Telechasm
Gilder, George
TELECHASM The entire telecom sectorDwhat I lack of market distribution systems. term the Telecosmnis engaged in the Although the industry was not free of heroic build-out of an infrastructure...
...No help were the antimonopolists at the Justice Department who had permitted JDSU's merger with pump-laser maker SDL only on condition that it sell its own pump-laser facility to rival Nortel...
...Like any pricecontrol scheme,Telric chokes offsupply, taking the profits out of the multibillion-dollar venture of deploying new broadband pipes...
...But in dynamic technology markets, monopolies are inevitable, virtuous and fleeting...
...term the Telecosmnis engaged in the Although the industry was not free of heroic build-out of an infrastructure strategic missteps, the heart of the BY GEORGE GILDER A s John E Kennedy once observed, life is unfair...
...Every innovation creates a monopoly at the outset...
...thousands of times more cost-effective than today's...
...High-yield debt is similarly crucial to the new infrastructure of all-optical networking, led by such companies as Global Crossing, Metromedia Fiber, MCI-WorldCom, Nortel, Corvis, and hundreds of venturebacked startups...
...Compounding that are "open access" and "unbundling" rules that require companies installing advanced Internet gear to share their pipes with competitors...
...For debt-burdened companies, nothing is so oppressive as deflation, which makes telecosm leaders pay off debt in appreciating dollars, while cash flows and collateral decline...
...An efflorescence of new laser and amplifier technologies~from such companies as NP Photonics and Princeton Optronics~was already making conventional pump lasers 12 THE AMERICAN SPECTATOR 9 SEPTEMBER/OCToBER 2OO...
...Typical is an FCC policy called Total Element Long Run Incremental Costs, or Telric--a price cap on what telcos can charge for links to homes and businesses...
...This summer's $44.8 billion write-off and $8 billion loss by JDS Uniphase signals the devastation of history's most promising communications technology...
...Extending the promise of interactive video as pervasive as voice telephones are today, such projects far outstrip the resources of venture capital...
...Meanwhile, the Bush "tax cut" degenerates into a ten-year gantlet of meaningless shifts and shuffles, OPEC persists in its wanton gouge and regulation strangles the broadband Internet...
...The Bush economy, unfortunately, not only possesses no such immunity to bad policy, but also is gravely vulnerable to policy mistakes accumulating by the end of the Clinton term.A high-tech depression is under way, driven by a long siege of obtuse regulation and deflationary monetary policy that has shriveled hundreds of debt-laden telecom companies and brought Internet expansion to a halt...
...Moreover, until the election year of 2000, Clinton actually pushed the economy along, with beneficent trade policy, an astonishing opposition to Internet taxes and restrictions, and a 30 percent capital-gains tax cut...
...The only reason for the so-called "fiber optics glut" is the near-deliberate starvation of connections to homes and small businesses...
...Every dot-corn was betting on it.The glitches and delays of dial-up modems abort 70 percent of all intended Internet transactions.They scuttle the business plans of thousands ofdot-coms and Internet service providers, not to mention vendors of streaming video, distance learning, video telecommunications and Internet malls...
...Designed to prevent "monopoly rents" the Telric cap is based on an estimate of costs that would apply in a fillly competitive environment, when bandwidth is a pure commodity...
...Favoring the previous buildout were real supply-side tax cuts, an OPEC tax collapse, deregulation and general monetary stability, followed by soaring cash flows and valuations...
...TELECHASM The entire telecom sectorDwhat I lack of market distribution systems...
...Channeling most economic activity away from Clinton's tax hikes and into Internet related equities, the capital gains tax cut and pro-net policies yielded hugely more revenues than were projected by demand-side models...
...Essential to the Internet economy is the expectation of a steady increase in the speed and capacity of connections...
...The absence of broadband local loops also withers the all-optical Internet...
...See "The Deflation Monster," p.52...
...Some monopoly...
...monopoly rents offset the costs of bringing it to market...
...Impelled by the spread of the Internet, the onset of fiber optics and a tenfold increase in venture capitalnunleashed by the deregulation and lower tax rates of the Reagan administration~the Clinton economy had it made...
...No entrepreneurs will invest in risky and technically exacting new infrastructure when they must share the fruits with rivals.At first restricted to telcos, openaccess rules have since been extended to cable, where they stymied Michael Armstrong's bold plan for AT&T to compete with the Bell companies using cable TV plant...
...Mired in the wake of Clinton's late-term errors, George W. Bush is making a muddled effort to mimic the Gipper's leadership, while following public opinion...
...By contrast, today's far more promising new infrastructure is withering in the face of monetary, tax, and regulatory blunders...
...But there the similarity ends...
...It took $200 billion in junk bonds from Drexel Burnham and others to sustain the previous build-out of optics, cable, and electronics, led by MCI,TCI, McCaw Cellular, Sprint, and NewsCorp...
...Followers of public opinion, however, ultimately earn the contempt of a public that is hungry for leaders who forget public opinion rather than flatter it...
...George Gilder is the author 0fTelecosm, editor of the Gilder Technology Report and Chairman of Gilder Publishing, LLC...
...The goal again is to stop monopolies, but the effect is to privatize the risks and socialize the rewards...
...It is a classic socialist famine: the warehouses are full but the people are starving, for problem is intrusive regulatory policy in an era of deflation...
...As the lucky heir to the fruits of Reagan leadership, Clinton could pander without peril.When Clinton assumed office, I declared he would enjoy one of the greatest economic booms in history...
...Bill Clinton's presidency profited hugely from proximity to the last successful Republican regime, the Reagan administration...
Vol. 34 • September 2001 • No. 7
