Let Them Eat Fiber

George Gilder
American Spectator
May 1, 2003
Print ArticleTo the annals of arrogant irresponsibility - along with "Let them eat cake," "Saw off California and float it out to sea," and "depends how you define sex" - can now be added a new shining example of suicidal insouciance. Perpetrator of the new "What, me worry?" madness is the Federal Communications Commission which, under the leadership of Michael Powell and his one-time protégé Kevin Martin, is inharmoniously fiddling away amid the smoldering cinders of the communications sector.

Although the rationalizations for this travesty are difficult to hear through the hill of the Washington rumor mill, detectable themes include "Give telecom to the states" ... "Let them eat fiber" ... and "Saw off broadband and float it to Asia." Indeed, the largest effect of the fiddling is to surrender U.S. leadership in communications technology to beleaguered South Korea and to China, the latter supposedly still a developing country.

After one trillion dollars in direct losses in market cap in just seventeen companies, together with some one thousand related bankruptcies - some $4.6 trillion in evaporated wealth since the March 2000 stock market peak - the Bush administration still is torturing telecom like a cat playing with a wounded mouse. But this cat-and-mouse game is jeopardizing the future of the U.S. economy.

With Powell and Martin - one a favored White House insider, the other a close associate of Vice President Dick Cheney - Bush can no longer blame the technology collapse on the admitted regulatory excesses of the Clinton administration. The decline in communications and information technology stocks since Bush's inauguration is now $2.6 trillion - half a trillion more than the losses under Clinton.

Industries caught in this new undertow cover the entire telecom supply chain, including communications equipment, microchips and microchip capital gear, optical components and systems, venture capital, and network research and development, all mostly down between 60 percent and 95 percent. As semiconductor stocks slump to 1996 levels, Intel and other leading-edge players bemoan the drop in demand for advanced personal computer microprocessors and memories. But the problem is no the alleged overshoot of real customer needs - it's the drastic undershoot of last-mile bandwidth needed to handle the video services for which the new processors were designed.

Powell commendably promised "fast and furious" deregulatory changes. But now he says reforms should be phased in over another two years. Meanwhile, Martin's bright idea is to have the industry submit to the mercies of fifty state public-utlities commissions. So the FCC has split the broadband bay in two and minced it in with the bathwater in an incredibly muddled decision. And everybody in Washington seems happy to believe that telecom disputes are mere special-interest pettifoggery - in this case, a dust-up between long-distance and local service providers - rather than bothering to understand what these fights really are: an expression of huge changes in the industry that make categories such as "local" and "long-distance" irrelevant.

In an era when it costs no more to call across the continent than to call across the street, a states-rights pricing system is an egregious absurdity. Improving potential cost-effectiveness at a rate of some sixfold every year, telecom can no longer prosper in a political tug-of-law among fractious state commissions, along with scores of fee-chasing mayors, and a menagerie of antitrust beadles and regularly vandals in Washington. The only locality in Optical Age telecom is the "light cone" of points reachable at the speed of light. The only hope is that an alert Supreme Court will simply ban all federal efforts to assign telecom regulation to the states, as an obvious and extreme violation of the Commerce Clause - telecom is, after all, the most interstate industry there is.

In global technology - the arena, need we point out, where economic and military power is now determined - leadership now can change in a matter of months. Just three years ago, the United States was overwhelmingly dominant in communications technology and deployment. All the leading-edge optical companies were based in the United States or Canada, and the Internet was overwhelmingly an American creation and phenomenon. Today, the United States is falling precipitously behind. Although damage to the U.S. economy is measured in evaporated wealth, the competitive losses are far more portentous. While politicians still talk of a telecom bubble, Chinese, Japanese, and Korean companies are fulfilling the business plans of U.S. firms driven out of business by the regulators.

Washington sages who prattle that there is little market for broadband should contemplate South Korea. Not only does it lead the world in wireless technology and deployment, but in boasts broadband penetration of some 70 percent of households. Amid many alibis and excuses, some in the telecom industry claim that U.S. broadband penetration of 20 percent of households - "fastest for any new electronic product" - is impressive. But real broadband of the sort Korea deploys for $33 per month runs at a pace of 8 megabits per second - ten times faster than American DSL lines and cable modems. Average Korean service is fast enough to stream a high-resolution HDTV image two ways, both into and out of a PC. Even Korean mobile wireless connections outperform most U.S. DSL links. By Asian standards, the United States has virtually no residential broadband at all.

China now has as many wireless subscribers as the United States and is moving ahead to advanced technologies far faster. It has reduced Cisco Systems, the leading U.S. vendor of communications gear, to calling in the lawyers in an effort to defend obsolescent intellectual property rather than competing through continued innovation on the frontiers of optics. Taiwan has become the world?s leading independent manufacturer of microchips and is now investing nearly a billion dollars in mainland facilities. Japan and Singapore are close behind Korea.

Much of the problem is lawyers and lobbyists called forth by the Clinton administration's million-word reregulation of telecom in 1996. The Bush administration could declare that enough is enough. With cable, satellite, and telco rivals - and a regulatory morass of multiple wireless players - the local loop is one of the most "competitive" arenas in the entire economy. Incumbent telco access lines are down 11 percent over the last two and a half years, unprecedented even in the Great Depression.

This technology crisis now jeopardizes U.S. national security. If the FCC can't or won't move, the president should ask for new legislation deregulating all broadband services. A decisive shift toward deregulation would ignite the stock market and enable consummation of the Internet revolution. America's largest recent contribution to the global economy, the Internet, can still spearhead a more robust, secure, and profitable U.S. communications infrastructure. During the alleged "telecom bubble," the cost effectiveness of telecommunications improved by a factor of 11,000 in six years. The best measure of the advanced of optical technology is wavelength-bit-kilometers, multiplying the number of wavelengths that carry information by the data capacity of each and the distance the bits can travel without slow and costly electronic regeneration. In 1995, the state of the art was four wavelengths, each carrying 622 megabits per second some three hundred kilometers. In 2002, a company named Corvis introduced a 280-lambda system, with each wavelength bearing 10 gigabits per second over a distance of 3,000 kilometers. New systems in preparation bear as many as one thousand lambdas.

But all this bandwidth in the network backbone is useless if it is not connected to homes and offices. Deployed through the world economy and extended to final users, optical wavelength technology can still unleash the boom in broadband video teleconferencing, education, and entertainment anticipated by the stock market during the late 1990s. But to fulfill this promise, Washington cannot any longer treat the industry as a political cash cow or plaything. The industry's customers and shareholders, and the nation's economy, deserve better. So does the president who appointed Kevin Martin.