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Calling The Next Tech Challenge
March 26, 2004
By Robert J.
Samuelson
Although you may never have heard of VoIP, it's the wave of the
future. With VoIP -- voice-over-Internet protocol -- you can use the Internet
for phone calls. When the wave arrives is anyone's guess, but VoIP heralds
upheaval. Never before have there been so many ways to get phone service, use
the Internet or receive video images. The challenge for government and business
is to convert this apparent mayhem into an investment boom that, unlike the
ill-fated telecom bubble of the late 1990s, delivers lasting benefits for
consumers and investors.
Once upon a time, telecommunications was devoid
of choice and competition. You got phone service from one place, television from
another -- and of course there was no Internet. That world is long gone.
If you want phone service, you've got the traditional wired network,
cell phones and (soon) VoIP. In June 2003 there were 148 million cell-phone
users, up from 34 million in 1995, says the Cellular Telecommunications &
Internet Association. Of these customers, 14 percent -- especially younger users
-- say their cell phone is their main phone, and 26 percent of the rest say they
might switch, reports In-Stat/MDR, a market research firm. If you want a
high-speed Internet connection (broadband), you can get it from your phone or
cable company. New broadband wireless technologies, including one called WiMax,
may expand the choices within a few years. If you want television, you've got
cable and satellites.
The next technologies aren't just pipe dreams.
Consider VoIP.
However these predictions turn out, the new technologies
-- VoIP, WiMax, satellites -- represent enormous competitive opportunities and
threats. Suppose that VoIP succeeds big time. It might make obsolete much of the
local networks of the traditional phone companies, now worth roughly $125
billion, says Scott Cleland of Precursor Group Advisors.
Calls would
increasingly circumvent these networks. This might imperil traditional phone
companies (Verizon, BellSouth, SBC, Qwest). Cleland and others speculate that
software and hardware companies might include VoIP in their products. In effect,
Microsoft or Dell could become phone companies.
No one knows which
technologies and companies will prevail. But competition should be economically
invigorating. VoIP might drive demand for broadband, persuading millions of
households to get high-speed Internet access. (VoIP won't work with slower,
dial-up connections.) In mid-2003, about 21 million homes and small businesses
had broadband, reports the Federal Communications Commission. That's less than a
fifth of U.S. households. In 2002 the United States ranked sixth in the world in
broadband use as a share of population, behind South Korea, Canada, Belgium,
Denmark and Sweden.
The Internet's Catch-22 has been this: The small
number of homes with broadband limits the market for new Internet products;
without those products, people have less reason to pay extra for broadband. New
technologies may break the deadlock by providing new products (VoIP or something
else) or lowering broadband prices (through WiMax or something else) -- or both.
Competition of this sort involves huge risks and much investment capital. But
the largest obstacles lie in government policy and consumers' cautiousness.
Most of us don't want to try something genuinely new. We want the other
guy to try it and, once it works, we'll try it. Ironically, the
Telecommunications Act of 1996 reinforces this conservatism. The goal was to
foster local phone competition by breaching local phone companies' monopoly over
the "last mile" of wire to homes. To be allowed to offer long-distance service,
local phone companies had to share their networks -- at rates mandated by
government regulators -- with competitors that could then offer local phone
service. Up to a point, the law has worked. Phone rates have dropped, because
there's competition among many companies offering packages of local and
long-distance service.
But the competition is artificial, because it
depends on rules that are constantly rewritten and litigated. (The latest court
decision occurred only weeks ago.) Local phone companies complain they're
subsidizing competitors at unreasonably low rates. Indeed, the telecom bubble
stemmed partly from FCC rules that, favoring new companies, encouraged excessive
investment. The regulations are increasingly unjustified, because the law's
central premise no longer applies. The "last mile" monopoly is collapsing. If
standard phone service costs too much, many will abandon it for cell phones.
Aside from e-mail, the Internet offers VoIP. WiMax looms. In 1996 these
developments weren't anticipated. Cell phones and the Internet were just taking
off. In 1996 only 23 percent of Americans had used the Internet, the Pew
Research Center says.
One way or another, the new technologies are
coming. But it would be better if Congress encouraged them by phasing out the
1996 telecom act's outmoded regulatory requirements. Companies can compete with
each other in two ways: by deploying their lawyers and lobbyists -- gaining
competitive advantage through legislative and legal decisions -- or by providing
new technologies that offer superior service, lower costs or both. It seems an
easy choice.
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