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WSJ Misses the Point on Telecom

Posted by: Michael Mandel on May 23

There’s an economically misguided article about telecom on the front page of the WSJ this morning. The article starts off by saying that

Markets for cellphone services in Europe and Japan, where explosive growth spearheaded the wireless revolution in the 1990s, are slowing substantially and in some places contracting

Then the authors draw the conclusion that the cellphone market is maturing, like airlines and personal computers, and that:

What is happening in Europe and Japan is expected eventually to spread to other developed markets, such as the U.S. and Canada

That’s completely wrong. This is the beginning of the telecom revolution, not the end.

The article fails to note that overall consumer spending growth in Japan and much of Europe has been incredibly slow, measured in nominal terms. (Japan’s personal spending is barely rising, while a 3.6% increase in consumer spending in 2004 for the European Union is far lower than a 6.4% gain for the U.S.) It’s very hard for consumers to boost spending on cellphones when their whole budget is not rising very fast.

Second, and equally important, the lack of a killer app in Japan and Europe is the natural result of a “top-down” system of innovation. Everyone is happy to point to the telecom systems in Europe and Japan as being better than the U.S., with more uniform standards. But guess what, boys and girls? When you put in uniform standards early, you lose the chance for the ferment of real innovation that actually benefits consumers.

The real solution is more openness, and less top-down innovation. For more on this and related topics, see Eurotelcoblog. Despite identifying himself as a “confirmed pessimist about EuroTelcoland’s long term prospects,” he notes that

collectively speaking, the EuroTelco beast has genuinely awakened to some significant extent, and is thirsting for new ideas and approaches for digging itself out of some deep caca.

Repeating: This is the beginning, not the end.

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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