October 11, 2003

The Economist's Tom Standage writes about the telecom industry: Economist.com: ...Telecoms is an infrastructure-intensive business, and because infrastructure takes a long time to build, telecoms firms have to make bets on the level and nature of future demand. As it turned out, the bets made during the technology bubble of the late 1990s were spectacularly wide of the mark. In particular, the mania that accompanied the rise of the internet persuaded many investors that demand for data-network backbone capacity, to pipe internet traffic across continents, was about to explode. Since 1997, internet traffic has roughly doubled every year. Much of the industry, however, was convinced that traffic was doubling every 100 days. This widely quoted statistic, which originated at WorldCom, became an essential ingredient of business plans and conference presentations during the bubble. It assumed unimpeachable status when it appeared in a report published by America's Department of Commerce in April 1998.... European firms gambled that the expected surge in demand for fixed-communications capacity would be accompanied by a similar leap in demand for mobile capacity, and paid euro109 billion ($125 billion) for licences to operate “third-generation” (3G) mobile networks. They, too, took on a huge pile of debts. But...

Posted by DeLong at 08:23 AM

August 13, 2003
Yes! Telecom Price Wars!

To us economists, prices ought to be signals of social scarcity. We overbuilt fiber-optic networks, we have ample wireless bandwidth, and so telecom capacity is definitely not scarce. So it should fall through the floor -- and it is. WSJ.com - European Telecom Firms Face Price War From 3G Cellphones: ...Such a [European] price war could mirror the continuing brutal competition in the U.S., where wireless carriers continue to give away bigger and bigger buckets of minutes. The U.S. battle -- which preceded the upgrade to so-called 2.5G or 3G technologies -- has resulted in plummeting prices. A wireless minute now costs less than half what it did barely three years ago. While the growth in customers who have gone completely wireless has hurt local phone companies such as Verizon Communications Inc. and BellSouth Corp., the biggest impact has been on long-distance operators: Wireless minutes in the U.S. are generally the same price whether they are for local calls or long-distance calls, and customers with unlimited calling at night and on weekends, in effect have free, unmetered long-distance service. These developments have been punishing for the likes of AT&T Corp., Sprint Corp. and MCI... Such price wars are a very...

Posted by DeLong at 12:29 AM

March 17, 2003
Moore's Law Comes to Telecom

Why are WorldCom's physical assets worth only 1/4 what they paid for them? Some people blame incredibly stupid management. I have always ascribed the write-down of the market value of telecom assets to vastly greater progress in telecommunications software control than had been expected--if you can push ten times as many bits through a fiber as you had thought you would be able to, that kinda cramps your ability to make money off of the scarcity of fiber. Kevin Werbach and Scott Rafer seem to have a somewhat different take, but I'm not quite sure what it is. New York Times: "WorldCom's hard assets, including its network, are now worth almost 75 percent less than what they had cost." UPDATE: Scott Rafer's take on the same announcement. He thinks we're ascribing different causes to the writedown, but I think we agree. Worldcom's problem is that it didn't build its business (and capex plans) with Moore's Law in mind. [Werblog]...

Posted by DeLong at 07:16 PM

I Want My Broadband Telecom Competition!

I look out my bedroom window to the northeast. There, a third of a mile away, on top the hill, stands a forest of wireless antennas. Why, oh why, is my only choice for broadband the cable modem? Why, oh why, is no one interested in selling me wireless broadband? I WANT MY BROADBAND TELECOM COMPETITION, DAMMIT!! Broadband competition might still be possible: When anyone asks how to find innovation in technology today, I answer, ``Look where you don't find monopoly control or crushing regulation.'' One such place is in wireless communications, specifically in the open-to-all part of the airwaves, and lately I'm seeing some things that give me hope for the broadband future America so desperately needs to create. Regulatory missteps and marketplace misbehavior are creating a dangerous duopoly in the ``last mile'' of data access to our homes and small businesses. Unless wireless can compete, the regional telephone and cable monopolies will control communications well into the 21st century. I'm beginning to think that wireless can compete, because of enormous recent innovation in what's called the ``unlicensed spectrum.'' That's the part of the airwaves not controlled by government or specific industries and companies. The rise of the 802.11...

Posted by DeLong at 07:52 AM

February 21, 2003
Telecom Regulation Is Very Hard

Telecom regulation is very, very important and very, very hard. The very smart Kevin Werbach tries to provide a summary of what the FCC is thinking--and why. It doesn't look good, at least not from where he sits: Another telecom scenario: Dana Blankenhorn sees a silver lining for DSL providers like Covad and Earthlink in yesterday's FCC decision. He thinks they can use wireless to bypass the Bells. The big problem I see is that they will need capital to adopt this strategy, and Wall Street is unlikely to give it to them in the current environment. Microsoft and Intel have an opporuntiy to influence the outcome, though. Microsoft put several billion dollars into cable a few years ago when cable stocks were tanking. The investment and vote of confidence helped pull cable into its current broadband lead. What the FCC was thinking: How could the FCC take such damaging steps for competitive broadband, when it was supposedly pulling back on Chairman Powell's "deregulation" agenda? The answer is in Commissioner Martin's statement. First, he says this was a compromise between "competition" and "deregulation". These two words have mystical force in telecom policy. If you live in the Beltway echo chamber...

Posted by DeLong at 01:52 PM

August 14, 2002
Bob Frankston Thinks the Economist Is Wrong

Bob Frankston believes that the collapse of the telecom industry is a sign not of the problems but of the health of the economy and its underlying technological revolution. It's not clear to me whether he has complete control over his argument or not. But I do think that there is something sound and interesting underneath. Telecom companies plan on charging us for services that run on top of basic connectivity. But Frankston thinks such services are trivially cheap to create "...with effective Internet connectivity the voice telephony business is like the typewriter business. The whole industry is worth no more than a simple software program that can be written by a single high school student...." Thus in his view we need not a telecom industry but a barebones connectivity industry... The Economist, the Internet, Telecom and the Dow ...the Economist has had problems coming to terms with the Internet.... I suspect that the reason is simply that the reporters (or editors) confuse the businesses done using the Internet with the Internet itself. The Internet... is simply a way of providing connectivity by simply packaging bits in uniform packets and then delivering them anywhere else in the world. That's not...

Posted by DeLong at 09:00 AM

June 21, 2002
A Primer on Disruptive Telecommunications Technologies

Just when I think I am beginning to understand what is going on in telecommunications, a whole new bunch of technologies I cannot evaluate suddenly appear on the horizon. Here the Economist provides a primer for what may happen next: | Economist.com | Watch This Airspace | Wireless Telecoms | IT IS more than a century since Guglielmo Marconi pioneered wireless data transmission. Yet, if the current pace of innovation in the field is anything to go by, wireless technology is still in its infancy. The surge in popularity of mobile phones--their number will overtake that of fixed phones during 2002--has prompted both established firms and start-ups to investigate ways to make phones more efficient and versatile. At the same time, the Internet is going wireless, driving a separate wave of innovation as the Internet's legendary ability to disrupt traditional ways of doing things enters a new arena. It is too early to see where all this might be leading, or even how these two waves of wireless enthusiasm will fit together. But the parlous state of the wireless-telecoms industry, and the difficulties surrounding the deployment of "third generation" (3G) networks in particular, could be taken as evidence that...

Posted by DeLong at 01:36 PM

June 13, 2002
The Fall of Global Crossing

A while ago I foolishly opined that Enron had collapsed because of bad management and accounting fraud, but that Global Crossing had gone bankrupt because it had been a high-stakes highly-leveraged bet on the future of telecommunications demand that had gone wrong. Looks like I was wrong Fortune.com GLOBAL CROSSING: The Emperor of Greed With the help of his bankers, Gary Winnick treated Global Crossing as his personal cash cow--until the company went bankrupt. FORTUNE Monday, June 24, 2002 By Julie Creswell with Nomi Prins Michael Nighan couldn't believe his eyes. As Global Crossing's North America director of regulatory affairs, one of Nighan's tasks was to review all of the startup telco's marketing and sales material. But what confused him in late 1999 was a map of Global Crossing's network that showed a fiber-optic loop around the continent of Africa. "What's this?" asked Nighan. He was told it was Africa One, an undersea broadband cable that Global Crossing planned to build for a group of telecom carriers. "But I said it didn't belong on a map of our network because one, it doesn't exist, and two, even if it did exist, it wouldn't belong to us," says Nighan, who left...

Posted by DeLong at 10:08 AM

June 08, 2002
Meanwhle, We Have Our Own Telecom Mess: HDTV

A good column by Alan Murray in the Wall Street Journal on what went wrong in the current High Definition Television mess here in the United States. But it leaves me somewhat unsatisfied: Alan doesn't tell me how we should have done it right--save to say that we should have relied on markets. But how, exactly? WSJ.com - Article POLITICAL CAPITAL By ALAN MURRAY A Lesson About Deregulation: Failed Policy on HDTV IllustratesWhy Free Markets Can Be Trusted The lobbyists and policy makers pushing for a national policy to promote broadband Internet services should take a lesson or two (or three) from the government's last dive into industrial policy: high-definition television....

Posted by DeLong at 02:06 PM

June 07, 2002
Europe's 3G Telecommunications Mess

Business Week Online:Tale of a Bubble Europe's phone giants--after spending half a trillion dollars on licenses, acquisitions, and networks--are treading madly to stay afloat in a sea of debt. Chairman Ron Sommer of Deutsche Telekom (DT ) is sitting on $60 billion in liabilities... And the mobile Internet? Oh that. In fact, the high-speed project known as 3G is plowing ahead, though on a smaller scale than anticipated and a year or two behind schedule... as early as next year... shuttle data at the speed of a broadband connection In its origin, the European plan to auction off licenses for "3G" wireless phone service seemed an obvious win. Make sure that bandwidth gets in the hands of those who value it most--rather than the older custom of distributing it for free to the politically powerful who may or may not know what to do with it--by giving it to the high bidder, and in the process earn a little revenue for the government by making the auction prices transfer some wealth from information-economy entrepreneurs to the general public. But the licenses were auctioned off at the very peak of the information-economy bubble. Very few telecommunications executives were smart enough to...

Posted by DeLong at 10:51 PM

January 18, 2002
Wrestling with ATT Broadband: Why Vertically Integrated Monopolies Are Bad Things

A couple of years ago I was one of many co-authors of an article, "Access and Innovation Policy for the Third-Generation Internet," that begged and pleaded with the FCC to mandate competition in the business of providing cable-modem customers with internet connectivity. The FCC appeared on the point of allowing cable companies to deliver their cable-modem internet customers, hogtied, to a single monopoly Internet Service Provider (ISP) chosen by the cable company. This was in striking contradiction to the regulatory thrust of the past two generations, which had required natural monopolies to open up their services and provide a level playing field to all who wished to connect and compete for the business of their customers. The FCC did indeed decide to let cable-modem companies--in my case, ATT--require that I purchase ISP services from its choice of one and only one provider: @Home. This did indeed have the effects of diminishing the pace of innovation and the quality of service: since I couldn't go elsewhere and still use my broadband cable-modem connection, what incentive did @Home have to care? But the absence of competition had still worse effects. @Home crashed into bankruptcy. Because it had been the monopoly supplier of...

Posted by DeLong at 10:20 AM

February 14, 2000
I Want a Broadband Provider That Will Care More About Providing Good Service

I HATE the fact that I am--because of problems with getting DSL to my neighborhood, and the lack of wireless broadband options--enserfed to ATT broadband. The whole purpose of a market economy is to give me options: if I don't like what one is selling, I should be able to try out another... Defending the Internet Revolution in the Broadband Era America's stunning success in promoting the Internet revolution owes a major debt to determined regulatory action that encouraged all aspects of network openness and interconnection. America Online and other Internet service providers, not the Regional Bell Operating Companies, popularized mass subscriptions to the Internet. Personal computers, the Netscape browser, and Cisco, not AT&T, drove the architecture of data networking and the Web. All these innovations were possible because the Federal Communications Commission decided in the 1960s that the emerging world of data networking should not be treated like voice telecom services. Therefore, it exempted all forms of computer networking from much of the regulatory baggage--including fees to fund various cross-subsidies for voice telecom services--involving the telecom network. Regulatory policy forced open access to networks where the monopoly owners would try to keep things closed......

Posted by DeLong at 04:34 PM