Weathering telecom’s dark and stormy night

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Weathering telecom’s dark and stormy night

An interview with former chairman of the US Federal Communications Commission (FCC),
Reed Hundt, on the future of the telecommunications and how to make deregulation work

McKinsey Quarterly, 2001 nr 4

Policy relevance:

The US is said to be some 18-24 months ahead of Europe when it concerns Internet. Europe and European policy makers can therefore learn from the US experiences and US policies. Concerning the economic tide for telecoms companies, the EU companies are experiencing a similar “dark and stormy night”.

Summary:

  • It’s a brand new experience for communications companies to be burdened by debt;
  • The “bust” of the telecommunications sector might not be good for those who were in the industry before, but will be good for those who shape the industry next (and the whole industry is far from bust, by the way);
  • The coincidence of new technologies and a procompetitive legal framework caused the information sector to double its share of the total US economy, even after the bursting of the “dot-com bubble”;
  • For a quick competitive market, litigation should be minimised. In the US a Telecoms Act from 1996 was written vaguely to please everyone, but due to its ambiguity, the authority of the FCC was challenged in court;
  • Deregulation requires constant regulatory attention. The only “real” question here is whether government procompetition policies will remain consistent;
  • It would be a great mistake and a cause of great regret if [government] doesn’t make the commitment to low-cost, high speed Internet access that is always on, for everyone and everywhere, because a right to information is essential;
  • Broadband will take off and enable new content and revenue streams; given time and leadership from government and business, it will be universal;
  • Cable is going to deliver broadband, telcos will deliver digital subscriber lines (DSL), and, when the capital markets get over their “self-induced depression”, they will fund a third source of high-speed network access;
  • Although there will a trend toward consolidation in the online content sector, there is no great risk of anticompetitive consolidation as there is enough competition to prevent this;
  • Government should encourage a return to normalcy in investment markets by governments exercising more leadership;
  • Telcos should be able to write down their investments as fast as they want to, but governments are not interested in this, because they want to keep prices down and depreciation is an expense;
  • More realistic depreciation schedules would make available billions of dollars and “if you’re into proinvestment competitive policies coupled with deregulation, it’s the right thing to do”.

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