Editor’s note: Russ McGuire is the online director of Business Reform Magazine. Each issue of Business Reform features practical advice on operating successfully in business while glorifying God.

Last week, Andy Kessler shared in the Wall Street Journal his theory that we are about to experience a “Superball Economy.” He claims that this is the sixth time that the technology sector has gone through intense compression, only to shoot back upwards, propelled by the very falling prices and shrinking products that seemed to indicate doom and gloom.

I wish it were so.

Unfortunately, the continuing re-regulation of the telecom industry has eliminated much of the potential for compressed technology costs to feed new products and services to fuel the kind of rebound Andy described. Specifically, the greatest opportunities rely on broadband data connections into homes and businesses, and regulatory blunders are keeping those connections from being widely available and/or affordable.

The Telecom Act of 1996 was trumpeted as groundbreaking deregulation that would spur competition, consumer choice, and reduced consumer prices. Unfortunately, this massive document was truly re-regulation, imposing tremendous new requirements on existing providers to submit themselves to regulatory scrutiny without truly creating an environment conducive to mass market competition.

Unfortunately, for all of us, this reality wasn’t recognized until billions or trillions of dollars were spent building companies and networks intended for an open, competitive, dynamic market. Most of these companies have failed, leaving investors and creditors with nothing to show. Some of these networks lie dormant, waiting for a day when broadband connections will truly open the floodgates to the potential applications envisioned by their builders.

However, the FCC’s continued missteps have caused the Bell companies to send the clear signal that they have no plans to aggressively build those broadband pipes.

There are examples of the kind of growth described by Mr. Kessler and fueled by broadband deployments. Most notable is South Korea, where broadband has been adopted by more than half of all households and very high speed connections are anticipated to be available to over 80% of households by 2005. This investment has sparked tremendous growth in new, unanticipated sectors, while even traditional activities, like stock trading and government have seen surprisingly dramatic changes.

I’m not proposing that the U.S. try to replicate Korea’s model – there are many differences between the two countries that would make it impossible or at least tremendously unpalatable for taxpayers. However, it is striking to see the different results wrought by pro-innovation government policy versus over-regulatory government policy.

There may still be hope for U.S. broadband, but it is dim and looking dimmer. The best hope may lie with new broadband wireless data networks. Cometa Networks, a new company formed by IBM, AT&T, Intel and others, plans on building 20,000 wireless Ethernet hotspots across the country. However, even this massive build out likely will not reach the majority of homes and businesses, and there is not yet a clear model for profitably offering these services at a price point that will attract mass adoption.

Until the bandwidth bottleneck is broken, the proposed “Superball Economy” will be constrained to the relatively narrow set of beneficiaries that can connect to vast server farms and other tremendously powerful resources over the huge fiber networks that have been built across the continent and beyond. The vast majority of consumers and small businesses will remain isolated from this potential boom by the thin pipes and/or unjustifiable high prices in place today.

There are no easy answers for overcoming these challenges, and to pretend they don’t exist is as foolish today as it was during the bubble.



Russ McGuire is Online Director for Business Reform. Prior to joining Business
Reform, Mr. McGuire spent over a dozen years in the telecom industry, serving as Chief Strategy Officer for TeleChoice and Vice President of Strategic Development for Williams Communications, among many other roles. Mr. McGuire is currently focused on helping businesspeople apply God’s eternal truths to their real-world business challenges through
Business Reform’s online services.

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