Book Review: The Great Telecom Meltdown

Author: Fred R. Goldstein Publisher: Artech House, Boston ISBN: 1-58053-939-4

Fred Goldstein, a long time participant in TELECOM Digest has recently written a new book on the state of affairs in telephony. The book is entitled, 'The Great Telecom Meltdown'. Published by Artech House, this 200 page book describes, in sometimes vivid detail, exactly what went wrong in the telecom industry, particularly in the past decade. Although Fred does touch on the earlier history of the Bell System, beginning in 1876 and continuing through and beyond the divestiture in 1982, the book's major emphasis is on the time frame of the 1990's through the present.

In today's telecom business environment, you have to have a good grasp of _what went wrong_ and caused the failure of so many telecom firms between 2000 and 2002 if you now expect to succeed. Some of the topics covered in this book include:

Chapter 1: Ma Bell and her Natural Monopoly, 1876-1969. Chapter 2: The Rebirth of Competition. Chapter 3: Divestiture: Equal Access and Chinese Walls. Chapter 4: The Internet Boom and the Limits to Growth. Chapter 5: The Deutoronomy Networks. Chapter 6: Losing by Winning: Wireless License Auctions. Chapter 7: Competitive Access Providers, A Costly Way to Local Competition. Chapter 8: DLECS and ELECS: An Exercise in Oversupply. Chapter 9: CLECS Winning Strategies are Met by Rule Changes. Chapter 10: Focusing on the Bottom Line. and subchapters here are: Asset Valuation is Risky. Accounting was Scandalous. WorldCom and the Limits to Mergers. AT&T Acted in Good Faith on Worldcoms Numbers. Global Double Crossing. New Services Need to Fit into the Food Chain. Old Dinasaurs Die Hard.

Fred speaks in a rather blunt way and explains what has gone wrong with the telecom industry, especially in the past few years. Fred and I have been on radio 'talk shows' together in years past, so I had some correspondence with him in email recently and asked him a few questions which are covered below:

PAT: What were the most important legal or regulatory changes that led to the meltdown?

Fred: The Meltdown happened because several bubbles burst at once. The telecommunications industry isn't one thing, it's really several sectors. They all benefited from the late 1990s boom, and they all melted down together. A lot of people have assumed that the Telecom Act of 1996 was the main culprit. But that turns out to have played a minor role. Two things really had more to do with it. First off, the 1984 AT&T divestiture created a fully competitive long distance sector, which enabled anyone to string fiber. Second, the Internet was opened to the public in 1992 and privatized. That created a huge demand for bandwidth, which got people interested in stringing more fiber. By 1998, supply was starting to overwhelm demand. This led to cheaper long distance calling rates, which killed the industry's cash cow.

PAT: How were so many investors, entrepreneurs, and even economic journalists led so far astray?

Fred: Capitalism feeds on greed and foolishness. The stock market was booming, investors were looking for places to put their money, and entrepreneurs were willing to take it. People were looking for excuses to jump onto the bandwagon. Some industry analysts even drank the flav'r'ade by believing the story that the Internet was doubling every hundred days. That one factoid helped justify billions of dollars of investment. Yet it was not based in reality. It came from a Worldcom UUNET salesman's "best case scenario", what would happen

*if* the Internet were doubling every hundred days. But it got retold and retold until the 1998 Worldcom annual report stated it as fact. Of course we now know that Worldcom's reports could be an exercise in creative writing.

PAT: Was the meltdown a surprise? What are the warning signs of a new bubble?

Fred: No, it wasn't really a surprise at all, because too much money was being spent irrationally. Equipment vendors and network operators were gearing up to handle increasing demand for dial-up ISP connections, just as the big users were starting to shift to broadband. Venture capital-fed DSL operators were lining up next to each other in crowded telco central offices, putting in several times as much equipment as the local market could possibly support. Competitive access providers were trenching fiber atop each other down the same "NFL city" streets. And the big European operators formed a round firing squad when they overbid in the 2000 UK and Germany "3G" license auctions.

PAT: What public telecom policies would be best for consumers and investors?

Fred: Policies need to encourage competition where it is economically sustainable, while regulating monopolies to prevent them from abusing their customers. The current FCC gets it entirely wrong, emphasizing the private-property nature of the telephone company's wire plant, and is moving to allow the incumbent telephone companies to take control of Internet service and even content that traverses "their" wire. The FCC then encourages competitors to string their own parallel facilities. This is entirely wrong, as the history of the past decade shows that overbuilding is rarely profitable. The only winners were the early investors who sold out to greater fools.

The outside plant is a natural monopoly, a public utility, that should be available on a cost-based nondiscriminatory basis. The FCC's "hypothetically efficient competitor" policy only works during a boom cycle like that of 1996-1999, which can never be sustained. Once the local wire or fiber is properly regulated, innovation can take place over that wire, making more efficient use of capital and therefore having a reasonable chance at becoming profitable.

PAT: And how are your sales going on the book? Is the price per copy seriously $79 per copy?

Fred: Yes, list $79, not that it was my idea -- Artech House does technical books which tend to have a small audience that is really, really interested, and can get the company to pay. Textbooks often go at that price too, since they know the audience has little choice, once they manage to get the book assigned. If the book does well enough, maybe I can talk them into a lower price for another printing.

It is moving rather well for Artech, several hundred so far, and its Amazon number has gone as high as 13,000 or so, before drifting down of course, which means they've moved a few copies.

PAT: Thanks for talking with me about this.

Fred: And thank you!


You can look on Amazon for 'The Great Telecom Meltdown' or you can inquire of the publisher, Artech House

formatting link

Patrick Townson

Reply to
TELECOM Digest Editor
Loading thread data ... Forums website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.