-of-Art in Understanding VAN Interconnects
Interconnections between the legacy VANs, whether via hard-lines, modems, or IP virtual circuits in later days primarily refer to data carriage between two competing VANs, VAN interconnect agreements in the Internet era are “non-settlement, message traffic exchange agreements” – a complex jumble of words for a the practical accommodations made by the VANs to facilitate bidirectional messaging between any two subscribers on competing Networks.
Interconnections were deemed a market-driven necessity by the earliest VANs, as the first adopters would never have acceded to the requirement of corralling 100% of their suppliers on one VAN (these clients were powerful automotive manufacturing and shipping lines). EDI would thrive only in a competitive market where subscriber choice came first. The freedom to choose a VAN without the concern of routing dead-ends, kept the business healthy for years. Until the GXS fiasco, that is.
The freedom to choose or move to a competing VAN was ensured by liberal interconnection. This is the reason why networked markets deemed important by the FCC always mandate interconnection via tariff.
EDI messages between two transacting parties (a supplier Invoices a Retailer, in response to a purchase order) are bidirectional and balanced in terms of the messages sent and received, Therefore, VANs do not settle billing for interconnect traffic. it nets out to zero.
VAN subscribers pay for the messages sent and received by volume measured in KC (kilo characters). VANs have historically granted interconnects under fairly permissive guidelines, especially in the industry’s earliest days until the dawn of the 2000’s, The mostly accepted formula for granting semi durable, interVAN connections is as thus:
“if a competing VAN requests a “trading partnership’ be setup with a subscriber on the home VAN, an interconnection will be established upon confirmation of the mutual trading parties”. Viola.
The most public and infamous refusal to interconnect was PE Funded GXS Inc,. against Loren Data Corp. The background of the dispute is covered by the author in several articles on this site. The important point is that the Founder of Loren Data Corp, Todd Gould, initiated the antitrust case against GXS, using his personal resources.
In our numerous public appeals to an industry which would anticipate future deleterious actions of such pan-market sabotage, not one other company stepped forth to join the fight, or came to the aid of Loren Data Corp’s legal initiative – though GXS’ damaging InterVAN traffic routing was actually a preemptive strike against the Service Provider Sector.
GXS, having become all but unstoppable due to its purchase of three major VANs, had leveraged a Network Effect routing coup, the likes of which the VAN sector had never imagined nor experienced before. The service providers as a collective group with no unity whatsoever, had no idea how to deal with these burnt earth. GXS tactics. So, with almost no opposition, except what Todd Gould could muster. The result a sector that has, by inaction, procured a malevolent dictatorship; a private enterprise controlling an increasing number of “magnet destination network addresses”.
Could a new market entrant as a VAn or Service Provider operate without routes to GXS bound subscribers, all Fortune 2000 hubs, retailers,manufacturers, etc. ? Would any capital source risk such an investment….without knowing beforehand that any new venture would be “Routing Viable” – no way.
Only massive capital of a PE fund, and the coordinated acquisition of a sufficient number of VAN properties, carefully executed to exploit the weaknesses of the “unfinished” VAN routing ‘non-architecture, could accomplish such a feat. The analysis could not be clearer – Routing Arbitrage and exploitation of the layer 7 EDI addresses was the original organizing principle behind Francisco Partners Funding of GXS, Inc. These are tactics the FCC and DOJ are supposed to be on-guard against…..but our regulators have failed us in a double agency failure –
Our competition watchdog laid down and waved through a HSR for many such acquisitions, but the coup de grace was Inovis. Why was so special about Inovis? An incisive quote from Todd Gould illuminates the obscure:
“Inovis was the last competent VAN operator to stand briefly against GXS (speaking of the tiny, inner cadre of technical management holding a slim slice of Inovis equity), who first of all could operate and offer a transit route to GXS, at a price envelope we could potentially operate within – although that differential was a disadvantage compared to other EDI networks (who paid zero $ under standard non-settlement terms)”,
“Inovis was technically capable of operating the beast, which was only required by Loren Data Corp – the last VAN to be publicly denied a GXS interconnect to TGMS” – (Author’s historical note: Loren Data Corp’s ECGrid VAN had established interconnection with IBM IE, and Inovis, pre GXS buyout – such that astute readers truly understand GXS’ latest “daisy chaining” defamatory claptrap, is completely bankrupt on its face).
The FCC chose not to look even briefly at the distortion of the EDI messaging sector, although, there were ample arguments to apply the reasoning arising from the “Computer Inquiry Remands I, II, III”,- the EDI market is a “services market in which bailment attached, meeting all requirements for common carriage regulation”. Hit the buzzer on the FCC for the largest failure of intentional, regulatory blindness since….you name it.
The EDI VAN and Service Provider Sector now inherits the fruits of collective inaction – the grand prize for undistinguished market non-activism in the face of a toxic consolidation Presently, the sector finds itself bereft of an effective means to oppose GXS, a giant now franchised by a TransAtlantic, intragovernmental “star Chamber’ of competition regulators. These regulators played into the hands of a PE Fund that, to all appearances, wrote their script …and handed each agency their very own gilt embossed set of rubber agency stamps, in felt-lined cases with certificate of authenticity….
Each boxed set of rubber stamps given to the UK OFT and USDOJ has a hand-written note enclosed, that says “the check is under the felt liner, guy$”.
While we are at it, the e-commerce service provider sector leadership? What have they been doing for the last two years? Well, that will be my next post, but suffice to say that it’s has been a very, very Black several years for EDI businesses wishing to access that fragile, under provisioned and under architected routing mesh. More to come.