This is part of IEEE Spectrum's special report: What's Wrong—What's Next: 2003 Technology Forecast & Review.
Never, since the modern communications industry began in the first half of the 19th century, has it been in worse economic shape than it is today. Through much of last year, it was hardly possible to pick up a newspaper or business magazine without finding a story about a bankruptcy or seeing another once-high-flying magnate being deposed (or maybe even led off in handcuffs).
But what may have eluded you amid the barrage of plunging financial data and stories of lavish lifestyles are the fundamental reasons for the downward spiral. After all, users today are paying for wired and wireless services of unsurpassed variety and utility. We are pretty clearly at the dawn of a networking era in which almost everything we use—and even wear—will be capable of being interrogated and manipulated by means of reliable, always-on, always available, two-way broadband networks. The developed world, at least, is on the path toward the full distance-independent interactive engagement of all our senses.
So why is the business of communications in such dire straits? The problem is a convergence of factors, each of which would have been quite serious by itself. Unfortunately, they came not singly, or even serially, but all at once. In so doing, they triggered what may reasonably be called the Telebomb.
Five costly sins
The Telebomb has five key ingredients:
Greed. Too many companies chased too few customers and—to make matters worse—many were using similar technology.
Corporate crime. As the stupidity of some greed-inspired decisions emerged, some players misrepresented the facts by lying about their financial health (often with the connivance of the accounting and investment communities), thereby destroying investor confidence and casting a cloud of mistrust over the entire communications business.
Misguided regulation. Policies that protected incumbent phone companies but were disguised as competitive reform, like the Telecommunications Act of 1996 in the United States, were the timing mechanism for the Telebomb.
Too much debt. Global Crossing, WorldCom, Qwest, Deutsche Telekom, France Telecom, Lucent, Nortel, Verizon, AOL Time Warner, and others have incurred a collective debt of almost US $2 trillion. Until that debt is somehow made manageable, communications companies [see "Optical Fiber Overcapacity: Serious Disease or Manageable Headache?"] will find the financial markets closed to them.
A broken business model. Although the Internet is truly a wondrous phenomenon, its sudden surfacing in an industry accustomed to slow, carefully thought out ways of making progress (and 30-year depreciation cycles) has so disrupted business models that telecom companies are today giving away services that used to contribute mightily to their revenue streams.
While all the elements are strongly linked, greed and corporate crime are very tightly coupled. Along with misguided regulation, they represent categories of specific actions by individuals or groups. The debt problem and broken business model are two critical outcomes of those actions, abetted, of course, by advances in technology. And as ill luck would have it, they are ongoing, dynamic, festering conditions that make cleaning up after the Telebomb very difficult. Reducing greed, crime, and bad regulations are essential first steps for reducing debt and fixing the business model.
Each of the five ingredients is worth a brief analysis.