U.S. No Longer the Leader in Telecommunications?

Stephen DeAngelis

February 27, 2007

Eli Noam, professor of finance and economics at Columbia University, and Financial Times forum-member Thomas W. Hazlett had an interesting exchange about America’s leadership in the telecommunications sector [“Telecommunications leadership changes guard,” 20 December 2006]. Noam laid out his arguments as to why leadership has shifted away from the U.S. and Hazlett responded. Noam wrote:

“Every three or four years, the world’s telecommunications industry converges in an extravaganza organised by its global coordinator, the International Telecommunication Union. These gatherings help identify the state of the industry at the time –- unbridled exuberance in 1999; doom and gloom in 2003; and now, wireless and broadband expansion that is pulling the industry out of the doldrums, though much of it is run by the same large incumbent network firms which seemed passé just a few years ago. In the cornucopia it is just as important to identify absences. And one such absence was US leadership. In the past, the direction of technology was strongly influenced by US firms – telecom networks were more advanced in US, policy discussions were shaped by US models, and US government officials offered visions of the future for countries both rich and poor. Not anymore.”

Noam recalls the days when AT&T, Bell Labs, and Western Electric dominated the field then notes that today the most dominant U.S. telecommunications firm is Cisco. He notes that the Chinese are aggressively seeking to unseat Cisco and that innovative Silicon Valley firms are having difficulty finding funding and feel hamstrung by costly legislation like Sarbanes-Oxley. His most telling point is the fact that the U.S. is clearly not the leader when it comes to broadband and mobile technology — sectors that define telecommunication’s future. Noam gives the nod to Asia in that area. Noam spends a good deal of his commentary reflecting on the lack of U.S. Government leadership in the area of policy development. As I have noted before, technology always outpaces policy which creates governance gaps. Left to expand, such gaps create anxiety at a minimum and, at worst, backlash if the gaps become chasms. Noam concludes:

“This is the time to sow new seeds. Television is spreading to the internet. Users are rapidly adding their own content to the media mix. Smart wireless technologies are challenging the established system of exclusive spectrum licenses. Wireless and internet voice services are leapfrogging traditional telephony. Content access and geographic spread issues abound. Any of these trends generate issues, which, if unresolved, will slow and block development. Cellular mobile technology was originally substantially conceived in the US over 25 years ago, but American policy making choked on how to treat it. As a result, Europeans and Japanese forged ahead and the US still has not quite caught up. The question now is who will set the tone, pace, and business models for the vital infrastructure of the information age. Four years from now, it will likely be set even less by America. This will be costly for its economy and for its ‘soft power’ over global digital culture and politics. While one would wish otherwise, it seems unlikely that Congressional and regulatory leadership will emerge that is willing or capable to change a system that falls each year further behind the pace of technological change.”

Hazlett concedes that Noam “scores several true and valuable points,” but he believes that Noam didn’t tell the whole story. Hazlett agrees that government dithering cost the U.S. half a decade of development in the mobile and broadband fields, but he doesn’t see much innovation from the other side of the Atlantic either. Neither does he see the loss of U.S. leadership as a significantly negative development. He concludes:

“Whatever US policy foibles, regulators worldwide offer lots of competition. Germany enjoys ubiquitous cable television service but virtually no broadband via cable modems. That’s because policy makers have submerged the sector in a host of vertical and horizontal separation rules, deterring investment. Hence, German households rely almost entirely on DSL for broadband access, squandering competitive options. Across Europe, overly zealous regulation has similar effects, even as policy makers there look askance on the less regulated environment featured in the US (where federal courts over-turned network sharing mandates in 2004). But a January 2006 McKinsey & Co. report, ‘Entry Into the Exit,’ found that:

‘In the global marketplace, the logic of comparative advantage spreads e-commerce riches by levelling up. China’s emergence as an information age powerhouse does not diminish our aggregate opportunity, but expands it. Korea’s deployment of ultra-fast network connectivity has not pushed our net development back, but helped pull it forward. India’s efficiency in high-tech labor markets is enormously valuable to Indians – and to those millions of customers, workers, and investors around the globe who benefit from them.’

I believe that the networked world into which we have just recently entered will correctly be seen as a catalyst to economic innovation and wealth creation across nations. That is one giant leap for capitalism – US, British, or Communist Chinese.”

Hazlett’s position is much closer to mine and my colleague Tom Barnett’s. More and more knowledge is becoming as fungible as oil. Regardless of where innovations are developed the U.S. and the rest of the developed world are likely to benefit. The bone that is likely to stick in American policymakers’ necks is the fact that they may have little say in the standards being adopted by the rest of the world. This is a change from the past, but not necessarily a bad one. Tom has argued for some time that as globalization advances it will look less and less “American.” People are beginning to realize that they don’t have to be “Americanized” in order to enjoy the benefits of globalization — and that’s probably a good thing.