Subject: [NEXTEL-1] University Study: Flawed Assumptions in Face of Rapid Economic and Technology Change Prolong Telecom Industry Slump

From: [email-masked]
Date: Fri, 03 Oct 2003 20:12:12 -0400

University Study: Flawed Assumptions in Face of Rapid Economic
and Technology Change Prolong Telecom Industry Slump
Source: Business Wire
Publication date: 2003-10-03

NEW YORK--(BUSINESS WIRE)--Oct. 3, 2003--
Columbia Institute for Tele-Information Recommends Changing
Economics of Broadband, Creating Liquidity, Inducing 3-Way Fixed
Line-Wireless-Cable Competition

The Columbia Institute for Tele-Information (CITI), the university's research
center focusing on strategy, management, and policy issues in telecommunications,
computing, and electronic mass media, today recommended a comprehensive overhaul
of how the global telecom industry is structured, valued and regulated as a means
to kick-start the moribund sector.
In the past eight years, telecom profit margins have shrunk more than 10 percent,
and major suppliers like Lucent, Nortel and Cisco had seen revenue drops of 42
percent, 39 percent, and 15 percent respectively between 2001 and 2002.
Concluding a six-month study titled "Remedies for Telecom Recovery", CITI director
Eli Noam said: "The main problem of the telecom industry is that it has entered a
chronic pattern of volatility, with boom-bust patterns becoming a common
occurrence rather than aberration."

A "perfect storm" of events as well as a number of fundamental and long-range
trends contributed to the bursting of the telecom bubble, the study found,
including irrational expectations for growth, inflated valuations (some based on
fraudulent accounting), overcapacity, and price pressures that reduced margins and
capital expenditures by local phone firms with no incentive to open their access
network to competitors. Significantly, the study found, Internet-based technology
for converged services has blurred distinctions among industry platforms like
telephone, wireless and cable - requiring a different look at what will constitute
competition.

"The telecommunications sector is no longer subject to the linearity of the
traditional utility business," said Noam, "but rather is plagued by structural
instability. Because it's such a capital-intensive business, competitive pressures
to reduce pricing inevitably reduce margins to unsustainable levels. This is a
flawed model for robust competition and leads to an oligopoly structure."
Supported by the Alfred P. Sloan Foundation and a number of leading global
telecommunications firms from contending parts of the industry, the study findings
are being discussed today at a conference on Columbia University campus, attended
by leading experts from industry, government, academic, financial and
not-for-profit sectors.
Among the key recommendations:
-- Short of embarking on an industrial policy of subsidies common

in many countries, U.S. policy ought to identify and eliminate
regulatory bottlenecks that stand in the way of broadband
deployment and application development, including easing of
"fair use" copyright rules for music and video content and
mainstreaming tele-work, distance education and tele-medicine
-- Deregulating retail rates where competition is likely to

protect consumers
-- Requiring service providers to make their own bilateral

agreements rather than having government regulators decide
business issues, with commercial arbitrators deciding
interconnection issues, based on government policies and
rules, if the carriers are unable to reach agreement
-- If competition makes it difficult for service providers to

invest in next generation infrastructure, require carriers to
establish infrastructure investment accounts funded by a flat
user charge on every phone number, creating the liquidity the
industry needs to reinvest in next-generation technology
-- Accelerating inter-modal competition among fixed line, cable

and wireless operators and treating each platform equally,
having equal access to content, based on open industry
standards, and contributing to and benefiting equally from
universal service support

The study was organized into seven modules, each involving workshops with
participation by leading experts from academia, the public and financial sectors,
nonprofit organizations, and the industry itself. The wide-ranging scope of the
inquiry found that many factors contributed to a precipitous industry meltdown,
including the drop in available credit and investment, and the general negative
economic impact of the September 11, 2001 terrorist attacks in the United States.

"A robust telecommunications industry is the foundation for any successful
economy," noted Noam, a Professor of Finance and Economics at Columbia Business
School. "While liberalization, deregulation and competition have been the
keystones for telecom policy for a generation, recent history suggests that a
three-legged oligopoly will in the long term be the more likely equilibrium,
whether we like it or not.  Fundamental changes in public policy as well as in the
tools for valuating telecommunications companies are required if this sector is to
lead the global economy out of its current stagnation."

About CITI

Founded in 1983 at Columbia University, the Columbia Institute for
Tele-Information (CITI) is the first research center for communications economics
established at a U.S. management school. It is one of the 15 Sloan Foundation
industry research centers, and focuses its work on strategy, management, and
policy issues in telecommunications, computing, and electronic mass media.
Additional information is available on the CITI website,
http://www.citi.columbia.edu/ . An overview of the study presentation will be
available at http://www.citi.columbia.edu/research/telecomrecovery.htm.

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