Phone Power; On the cheap: Asians are buying up U.S. digital networks.(Cover Story)

Byline: Rana Foroohar (With Jonathan Ansfield in Beijing and Jason Overdorf in New Delhi)

Pity the poor western telecom. The digital networks on which American carriers spent billions in the late 1990s are being snapped up in fire sales by foreigners--and Asians are leading the pack. Since last year Global Crossing has been purchased by Singapore's ST Telemedia, Flag by Reliance of India. Now Tata of India is bidding for the network built by scandal-ravaged Tyco.

The buyouts, some of which have been done for a mere 10 cents on the dollar, are only part of the story. Asian telecom manufacturers are also gaining steam, with Chinese companies like Huawei and ZTE challenging Western rivals such as Cisco and Siemens. The new reach of Asian telecoms has two dramatic effects: cheaper calls worldwide, and a boost to the regional economy--from Indian call centers to Chinese and Korean manufacturers. "Instead of being small players who have to pay big fees to use the international networks of companies like MCI or AT&T or France Telecom, some of the Asian telecoms can now sit down as equals and simply swap the use of the networks for free," notes OECD economist Sam Paltridge. The result, he says, is "cheaper calls for all of us."

With more traffic routing through countries like China, a political ...