Opinion

The Great Debate

Mobile industry stimulus, strings attached

By Eric Auchard
April 2, 2009

ericauchard1– Eric Auchard is a Reuters columnist. The opinions expressed are his own –

Some of the world’s biggest mobile operators say they can stimulate the global economy by luring $550 billion in new investment, but only with the implied trade-off that they retain their monopoly market powers.

AT&T, Deutsche Telekom, NTT DoCoMo, Telefonica and Vodafone are among the carriers who have called on national regulators to provide a “minimally intrusive” regulatory environment to encourage new investment.

In a letter to world leaders gathered at the G20 Summit in London, the industry is looking to showcase its power to create jobs and stoke business activity by arguing for rule-making that would ensure their ability to make decent monopoly profits on new networks.

A group of executives representing 24 of the world’s biggest carriers and phone equipment makers such as Alcatel-Lucent, Ericsson and Nokia also say regulators should free up more radio airwaves for their services.

The mobile industry is suggesting a lighter regulatory touch that would effectively end efforts to promote greater competition among smaller players and new market entrants.

It’s a self-serving argument, but they make strong points, worth considering.

The executives cite a study by consulting firm AT Kearney that suggests that 25 million jobs could be created and global gross domestic product (GDP) would increase by 3-4 percent over five years if upward of $500 billion in private capital is invested in new networks and services. They point to evidence that in emerging economies, a 10 percent rise in mobile subscribers boosts annual GDP growth by 1.2 percent.

Governments around the world are running up against limits to how much fiscal stimulus can be applied to get economies moving again without the money going to waste or reviving inflation. Once financial markets are stabilized and consumer confidence can be restored, it will be up to industries to drive the economy forward.

The mobile phone industry is presenting governments with a devil of a choice: Go light on our entrenched powers and efforts to reform the industry’s monopoly structure or carry on making it hard for us to invest in new businesses and do without our help in the next wave of recovery and economic stimulus.

These are just the sort of regulatory trade-offs that are an important part of what got us into the current economic mess. On the downside, the vast consolidation of the banking and financial services sector, along with steel and raw materials, have made economic recovery harder in these key sectors.

Don’t these hard lessons apply to the mobile phone industry? Economic stimulus benefits today could lead to more monopoly problems tomorrow.

Comments
11 comments so far | RSS Comments RSS

Ha, ha, very funny. So they are saying, if you (the governement) guarantee me my business, I will be able to create jobs and stimulate the economy. This sounds more and more like the guided market. This was to be expected, as Geithner’s plan basically guarantees some banks business with a state sponsered bottom line for trash and thanks to moral hazard, everyone now wants the same conditions for their own business.

Posted by Robynne | Report as abusive
 

Absolute nonsense: All wireless carriers in the US have significantly downsized even as them attempt to roll out new technology. No new jobs are being created, rather just the opposite. And in the US the issue is not availability of spectrum, it is local land use regulation and public sentiment that precludes unsightly wireless installations on every street corner. AS the old saying goes: “I’ve got a bridge in Brooklyn for sale…”

 

What?. . . First off, the world, especially the developed nations have a very good capacity with respect to cell phones. Frankly, I just do not see how more cell phones vis-a-vis monopolies moves us to the future. This $550bn they say they can attract would be of much more benefit if we created a program to, say, put a photovoltaic system on the roof of every building in the US and Europe, so we can shut down or substantially reduce the use of coal and petrol fired electric plants.

You want to stop being the focus of terrorism? (Under the theory that mid-eastern terrorism is a result of western powers, principally the US, interference in Arab countries’ politics in order to secure a steady supply of oil.) Instead of just giving the auto makers cash to ride-out the recession, take that 800,000 or so cars and trucks in inventory and spend the money retro-fitting them with PLUG-IN hybrid power plants and sell them at a subsidized price. Here is what you wind-up with:

1. Launch a new industry employing tens of thousands of people manufacturing, transporting and installing photovoltaic systems;

2. Reduce the strategic vulnerability of centralized power generation, while reducing costs for infrastructure and consumer costs, environmental impacts, substantially reduce to use of fuels of all types, etc.;

3. As most daily routine auto trips are less than 50 miles/60km (we currently have batteries for this) station-to-station, petrol use could be reduced to just what is need for long-range trips. Charge-up at home, electric drive to work, charge-up at work, electric drive home, no petrol use at all. Most of the electricity is solar at this point;

4. Between non Arab country, there is plenty of petrol to go around for North America and Europe. Thus no need to screw with Arab politics. Let the Chinese and Indian compete for that dwindling supply of oil. Guess who the Arab terrorist will be pissed-off at then. Not us;

5. Keeping the auto workers employed while not adding to the inventory problem.

There are plenty more benefits here, BUT THE POINT BEING, $550bn is not well spent to make sure there is system capacity so that every Grade School kid can have a cell phone.

 

Wow, so this is what the moral hazard has come to? This is nothing more than extortion. First it was the financial services industry holding a gun to the government’s head, and the government flinched at the expense of taxpayers. Then the automotive industry tried it, but because the automotive industry doesn’t have as strong a lobbying group as the financial sector, the government didn’t bite. Not the telecom industry is trying to extort the government. What’s next? Who’s next in line to hold agun to taxpayer’s heads? Absolutely shameful, by those who extort, and by the current administration for capitulating.

Posted by Steve E. | Report as abusive
 

And how much will artificially high prices and poor service due to lack of competition hurt economies? Lack of competition has it’s costs, they are just widely diffused across the economy so they are hard to see. Do we really believe that monopoly rents and inefficiency should be subsidized in perpetuity because these guys claim to offer a little temporary relief?

And do we honestly believe that that alleged 550 billion is just going to stay hidden under the the mattresses of private investors unless these companies get to keep their monopolies?

Posted by Bor | Report as abusive
 

The telecom industry in its current form is extremely wasteful and a burden on society and the environment. They are among the biggest advertisers, not only on TV but also by mail (Check your mailbox this week and you’ll find another glossy brochure from AT&T). They spend huge amounts on marketing. Their executive salaries, bonuses and fringe benefits are rivaled only by the biggest banks.

Telecoms should be nationalized.

There can’t be any meaningful competition in the telecom industry – because by its very nature it tends toward monopoly, or at least very strong oligopoly. You can’t have local telecoms like you have local bakeries. Or you can, but they will all have to lease capacity from Ma Bell and charge you Ma Bell prices plus their own fees. If telecom services were run by the government (e.g like the postal service), all this waste of resources could be stopped and the advantage of monopoly used to improve infrastructure.

If it naturally tends toward monopoly, then – naturally – it should be public not private.

Posted by Andy | Report as abusive
 

Where is the 500 billion dollars coming from? Some estimates put loss of wealth on par with market contractions. If an investor looses half their wealth form declines in holdings over the past year, they must decide if they are better off moving their remaining capital to another venture or stay where there at.

A vast amount of the worlds wealth has vanished as fast as it was made. Meteoric rises in valuation of investments due to market euphoria is hardly honest earnings. My guess is there remains a great deal of denial as to the true nature of the world financial situation. I don’t believe that much money is sitting on the side lines waiting for the right opportunity. Governments now remain the major source of large amounts of money for capital investment, albeit printed money.

Posted by Anubis | Report as abusive
 

I would have thought that the 3G fiasco would have demonstrated quite clearly that attempting to stimulate anything by investing in mobile infrastructure is tantamount to pushing on a piece of string.

Posted by Ian Kemmish | Report as abusive
 

If one must through money at teleco, government should attach some strings to bring more jobs to local communities. For example wireless towers can be powered by solar panels. So it will give boost to the emerging alternative energy market. Wireless industry may have to commit to “Upgrade” their buildings and power them from alternative energy sources. Real jobs have to be created and a team of auditors will be keeping an eye on them,so it will stop any “Shell game” a la Enron.

Alternative energy and more decent paying jobs can be drivers for any federal money and if this works out in couple of pilot projects, government can replicate that model to more companies.

No more blank checks to any private company paid by “Joe the plummer”. :-)

Posted by Quazi | Report as abusive
 

Article: “Some of the world’s biggest mobile operators say they can stimulate the global economy by luring $550 billion in new investment, but only with the implied trade-off that they retain their monopoly market powers.”

Yeah, right. And if you believe this, you need to take a course in Economics 101.

The Yanks left the mobile market to local operators and what happened was a hodgepodge of networks that were incompatible, whilst two technologies battled for dominance. Even today, Americans do not have the coverage that GSM does in Europe.

Why? Because in Europe the decision was top down, for one technology, the implementation of which was driven by the national authorities. Europe’s mistake was to milk the cash cow before it was delivering the milk. The GSM licenses were horrendously expensive.

This time around, with 3G upon us, there should be an attempt in just the opposite direction, that is, more competition. Just as Europe has done with fixed-wire telephony, it should do with mobile telephony. More competition brings lower prices, which sparks more usage, which provides more income for the national treasuries.

The cellphone service providers will simply have to live with the revenues that competition affords them within the marketplace and not “promise” stimulation if allowed “monopoly rents”. Mobile telephony should be treated like any other public utility that is privately subcontracted by national Telecom authorities.

It must demonstrate return to the “greatest number”, and that “greatest number” is not private enterprise profits.

Any private-enterprise argument for more American-like “freedom” to monopolize public services will only bring the “cherry picking” that is typical of such services in the US.

Posted by Lafayette | Report as abusive
 

JL: “This $550bn they say they can attract would be of much more benefit if we created a program to, say, put a photovoltaic system on the roof of every building in the US and Europe,”

Let’s not mix apples and oranges, or industries. Telephony is telephony and energy is energy.

Rather than robbing Peter to pay Paul, let’s find the right policy for each industry. Half a trillion dollars for a 13 trillion dollar economy (as is that of the EU-27), especially over a 5 year period, is not Mission Impossible inter of Direct Investment. (Don’t be mesmerized by the either the number, or the fact that the cellphone business generates damn good profits that more than justify the investments necessary.)

We need cellphones, in all their frivolous 3G arrays, perhaps as much a photo-voltaic generated energy.

We can have both, if we pick well out of the thicket applicable policy options.

Posted by Lafayette | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •