Serialisation: The Great Telecoms Swindle - part 3

The role of deregulation in The Great Telecoms Swindle, and how it led to a glut, is the subject of the latest excerpt from Keith Brody and Sancha Dunstan's new book...

The axis on which this story tilts is technological progress. The initial rise of the telecoms market was fuelled by the onset of competition, subsequent changes in the way we as consumers use telecoms services and the promise of even more exciting services to come whose launch lies just around the metaphorical corner. The fall was, to a great extent, brought about because of complications and obligations that arose from those conditions.

Putting that aside for a moment, if one positive word (as opposed to Swindle) can be said to hallmark the world of telecommunications over the past decade it is probably the word 'innovation', the source of the progress to which we earlier referred. As the industry never tires of telling you, its future will stretch even the boundaries of our imaginations.

If you now wander over to your telephone, it is a near certainty that should you choose to make a call, you will pay a high price to do so over a low-speed network. Cheap, high-speed, broadband internet connections reach the home mainly in the form of newsprint, as indeed do their futuristic mobile counterparts. Somewhere along the line, this fact is one of the many Great Telecom Swindles. When British Telecom was broken apart from the Post Office (to cite but one example), the art of actually delivering the goods was apparently lost.

As we have seen, many factors bear a causal relationship with the telecoms crash. The significance of each, as the industry lurches through the present crisis, is a matter for some debate. In the US, the common argument now is that the FCC, the main telecoms regulator, is in large part to blame for the failure of liberalisation because in allowing new entrants to enter the market by piggybacking on existing operators' infrastructures (such as the Bell companies'), investment was discouraged. The competition that resulted was thus to some extent false.

The same problem appears to be very much true in Europe, where regulators have in general taken an insipid and uninspired approach to tackling the entrenched dominance of the former monopolies. In the UK, BT's grip on the telecoms infrastructure has been loosened only at a tortoise-like pace as it has zealously guarded the local loop, though the former monopoly's own inability to function effectively as an independent has nevertheless ensured that the tortoises remain in the race. Perhaps the energy in some cases devoted to postponing the inevitable - no matter how slowly it might come - might better have been devoted to preparing for the future.

The result of deregulation, in so far as the fruits of a grand design have on occasion been decidedly and unnecessarily limited, has been somewhat disappointing though groundbreaking and of undoubted benefit to the consumer nonetheless. We have seen huge sums of money poured into the telecoms market on the strength, amongst other things, of liberalisation being introduced. The payback to date has been substandard, to which injury the crash itself has added only insult.

Deregulation was founded on a vision but the determination and clarity of thought needed to bring it to reality has been broadly lacking from the statement of original intent. It is now clear that more investment will be needed to revive and rebuild the telecoms market and one can only wonder whether investors will be queuing up to provide it given their experiences in this apparently open market.

What of the internet boom? Is the great IP network migration and the forthcoming shift in our usage of telecoms services merely a shadow the telecoms market has now chased over the precipice by building networks for traffic which will never arrive?

There is little doubt that the Field of Dreams scenario ("Build it and they will come") energised the business community and resulted in much investment in the course of recent years. Yet that investment has spawned a world wrapped in cable for which, at the present time at least, there is little use and for which, furthermore, there may be no use in the foreseeable future at least.

A further problem is that whilst the amount of fibre available grew, simultaneous advances in technology have meant that the capacity of fibre itself has increased even more quickly, meaning in fact that less fibre would be needed to carry the same volume of traffic as before, and proportionately less fibre will be needed even as traffic increases. Was no one in the telecoms industry talking to anyone else? Were the words 'due diligence' altogether absent from the industry's decision-making processes?

Furthermore, the fibre that was laid was duplicated as companies sought to compete against each other. Thus, miles of new fibre simply replicated more new fibre that had already been laid in the ground.

The combination of deregulation and the next-generation world proved to be a volatile mix. The former created a band of pied pipers, competitive carrier newcomers who splashed money on establishing themselves and building their businesses, and thus they sucked into the competitive vortex only-too-eager-for-the-spotlight established giants who effectively bought into their new rivals' business plans and felt they had to compete like-for-like. All, ultimately, were to reach the edge of the cliff. Some have crashed over the precipice while others teeter on the brink. Very few stand back at a secure distance at the present moment in time.

And thus, Gotterdammerung. When the signal event of 3G licences saw the market hoisted by its own petard, the fall was swift and ruthless. The smart move now, for many who bid, is to simply write off the billions spent (wasted) and to wash your hands of the whole mess.

3G's negative impact may have been directed at the mobile sector but once the first domino went down the fallout wasn't limited to a single segment. Competitive carriers in the fixed arena fell into financial disarray as the investment community lost faith in telecoms generally, in turn taking their equipment suppliers with them.

The former incumbents and other giants have largely managed to keep their heads just about level with the waterline, though in real terms their falls have been equally spectacular and only governmental lifebelts (in the form of handout financing packages) keep them from the same fate as many of their newer adversaries. It is only the largesse of governments that continue to stand behind former monopolies such as France Telecom and Deutsche Telekom that has prevented an even greater implosion than that experienced to date. The former owes E60bn, the latter almost ten billion more.

The industry lies in near ruin

Tomorrow: The blame game.

Part 1 - A swindle exposed - http://www.silicon.com/a57095
Part 2 - The false economy - http://www.silicon.com/a57097