Author: Debt Plagued Telecom Industry

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The government was behind the demise of WorldCom and the American telecommunications industry, according to George Gilder, author and one-time economic adviser to the Reagan and Bush administrations.

Gilder’s most recent book, titled “Telecosm: How Infinite Bandwidth Will Revolutionize Our World,” traces the failure of the American telecommunications industry to a confusing web of government over-regulation and an economy that punished indebtedness just as U.S. companies had borrowed billions to increase Internet capacity.

Gilder has written 10 books, is a contributing editor at Forbes and publishes a monthly newsletter with Forbes called the Gilder Technology Report.

On Wednesday, he gave the first of 15 lectures in Calvin College’s January Series.

Gilder laid out why he believes government over-regulation is responsible for the failure of the U.S. telecom industry, which is usually blamed on greed. He also said economic conditions combined with questionable business plans aided in the failures of companies, including WorldCom, run by his friend Bernie Ebbers.

Coincidentally, Ebbers attended Calvin for a semester years ago.

“That’s what happened at the heart of the telecom crash,” Gilder said. “All these industry guys and their lawyers trying to get a special deal created this snarl which ultimately brought it down and moved it to Asia.”

Despite conceding that U.S. telecom firms amassed huge debt between 1996 and 2001 to expand Internet capacity, Gilder seemed convinced that regulation is the primary culprit for the failure. He noted the economy experienced a period of deflation just after the massive borrowing, forcing telecom companies to pay off debt with dollars worth more than those they borrowed.

He listed country after country, most of them in Asia, that have taken advantage of American technology and what he said is our inability to use it to its full advantage.

“All of these countries have more bandwidth than we do because of this incredible tangle of regulation and litigation here when we invented all the technologies,” Gilder said.

A staggering one-third of the South Korean economy stems from Internet transactions, compared to about 1 percent in this country, Gilder said. That proves an Internet economy can work, but only if free trade is allowed.

Gilder cautioned that proposed solutions to the problems at WorldCom and Enron — which focus on the balance sheet — are not necessarily valid solutions. He quoted noted business guru Peter Drucker, saying that a company’s chief financial officer is likely to know the least about a firm’s actual business.

“Businesses are made of people and products, not abstract symbols on a ledger,” Gilder said. “That was the problem with Enron. It was all number shuffling. There was nobody at Enron who actually understood the business the company was involved with.”