Sep 24

Written by: Bailey White
9/24/2008 10:17 AM

As I come back from a week of vacation and look at the news, I don’t think I could have picked a more turbulent week in which to travel in my lifetime. The United States is investing $85B in a single firm, AIG, and expecting to make up to $700M more available through various means to keep our country solvent. The US has already let Lehman Brothers go while previously backing Bear Stearns. Investment banking, traditionally the most assured vehicle for wealth accumulation for Ivy Leaguers, has partially and arguably largely collapsed. Outsized bonuses for staff and enormous packages for CEOs have evaporated as searching for a job becomes paramount. Remaining independent banks are transitioning to more traditional structures with increased federal insurance and the oversight that comes with it.

These are things I read today, September 20, in the Financial Times:

• “…market outcomes should not be endowed with any moral glow. Market participants are motivated by fear and greed. They will do whatever they can get away with, and laws are necessary to regulate them.”

• “It may be a generation before the free-marketers’ contention that governments should never intervene in markets can be taken seriously again.”

• “…in dollar terms, he [Hank Paulson] now seems to preside over a more massive nationalization of assets than Vladimir Putin.”

Are some of these sentiments reactionary in the face of shocking events over the last week? I imagine so, but the future outlook undeniably is for less leverage in financial transactions across the board, more government regulation, and a new humility about the power of the American free market system.

I wonder what the impact of these and other sentiments will be on our next President and the critical infrastructure of telecommunications that our company and many readers of our blog focus on. If the very core of our free market system on Wall Street shows dangerous cracks, what lesson or lessons can we take in the private and partially deregulated market of telecommunications – particularly broadband?

Over the last few years, many people have pointed to the failure of our free market system for broadband and cited the government interventions in Europe and Asia. While this is a topic of continuing debate, there is no denying that other markets have come farther, faster. I remember as an employee at Hewlett-Packard in 1995 developing internet-based software delivery that the broadband infrastructure forecast for France, Japan, and many other countries was very discouraging. The business model for broadband in Europe was based on per minute charges just as dialup had been, and overall adoption rates were very low. Thirteen years later things have changed dramatically as we well know, and the US is now far from the leader it was.

Many politicians have pointed to greed as a driver in the collapse we are seeing. I believe this blame is naïve, and that private companies have always been measured on profit and must have a goal to maximize profit that is balanced across short and long term success. The basis of a free market system is that profit motive is good, and that this motive yields the best and most efficient use of resources. Some businesses will thrive and some will fail. It is nature of a free market meeting the needs of its customers.

In spite of the recent setbacks, no one doubts the strength of our county’s free market approach. Our government’s role in the free market system is to make sure that the goals and strengths of private industry are best utilized. This is an incredibly difficult task and one that can never be 100% correct. In the case of Freddie Mac, Fannie Mae, and ensuing credit swaps, we have clearly failed.

What can we learn from all of this for broadband? First, I think we all agree that our country relies on this infrastructure for our economic success. While traditional portions of telephone and cable companies’ businesses continue under some form of regulation, broadband and internet access do not. Will our nation’s largest telecommunications companies double down on building high capacity networks for all to ward off intervention that may be increasingly likely with a new ethos that has less trust in unregulated free markets? Will broadband become a regulated service in the next few years in the US? Will US and state government more heavily invest or incentivize broadband facilities and services, particularly in rural areas? It is too early to tell, but there is much to think about and watch for in the coming months.

Tags: