The profile of the guys who killed the CLECS
The Continuing Crisis of Telecommunications Capitalism
Bob Fonow of RGI urges the telecoms industry to return to a more utilitarian model.
11 Nov 2002
The moral imperative of capitalism is based on the concept of surplus value. Investors risk their money by placing a controlled bet on a company's prospects. Investors expect their money to be spent building a profitable enterprise and that the surplus value created will be sufficient to repay the investors with a marginal improvement on the invested funds.
This has not happened in the telecommunications industry since deregulation and privatisation. Greed and a self-serving managerial class corrupted the capital structure in the industry.
The normal expectation is that managers will take a living wage while using investor funds to build the business. No one objects to managers being paid well from surplus value resulting from a profitable enterprise. But this didn't happen in the telecommunications industry. Senior managers in companies around the world, but primarily those in the United States, used investor money to pay themselves lavishly and out of proportion to their value to their companies or the general economy.
This had two effects. First, it corrupted leadership, which was seen as false and self-aggrandizing by rank and file workers who had no similar stake in their companies. As a result, international telecommunications executives are viewed as financial manipulators rather than technical specialists providing a honourable service to the community.
More importantly, funds effectively stolen from investors, and used as compensation vehicles for the creation of individual wealth, distorted capital markets, often with the assistance of investment banks, which profited handsomely from the process.
Over time this began to limit the funds available for new companies with promising technologies and business plans. New technology and marketing initiatives were stifled to fund companies like Worldcom, Global Crossing, Level 3 and others, with their strikingly similar products and services, investing huge sums between Frankfurt-London-New York-Tokyo and Hong Kong, while under funding other markets. This distortion is at the heart of the current malaise in the industry.
This situation will not become ameliorated until we have a philosophical adjustment in our thinking about markets and the role of capital allocations. We can look at the history of telecommunications for hints of a possible direction. Telecommunications development in the early part of the twentieth century was typified by an extreme form of competitiveness that was also misallocating investment resources. This led to government regulation in the United States and elsewhere that recognized that to a certain degree telecommunications was a national resource belonging to the commonwealth of all citizens.
It was the idea of commonwealth exercised through regulated return of capital that led to the expansion of telecommunications networks throughout the world. This is now being played out again in China, a controlled economy, where capital investment as part of a state planning process is equalling the accomplishments of the Bell System, British Telecom, etc during the late 1930s - and where telecommunications is still viewed as a social resource.
This is not to say that telecommunications is a natural monopoly or that we must return to the stifling regulation of the past. In fact, the opposite is true. The situation today is not the same as in the 1930s following the last telecommunications depression. In developed countries the network infrastructure is fully developed and turning towards a new technical infrastructure with unlimited potential for innovative value added services. Consequently, a new form and understanding of the commonwealth is required - based on new concepts of regulation - acknowledging that regulators play a vitally important role in maintaining equitable commercial opportunities in competitive markets and equitable distribution of the commonwealth.
Almost certainly, the increasing cartelization of the dominant international incumbents needs to be broken to provide open and fair network access to all companies with new technologies and a viable business plan.
The national incumbents should be reminded constantly that they were permitted to thrive without competition in relation to the services that they provided for the common good. This contract is now outdated. Especially when RBOC and other incumbent executives, who do the same job they did before deregulation, are participating in the same excessive compensation schemes as their more profligate colleagues in the long-distance sector, and therefore contributing to the same problems in corrupting the capital allocation system.
<<Yes, like colluding to kill ADSL, the CLECs and any new competing technology under the complacent eys of the FCC!!!>>>
In addition, the dominant incumbents are no longer contributing to the technical advancement of the industry since they have mostly divested research and development. They are just another service provider with no significant advantage other than the ability to provide special interest funding to suborned politicians with their monopoly profits.
In a real sense the network fabric owned by the incumbents is part of the commonwealth and this fabric must become a shared resource for the benefit of the industry - to provide the new technical and marketing initiatives needed to restart growth.
We must return to the concept of commonwealth and service to the community as the philosophical underpinning of the industry. There must be a higher motivation in the international telecommunications industry than simply the creation of massive individual wealth for the few at the expense of the many, which currently is detrimental to the development of the industry as a whole. Only when we return to a model of capitalism that is utilitarian - that benefits the greatest number of citizens, investors and employees - will investors have confidence to invest again and faith in telecommunications capitalism be restored.
Bob Fonow is Managing Director of RGI Ltd., a troubleshooting and consulting firm based in Northern Virginia. Further details are available at www.rgiltd.com.
All bandidos, Frank!!! |
