BY GREG HARRIS
Most people in the world don't have access to a phone. But if they did, and if they spoke 24 hours a day for the whole year, all those conversations could be carried over the world's telephone cables in a few hours.
This gives an idea of how oversupplied the world is with telecommunications infrastructure. The result is an unprecedented collapse in the industry.
According to the London Financial Times some US$4 trillion in stock market wealth, including around US$1 trillion in actual material investment, has been destroyed. Some 350,000 jobs have gone in the sector, alongside 200,000 in related information technology industries. Brand new million-dollar equipment is smashed up for scrap metal.
The waste defies imagination. In June telecommunications equipment manufacturer Nortel Networks set a record for a three-month loss of US$19.2 billion.
After spending 18 million euros on a Norwegian mobile phone licence, Finnish operator Sonera simply gave it back for free because it couldn't afford to use it.
In the last week of August equipment manufacturer Lucent Technologies announced that it was closing down Chromatis Networks, a business that it bought for US$4.5 billion in stock last year. Lucent's debt was classified as "junk status" by credit rating agency Standard and Poor in June, and further downgraded in July.
In the second quarter of this year, personal computer sales declined for the first time in 15 years. International Data Corporation estimates that PC chipmaker revenues would decline from US$50 billion to US$38 billion this year, reflecting the collapse of many chipmakers' employment and plans.
According to the August 1 Financial Times, major US chipmaker Motorola made the extraordinary statement: "Its markets were in such turmoil that it could not forecast its performance next year."
The September 5 Financial Times reported: "A large telecoms operator has gone bust on average every six days for the past six months." This is leading to tens of thousands of jobs disappearing every week from large equipment manufacturers.
Coming months may see bankruptcies of some major global corporations, such as the British Marconi company. From a market valuation of £34.4 billion last year, this company has now dropped 97% to £807 million.
Chasing a vision
Current telecommunications industry problems stem directly from an early 1990s vision of future consumer patterns.
Following the explosion of the PC industry in the late 1980s, the data communications industry came into its own. By then, it was clear to media and technology corporations that a mass consumer market was waiting to emerge.
In the early 1990s this was described in terms of "convergence", the idea that television, PCs and telephones would all merge into some sort of information market.
Each of the participating industries had a different vision, placing themselves at the centre of this "convergence". Telecommunications companies bet on a technology called ATM (asynchronous transfer mode). Media organisations such as Time Warner and Viacom bet on "video on demand" over cable. Microsoft launched its proprietary Microsoft Network.
As it turned out, the corporations were correct in their prediction of a fundamental change in global communication. Much to their surprise, however, all of their investments (ATM, video-on-demand, MSN and many more) failed.
The winner was the internet, an unreliable ("best effort") network most suited to email and haphazard free data retrieval (the worldwide web).
The internet provided no security or billing mechanisms, although these are critical commercial requirements. The internet also turned every user into a potential publisher. Perhaps worst of all, it was based on free standards, precluding the possibility of control by patent (in contrast to early development of film, radio and television).
In 1995 and 1996 most investment on earlier alternatives was abandoned, and hundreds of billions of dollars started to make their way into internet companies, regardless of the unsuitability of its technology.
Much of this investment was based on the mistaken belief that human civilisation was about to be transformed into a home-based mass of consumers making all their purchases on line. (By contrast, book sales at on-line retailer Amazon.com are now growing at just 2% a year.)
The internet also provided a means of circumventing telephone company monopoly through the introduction of (poor quality) international and national telephone services. This made it an ideal means of entering the phone market for new competitors (most of whom have since failed).
After decades of monopoly profits both government and corporate telephone giants started to panic. Major players such as AT&T, British Telecom and Deutsche Telekom each hired new chief executives from the computer industry and set out to recapture markets, both in their traditional phone territory and in the high-speed internet delivery area.
Huge mergers and other deals were struck, in a mood of conspicuous consumption. To give an indication, as the party wound down the Financial Times reported in April this year that one major deal-maker, Credit Suisse First Boston, had asked its bankers to reduce the cost of dinners celebrating deals to below US$10,000.
The introduction of Wireless Application Protocol (WAP) phones at the end of the 1990s was the first attempt to move the internet craze to phones (although WAP was deliberately designed to be incompatible with the internet).
WAP was a marketing disaster, but by the time this became visible the phone companies had already gone down a path of massive investment in 3G (third generation) mobile. European governments were able to sell 3G licences for a total of 120 billion euros. This cost at a time of declining markets and the burst of the internet business "dotcom bubble" created the conditions for disaster.
Everything began to fall apart in 2000. Technology stocks around the world had experienced two huge rises, late 1998-March 1999 and late 1999 to March 2000.
Share values bore no relation to the potential profitability of technology companies, almost all of which had shown no profit and some of which were valued at more than a thousand times their annual revenue.
In the middle of this collapse came the first major warning for the telecommunications companies: projections for mobile phone sales for 2000 were up to 600 million. Actual sales were 405 million (and this year have declined for the first time ever).
Productivity and profit
One major problem for the technology corporations is an inability to convert technology-based productivity improvements into profit.
As Ernest Mandel wrote in his 1962 book Marxist Economic Theory, when new production methods are introduced it is initially unclear "whether these methods will continue to bring super-profits to their initiators or if they will lead, on the contrary, to an all-round lowering of prices of production". In this industry, evidence points to the latter.
Harvard University professor Michael Porter, writing in the March 2001 Harvard Business Review, complained "The great paradox of the internet is that its very benefits — making information widely available; reducing the difficulty of purchasing, marketing, and distribution; allowing buyers and sellers to find and transact business with one another more easily — also make it more difficult for companies to capture those benefits as profits ... The openness of the internet, with its common standards and protocols and its ease of navigation, makes it difficult for a single company to capture the benefits of a network effect."
Instead, he writes, "companies have turned competition into a race to the bottom", and "simply improving operational effectiveness does not provide a competitive advantage".
Commenting on the disaster that the telecommunications sector has become, the Financial Times' September 9 editorial similarly warns "Investors must be under no illusion that high technology will improve general profit levels. It will not. The advantage of improved efficiency will be eroded by competition."
The financial pages of the world's capitalist media have for the past six months been carrying a debate on whether the US economy was heading into recession or not.
All accept that a boom has ended, but for some the "landing" would be "V-shaped" (that is, the markets could be expected to bounce back any day), while others thought it "U-shaped" (gradual slowing followed by gradual recovery). The latest theory is "L-shaped": the economy hits rock bottom and sits there.
Among the "positive" signs for the US economy are figures from the US Labor Department on non-farm business productivity. Rather than showing a rosy economy, however, one economist quoted in the August 8 Financial Times explained, "Normally in a downturn, production drops because companies are slow to let go of workers but there were many more lay-offs this time".
Technology-assisted management methods allow a business to rapidly identify a cut in demand, and sack workers accordingly. While this may improve productivity figures, it is also the traditional way of exacerbating an economic crisis.
The main argument against a prolonged recession has been continued consumer spending. Two recent results have changed the tone of the discussion, however: figures from the New York-based Conference Board show declining consumer confidence in August for the second month in a row; and the fastest rise in six years for US unemployment figures also came in August.
In the world's other two largest economies, Germany and Japan, growth has disappeared and in the case of Japan the government is now seeking the largest-ever cut in budget expenditure (which would further exacerbate the situation).
In analysing this technology collapse, capitalist observers repeatedly turn to 19th century railroad investment. While they don't mention it, among the highlights of this were the European railroad boom whose collapse led to the depression preceding the 1848 revolutions, and the US boom that collapsed into the depression of 1891.
Optimists point to the actual creation of productive railway systems during those booms. At this stage it is difficult to say whether all the telecommunications investment undertaken to date will actually result in any ongoing usable infrastructure. It certainly hasn't delivered high-speed data communications to many people.