The Telecom Crisis

Telecom companies are staggering into the emergency rooms of the world economy, candidates for life support or even euthanasia. Long viewed as leading the way into the “information age” of productivity and enlightenment, they are suddenly presenting symptoms of what appears to be the same life-threatening disease. In the United States, dozens of companies have gone bankrupt over the past two years, with no end in sight. Lucent Technologies, the largest U.S. maker of telecom equipment, has suffered ten straight unprofitable quarters through October 2002 and recorded gigantic losses. Layoffs throughout the industry-more than five hundred thousand as of August 2002, and still counting-have eliminated many more jobs than have been created in telecom since 1996.

Abroad, the situation is no better. Eli Noam observed in the Financial Times (July 19, 2002) that the “cumulative debt of the seven largest European carriers is greater than Belgium’s gross domestic product.” In November 2002, Germany’s Deutsche Telekom announced the largest corporate loss in that nation’s history. The industry’s woes are rocking global finance, evoking comparisons to the 1980s savings and loan debacle.

Overcapacity and destructive competition, old economic scourges, have come to haunt the frontier of twenty-first century capitalism. In just one market segment, international telecom services, by 1996 there were already an estimated 470 carriers worldwide; over 4,000 by 2001. Parallel rivalries erupted in each and every corner of the industry. Where did all these companies come from? What triggered this continuing corporate stampede into telecommunications? We may thank not only Wall Street and its cheerleaders, but also-and especially-the U.S. Government: Congress, the executive branch, and the Federal Communications Commission.

Dan Schiller, author of Digital Capitalism: Networking the Global Market System, is a professor at the University of Illinois at Urbana-Champaign.