[CAnet - news] Impact of Telecom and Internet on economic growth

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http://billstarnaud.blogspot.com/
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[Some excerpts from Business Week article--BSA]

http://www.businessweek.com/print/magazine/content/07_26/b4040001.htm?chan=g
l

Telecom: Back From The Dead

All those YouTube videos and MySpace pages zipping back and forth on the Net
have revived the telecom industry—and charged up the economy

In those taken-for-granted wires, cables, and computers lies a remarkable
tale of resurrection. Seven years ago the communications business, made up
of companies providing everything from phones to computer networks to
routers and switches, was laid low by the worst collapse to hit a U.S.
industry since the Great Depression. 

Over the past year, however, the telecom industry has roared back to life.
Credit a steady rise in appetite for broadband Internet connections, which
enable easy consumption of watch-my-cat video clips, iPod music files, and
such Web-inspired services as free Internet phoning. Indeed, this year
broadband adoption among U.S. adults is expected to cross the important
threshold of 50%. 

About half of the Internet's transmission capacity was going unused in 2002.
Today that pipeline has almost doubled in size, and yet the unused portion
is down to about 30%. As a result, the price that companies pay for
bandwidth in some parts of the U.S. is on the rise after six years of
declines. 

But telecom's revival has implications way beyond Wall Street. A dollar
spent on telecom infrastructure produces an outsize impact on the U.S.
economy as a whole. Indeed, a growing body of research has found that
telecom investment plays a vital role in stimulating economic growth and
productivity--more so than money spent on roads, electricity, or even
education. Communication assets generate massive benefits by slashing the
cost of doing business across the economy. 

A 2001 paper in the American Economic Review, written by Lars-Hendrik Röller
of Berlin's Social Science Research Center and Leonard Waverman of the
London Business School, concluded that the spread of land-based
telecommunications networks in 21 developed nations accounted for one-third
of the increase in economic output between 1970 and 1990. Other studies
suggest fiber-optic and wireless networks provide their own special jolt to
the economies of rich and poor nations alike. "Out of the ashes of the tech
crisis we got a world-class, spanking-new communications network," says Mark
Zandi, chief economist for Moody Corp.'s (MCO ) Economy.com Inc. "That has
been key to outsized productivity gains ever since."

The $900 billion industry looks far different than it did in 2000. The
balance of power has shifted toward Web upstarts such as YouTube and MySpace
that barely registered seven years ago. The Bell phone companies, meanwhile,
have consolidated and are furiously developing services they hope will let
them capitalize on the billions they're investing to build speedy new
networks.

It's not clear, though, how much of the value flowing from those networks
will be captured by the Bell companies themselves. The big phone companies
don't have a history of developing game-changing technologies in a
competitive arena. "They've got a high hill to climb," says William E.
Kennard, a former Federal Communications Commission chairman who is now
managing director of Carlyle Group, a large private equity firm that has
purchased some telecom assets. 

Online video barely existed in 2000. Today, fully one-third of all Internet
traffic comes from Web videos, The Landlord included. Thanks to
bandwidth-hungry services such as YouTube, global Internet traffic from 2003
to 2006 grew at a compounded annual rate of 75% a year, according to
TeleGeography. "When you compound those numbers, I don't care how much
inventory you have, it's going to disappear off the shelf," says Level 3 CEO
Crowe.

If the old telecom world was dominated by bloated regional monopolies, the
new world is a competitive mosh pit stocked with sinewy players. That's
reflected in how much more productive the industry has become. While telecom
revenues are now 19% higher than they were in 2000, that money supports just
1.1 million workers, down nearly 30% from boom-era levels. "It has gotten
unrelentingly competitive in every area: broadband, land line, and
wireless," says AT&T's new CEO, Randall Stephenson.

For the big carriers such as at&t, Verizon, and Qwest, the main challenge is
to slow defections of traditional land-line customers while producing faster
revenue growth in new markets such as wireless, Internet service, pay TV,
and advertising. The carriers must overcome their reputation for being "dumb
pipes" and prove they can fill their networks with innovative bundles of
products and services that strike a chord with customers--all while battling
cable operators, which are poaching millions of phone customers, and fending
off or making peace with aggressive new entrants such as Google and Apple.
(AAPL )



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