Is the ‘new economy’ too costly?

Last week’s closure of Motorola’s Bathgate plant resulted in 3,000 UK job cuts, adding to the 100,000 telecoms workers laid off worldwide. Some say this is down to ‘greedy’ governments, while others blame the telecoms companies themselves.

Greedy governments? by Will Hutton Chief Executive of the Industrial Society

The thousands of UK job losses announced by Motorola last week represents another twist in the plot of the continuing calamity of the global telecoms industry.

Over the past five years European, US and Asian telecom companies have run up more than $700bn of debt as they scrambled over each other to bid for a piece of the communications action. A conservative estimate is that at least £100bn will never be repaid.

Over the plast 10 weeks more than 100,000 people worldwide have lost their jobs in the industry.

So who’s to blame? Industry analysts and others point the finger at governments. They believe that if governments hadn’t been so greedy – and let’s not beat about the bush – stupid, then this debacle wouldn’t have happened.

Greedy bureaucrats

Nigel Dayton of Gartner’s was quoted in The Engineer last week as saying that it was ‘shocking’ the government should complain about job losses at Motorola when in reality they were to blame for charging £22.5bn from operators in the 3G licence auction.

So that’s all right then. Now we know. The companies and investment community can sleep easy knowing it was nothing to do with them. Au contraire, it was all the fault of greedy bureaucrats in Whitehall who knew nothing about the global telecoms industry and couldn’t be bothered to find out.

Wrong. As the government said, it was the companies which agreed on what to pay for the new licences. It was they who paid too much, despite their army ofanalysts and expert advisers, themselves urged on by the plethora of independent advisers from UK investment banks keen to earn fat fees from encouraging these companies to run up record debts.

Put simply, the irrationality of the companies – along with a fair dose of greed – is a condemnation of the way unmanaged and deregulated markets work.

The UK, or anywhere else for that matter, doesn’t need a multiplicity of mobile phone and broadband networks in the same way that we don’t need a multiplicity of gas, electricity or water distribution networks.

Private monopolies

What will happen is that there will be a wave of mergers and takeovers among the smaller telecoms companies and some cross-selling of strategic stakes, so leaving us with a few powerful, private-sector monopoly networks accountable to their shareholders, instead of public ones that are accountable to all of us.

Telephone networks are natural monopolies and public goods. With telecoms the public good is best served by ensuring that as many people as possible are offered cheap access.

Privatising a natural monopoly merely allows the owners of that monopoly the chance to create debt mountains with all the attendant risks and consequences. I think it is on this point that we require governments to think again and ditch outdated free market ideology.

Governments get many things wrong. But on this occasion they are not the ones responsible for this global mess. The telecoms industry is. It’s about time we realised that the emperor has no clothes.

Reach for your handset, call the PM

by Christine Buckley, industrial editor of The Times

The next generation of mobile phone technology promises a host of exciting things.

Users may watch a film while they wait for the train home, or use video conferencing facilities to show where they are – presuming they are still at the office and not at the pub. They will be able to send e-mails and surf the web far more effectively than is currently possible through WAP phones.

But the telecoms industry could be in for a resounding shock… many people may want their mobile phones primarily for a comparatively humble reason – a phone call.We could already be seeing the warning signs of a huge lack of interest in 3G mobiles in the current handset glut which has engulfed the industry and led to warnings of 30,000 job losses worldwide.

The expectation that people will carry on wanting the latest bells and whistles on their phones is, it seems, being blown apart.

Singapore has cancelled its 3G auction, despite being a nation obsessed with the latest gadgets. The industry looked at the market and decided the take-up just wouldn’t be worth the huge sums expected for the licences.

The realities of telecoms falling to earth is proving a headache for our government, which has been so keen to trumpet the advantages of the new economy. One minute ministers are talking up the high-quality nature of telecoms jobs, the next the prime minister is reaching for his own handset to beg Motorola not to cut 3,000 jobs in Scotland.

The fact that he and other Cabinet ministers could do nothing to prevent the closure of Motorola’s Bathgate plant is even more humiliating. Other speculated telecoms jobs that were supposed to provide some amelioration for the large job cuts planned in south Wales by Corus look unlikely to materialise.

Fundamental problem

The government also has another fundamental problem: the growing clamour from heavily indebted telecoms companies that they need assistance to help soften the blow of the huge sums they were forced to pay for the licences. Effectively, they want some of their money back.

The government, which does not have the same huge stakeholding in the main national telecoms provider as do France and Germany, is unlikely to want to hand back wads of the £22.5bn it made from the licences. But it is coming under pressure to extend their length, to allow companies to share infrastructure, and to wave through planning applications for more than 30,000 phone masts.

This government has always seemed keener on championing new economy industries than traditional manufacturing no matter how technologically sophisticated it now is. It may be finding now that a large part of the new economy is built on sand.