What Killed the Boom?(telecom industry)(Brief Article)

THE WORRY IS OBVIOUS: JUST as an expanding high-tech sector contributed to strong growth in the 1990s, so might a deepening slump in technology drag down the entire economy. High among the sources of concern is the recent meltdown in the telecom industry. Even after the dot-com collapse, a broadband upgrade of the Internet seemed sure to be the next big thing, and investors continued plowing capital into the companies supplying and building the new infrastructure for high-speed digital communications. But now telecom too has seen staggering losses, bankruptcies, and layoffs.

The specter that haunts telecom goes by the ominous name of "dark fiber." According to The New York Times, companies in the past two years have spent $35 billion worldwide laying 100 million miles of optical fiber for broadband networks, but only 5 percent has been "lit" (that is, made operational). And while long-haul lines appear overbuilt, local access remains unavailable for millions of potential customers. Moreover, there are nagging doubts about the potential profitability of video-on-demand, the application that many have counted on for the big payoff from broadband deployment.

What's to blame for the telecom bust? To some conservative writers, the fault lies as usual with the government. But, curiously, the policies they primarily hold responsible were designed to stimulate competition, and what they want the public to accept is greater monopoly power. The danger, if Congress and the Federal Communications Commission (FCC) accept their view, is that the short-term difficulties in deploying broadband could become the basis for long-term limits on the diversity of communications.

No one has been a greater apostle of broadband than the right-wing guru George Gilder, author of the book Telecosm: How Infinite Bandwidth Will Revolutionize Our World (Free Press, 2000) and publisher of the Gilder Technology Report, which offers investment tips-albeit not terribly successful ones of late. According to a widely accepted independent monitor, www.gtindex.com, Gilder's list of recommended stocks fell 44 percent during 2000, plus an additional 38 percent in 2001 (as of this writing).

But in a Wall Street Journal piece called "Tumbling into the Telechasm"--an apt description for the experience of investors who followed his advice--Gilder argues that the current "high-tech depression" stems from a series of blunders in Washington, D.C., most notably deflationary monetary policy and excess regulation. "The only reason for the so-called `fiber optics glut,'" he writes, "is the near deliberate starvation of connections to homes and small businesses."

What "near deliberate" means is unclear, but it suggests that some people in government are trying to deprive Americans of broadband. In fact, Gilder's chief examples of misguided regulations involve good-faith and wholly ...