How Vulnerable?

Could a single company's compromised network be used to crash the entire Internet? That's the thesis explored in a Wired News article recounting the exploits of the hacker group Fluffy Bunny, which at one point contemplated using Akamai's content distribution system to launch a denial-of-service attack on the Internet's domain name root servers.

Fluffy Bunny became well known in security circles for its humorous use of a pink stuffed bunny in its taunting defacements of high-profile targets including Exodus, The SANS Institute and VA Networks. That list apparently also includes Akamai, according to Wired, which reviewed 100 megabytes of Akamai source code, private encryption keys, and internal company documents provided by "a source close to Fluffy Bunny."

Akamai tells Wired that the company learned of the intrusion last year and took "appropriate action," and that the files shared with Wired pose no ongoing threat to the company's network or clients.

Could the plot have succeeded? Both the DNS system and Akamai's distributed network are attractive targets for the hacker community. Some analysts remain skeptical.

If nothing else, the wider circulation of the concept behind the attack will itself raise the bar for Internet security professionals. Once an attack concept becomes known, a bold exploit attempt usually follows.

Crystal Balls Get Fuzzier

WorldCom's rapid descent into bankruptcy underscores the difficulty of discerning the future of the telecom sector. Back on June 24, industry observers could have named a handful of companies that faced bankruptcy within a month. WorldCom, shaky balance sheet and all, wouldn't have been among them. As the battered industry seeks to digest the impact of WorldCom's bankruptcy, how do the would-be survivors prepare for whatever comes next? It's a tricky business, as the folks at Level 3 can tell you.

In its earnings release last Thursday, Level 3 was blunt about its inability to predict what may come next. "Our ability to project future results is subject to increased uncertainty," CEO Jim Crowe said. "Previously, we had indicated that we believed our ability to project our results was improving. However, we are currently seeing mixed signals in terms of the indicators related to revenue and cash flow growth."

On the plus side, Level 3 reported a slowdown in customer disconnects and a pickup in sales proposals and RFPs. But new sales were "significantly lower," especially for the IRU contracts that have become controversial. Then there's the "headline fatigue" issue.

"The events of the past quarter, including the highly publicized turmoil in the communications industry, have contributed to customer uncertainty and longer sales cycles," said Crowe. And that was before WorldCom's bankruptcy filing.

If Level 3 can't see the future, where does that leave the rest of the business? Pretty much the same as before - putting one foot in front of the other, looking for the next right thing to do. That often means balancing immediate crises with long-term goals. Note that the same day Level 3 was declaring its inability to project future results, it was bidding on part of Global Crossing's network.

WorldCom Worries

Will the WorldCom crisis turn out to be a "neutron scandal" that punishes guilty executives while leaving the network and customers intact? Most early analyses predict that the value of WorldCom's core Internet assets will ensure their continued operation. But that's not reassuring enough for some customers, who are preparing for a range of outcomes - including interruption of service on short notice.

Closures of web hosting and colo facilities are nothing new, and in the vast majority of cases distressed providers have arranged smooth customer transitions to other providers or facilities. When a hosting company is on the ropes, customers usually know their options and are ready to act on them. But the recent closure of several MFN data centers resulted in service interruptions, leaving prominent customers to relocate equipment on short notice.

Against that backdrop, Giga Information Group is warning WorldCom customers that they shouldn't expect reasonable lead time to migrate to other services or providers, and should do their contingency planning now. Many customers are monitoring events closely to be prepared in case WorldCom's financial woes turn into operational headaches.

WIth a Chapter 11 filing looking more likely, some industry observers predict a sale of WorldCom's critical Internet assets to a more stable provider. But WorldCom CEO John Sidgmore says UUNet and Digex are not for sale. In his comments to Congress and the public, Sidgmore has repreatedly emphasized WorldCom's importance to the American economy and national security.

It's not clear if WorldCom can look to the government for protection. Can its customers? The Wall Street Journal reported today that FCC Chairman Michael Powell has written to legislators suggesting that his agency "was prepared to intervene in future WorldCom bankruptcy proceedings to prevent service disruptions."

How important is WorldCom to the Internet? According to research this week from TeleGeography, WorldCom accounted for at least 30 percent of the wholesale U.S. backbone access market in 2001, three times more than its largest rival. WorldCom also connects more than 3,400 networks throughout the world, more than twice as many as either AT&T or Sprint.

Even if the worst-case scenarios were realized, would network problems for WorldCom disrupt the entire Internet? An analysis of KPNQwest's recent problems suggests that the fears of disruption usually exceed the actual impact. Remember that the Internet was designed, at least in part, as a network that would survive a nuclear attack on a key city. When a crisis materializes, it turns out to be more resilient than we imagine.

Terrorism Insurance

For landlords and business owners alike, Sept. 11 dramatically altered thinking on risk management at all levels of the food chain. That includes insurers, who were confronted with entirely new math about the scope of potential losses. In a recent article, Jack Gibson of the International Risk Management Institute summarizes the insurance industry's response, which has focused primarily on crafting exclusions to limit insurers' potential losses from future terrorism. Some companies are also offering terrorism insurance that will provide coverage for events they've now excluded from standard policies. Gibson's article provides a quick explanation of the evolving changes.

Buffett's Bombshell

I've joked that the telecom industry is experiencing a "Jacques Cousteau market" - it keeps searching for deeper and deeper bottoms to explore. Every time it appears things might stabilize, a fresh disaster emerges to push the recovery back towards the horizon. That may have changed Monday. Warren Buffett thinks he's seen the ocean floor.

Buffett's decision to invest $500 million in Level 3 is shaping up as a watershed moment in the telecom industry's effort to recover. Sure, it's a single investment in one company. But it's hard to overstate its impact on sentiment.

With his reputation as a value investor, Warren Buffett is widely viewed as a bellwether of business value, and his investments are closely watched as leading indicators of future performance. As such, his Level 3 investment is likely to create ripples that could benefit other providers.

The business media and investing public revere Buffett as the "Oracle of Omaha." Within hours of Monday's announcement, articles proclaiming that telecom had "hit bottom" appeared on Forbes.com, CNN/Money and even The Street.com (from Jim Cramer, no less, who has been among the shrillest critics of telecom).

A change has been in the air for weeks, as I noted last week, with companies such as Inflow, IXEurope, Savvis and Terremark finding funding. Monday's Level 3 deal builds on that foundation. The recurrence of the boom-bust cycle serves as a reminder that money follows other money. Buffett's bombshell may prove to be the "tipping point" that opens funding lifelines to more companies.

"Migration" Downtime Piles Up

In the data center business, folks like to talk about the high cost of downtime. It's adding up quickly as data center closures and forced relocations are taking a heavy toll on site availability for widely-used Web destinations. C/Net's News.com will be offline this entire weekend (Friday night to Monday morning) as it switches data centers. That's a lot of downtime for one of the Internet's busiest news sites.

It's not as though they had a choice. The move was forced by Metromedia Fiber Network's decision to close data centers in San Francisco and Los Angeles as part of its Chapter 11 restructuring. MFN apparently gave just a few weeks notice that it would be discontinuing service in the former AboveNet centers.

News.com isn't alone, either. On June 25th Topica.com was forced to relocate when its colocation center closed. As a result, its Email Publisher service, which provides email newsletter pubishing services for many web sites (including CarrierHotels.com) was offline for an entire day and performing poorly for several days after it came back online.

Last Friday it was relocation time for Interest Alert, which provides syndicated news feeds to hundreds of web sites. The move was completed in a manner of hours, but lingering DNS resolution issues meant some sites' newsfeeds weren't fully functional for up to 24 hours.

It was inevitable that as the industry consolidation accelerated and more data centers were shuttered, the customer migration process would begin to get chaotic. I'll manage to make it through the weekend without News.com. But such high-profile outages won't help win over those who may already be skittish about the stability of the industry.

Is The Funding Drought Over?

Is the long financing drought over for data center providers? The funding spigot may never again resemble the deluge of the dot-com era, but we're seeing more cases in which web hosting companies are getting substantial capital injections. On Monday alone, there two notable new funding announcements.

Savvis Communications announced $20 million in new funding from Constellation Ventures, a unit of Bear Stearns, which will receive 8 percent of the company in return.

The same day, British data center provider IXEurope announced 7.5 million pounds (that's about $11.5 million U.S. dollars) in fourth-round funding from Bank of America and European Acquisition Capital. Company executives say this should be enough to see the company through to profitability sometime next year.

These announcements come on the heels of Inflow's June 13 announcement of $35 million in new private equity financing, Terremark's June 19 closure of $5 million in funding from a group of Spanish investors, and Egenera's June 27 unveiling of $44 million in venture funding.

It's been quite a while since this sector has seen such a rapid series of funding announcements. While it's a little early to break out the party hats, it's yet another sign of the ongoing transition from consolidation to rebuilding. We've got a way to go yet.

But there's a growing shift in investor sentiment. A decision to fund a data center service provider is no longer dismissed as "good money after bad." Investors perceive opportunity among the companies that have survived the ongoing telecom/Internet crash, and are betting substantial sums of money that these providers will perform in the near future.