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Therefore, we expect to see some similarities in the productivity trends with the industries that manufacture such equipment. Likewise, the manufacture of information and communications technology ICT equipment is dependent on the supply of its components, particularly semiconductors. The semiconductors and other electronic components industry NAICS posted the third-fastest growing productivity. Table 1 lists the cumulative productivity growth of the telecommunications industries from through , along with selected manufacturers of ICT products.

Rapid increases in semiconductor processing speed in the mids drove productivity growth in the industries that are most reliant on information and communications technology. In turn, these investments in informational capital drove efficiency improvements in many other industries, lifting productivity growth in the broader U. The information revolution may have lifted productivity in information and communications technology ICT -producing and ICT-using industries, but the effect on productivity growth was not permanent for some.

Chart 1 shows that the wired industry, like the ICT manufacturing industries pictured, experienced a post slowdown in productivity growth. While productivity growth occurred, the growth rates converged closer to the average of the nonfarm business sector. At the same time, the wireless industry continued to achieve rapid productivity growth. In fact, the rate of growth nearly tripled between and The year was a turning point in many ways for telecommunications.

First, the turn of the millennium is a reasonable dividing point for productivity analysis comparisons because a business cycle began in Specifically, changes in regulations and technology in the late s resulted in a massive expansion—in the number of firms, employment, and capital investments. When the bubble burst, dot-coms and telecommunication companies alike experienced a wave of consolidation. This period also saw a break in the productivity trends of the two main telecommunications industries.

Before the year , the rapid expansion of the wireless industry did not result in a notably faster rate of productivity growth. Chart 2 shows that although wireless had much faster growth in output and hours worked than the wired industry, labor productivity growth for the wireless industry was only a little faster during the — period.

Recall that productivity is the ratio of output to hours worked. The industry output index measures the amount of services produced. In the wired industry, output peaked in Chart 2 shows that the wired industry actually produced less output in than it did in Conversely, output for the wireless industry has continued to multiply, growing at an average annual rate of The number of hours worked peaked in the wired industry in the year At that time, spending on cell phone services was slightly more than one-third of what was spent on landlines.

By , cellular expenditures exceeded landline expenditures. Although hours worked fell in wireless too, large increases in output meant that productivity increased very fast. On the whole, the wired and wireless industries displayed similarities in hours worked during the post period. Chart 3 shows that hours worked in the wired industry have declined almost every year since the peak in For wireless, hours worked grew mostly until , then began a steep descent that continued well after the Great Recession ended in The output of telecommunications carriers is a somewhat abstract concept to grasp.

Especially with bundled service plans or unlimited voice and text plans. In the early 20th century, the telecommunications industry—which meant wired—consisted of fixed i. Under the old Standard Industrial Classification SIC system, wired and wireless telecommunications services were not classified as separate industries. Wireless telecommunications, which are classified separately from radio and television broadcasting, were, until the s, more the subject of scientific research than of major economic activity.

By the time NAICS was introduced in , it was clear that wired and wireless services were distinct economic phenomena deserving of analysis. In recent years, continuing improvements to Census Bureau revenues data and BLS deflators data have allowed us to get an increasingly more detailed view of what services the wired and wireless industries provide.

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Chart 4 breaks down the shares of major current sources of revenue for both telecommunications industries. In , this figure was Internet access services contributed 28 percent. Television revenues—which include cable and satellite programming and pay-per-view—made up another 27 percent. The remaining For the wireless industry, telephony retained a Thanks to the rise of smartphones and other mobile devices, connecting to the web is also now a key function of wireless service: internet access accounted for another The rest of the revenue sources contributed The impact of the internet on both industries is enormous.

An illustrative example is the change in spending on two different types of services that transmit information and conduct commerce over long distances: mail letter-size, not parcels delivered by the U. Postal Service, and access to the internet. Chart 5 depicts the relative lack of U. Since then, this difference has continued to widen. Initially, most expenditures on internet access came from dial-up or DSL services associated with wired telephone lines.

But by , Businesses benefit from productivity increases because such growth restrains labor costs. Consumers, in turn, often benefit from improvements in service quality and from downward pressure on prices.


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Improvements in the design and manufacture of communications equipment are essential, but providing reliable, affordable connections between devices is the job of telecommunications carriers. What are the underlying causes of their productivity gains?

One way labor productivity can grow is from an increase in the quantity and quality of capital per worker. Capital means the productive resources such as equipment, structures, and software that firms use for more than 1 year. In recent years, telecommunications industries have given us new ways to work, play, and connect with people. This requires a vast array of physical assets—from desktop equipment to the 9,mile long TAT fiber-optic cable between New Jersey and Europe. If firms get more productive use out of capital, this reduces the need for labor.

Consider all the tasks that are now done by computers, or what a single truck driver can do in place of dozens of mule drivers. Because of a lack of asset-specific data for the wired or wireless telecommunications industries, BLS does not produce capital services measures at this level of industry detail. The smartphone revolution commoditized telecommunications carriers by reducing their offerings to commodity voice and data services.

The ecosystem of apps, platforms, and operating systems were controlled by Apple and Google rather than carriers. The rapid growth of smartphones did increase revenues for carriers as customers added data plans, but carriers effectively ceded the possibility offering value-added services to differentiate themselves.

The smartphone revolution also accelerated the commoditization of handsets. Since core functionality was controlled by the OS, and app stores provided a broad range of configurability, manufacturers were far less capable of differentiating themselves. Unlike previous generations of phones that competed on the basis of various designs and features, smartphone designs rapidly converged to large touchscreens, and hardware performance was differentiated primarily by how well it ran the OS, rather than distinctive features.

The form factor of iPhones and Android-based handsets quickly converged, as did app store offerings for popular apps. Since this wave of commoditization hit the mobile industry so dramatically, and is likely to spread into new domains such as energy, transportation, healthcare, medical devices, and others, it is worth understanding the origins of this trajectory of computer industry expansion more clearly.

Put simply, what are the underlying technological and industry trajectories of development that led to this outcome of commoditization driven by the US computer industry? New technologies, new management strategies, corporate organizations, and industry structures are often used to analyze these sorts of disruptions Christensen ; Funk ; Gawer and Cusumano ; Jacobides et al.

Bandwidth Bubble Bust:The rise and fall of the global telecom industry

This paper, however, argues that if we look deeper into how industries were shaped and reshaped over time, it was actually a set of political bargains during initial phases of telecommunications liberalization, which differed across countries, that set the trajectories for everything else—technologies, corporate strategies, and industry structures. This paper shows how different sets of winners and losers of domestic and regional commoditization battles emerged in various parts of the world as a result of differences in the politics of telecommunications liberation.

Global competition was shaped by the interaction of these different sets of winners and losers. Scholarship focused on technology, management strategies, and industry structures tend to treat political and regulatory factors as exogenous. This paper contends that a political economy approach, tracing how politics and regulatory processes shaped industry structures, allows for a better understanding of the underlying path dependent processes that shape global technological and industry outcomes.

The second part of this paper traces the politics shaping the different sets of winners. It contends that during the initial politics of liberalization in the s, incumbent monopoly telecom carriers with the greatest political leverage and interest to dominate the sector, given the local political and institutional system, won. The politics of telecommunications liberalization unfolded as follows:. Once antitrust suits were brought by the Department of Justice, it had little political recourse. The resulting settlements broke apart the firm in the early s. The Japanese incumbent, NTT, was politically strong and keenly interested in continuing its dominance.

It did not resist politically driven liberalization, which weakened domestic equipment firms.

A turning point

France and Germany did not liberalize until the s, providing an opening for Nordic firms to emerge as winners when mobile communications became the growth-driver from the s. The European, Japanese, and US telecommunications industries were commoditized by actors from the US computer industry, which arose from a separate but closely related regulatory context. While often depicted as market actors in a free entrepreneurial environment, the US computer industry actually owed much of its independence and dynamism to US telecommunications regulation and the liberalization process.

The nascent computer and networking industry was protected from domination by telecommunications incumbents, and was also subject to antitrust that facilitated the rise of new firms and disruptive business models.

Bandwidth Bubble Bust By Grahame Lynch

The Internet originated as a government program and was carefully handed off to commercial management, and the broader US institutional structure that enabled the rise of venture capital and the Silicon Valley entrepreneurial ecosystem fueled the structural opportunities put into place by the US telecommunications regulatory process. This paper therefore makes a claim that is not obvious to most observers and participants—that the rise of Silicon Valley commoditizers actually owes much of its origins to the US telecommunications liberalization process.

This section traces how different sets of winners and losers emerged in each of the telecommunications industries. The next section will show why these patterns emerged.


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Each entailed a reorganization of industry and business models, with incumbents facing intense commoditization pressures from new entrants bearing new technologies and business models. The advent of the Internet in the mids further commoditized carriers and displaced incumbent equipment manufacturers. New entrants began using the Internet backbone to carry voice data, bypassing existing telephony networks and further lowering long distance prices.

The real winners of the advent of the Internet were content and services firms.

Bandwidth Bubble Bust: The rise and fall of the global telecom industry

Amazon, eBay, Google, Salesforce. Carriers and infrastructure firms became caught up in a speculative bubble that led them to invest massively into fiber optic infrastructure and Internet-related business activities Kenney When the bubble burst in —, the strong Internet startups survived and later thrived, but weaker startups and incumbent carriers relying more on financial investments than new value-added businesses did not. Explosive demand for Internet backbone infrastructure equipment was largely captured by Silicon Valley startup Cisco Systems, displacing incumbent communications firms.

Cisco surged into global leadership, taking advantage of incumbent equipment firms being blindsided by the different design paradigm of Internet protocols underlying the Internet discussed further later. Lucent faced plummeting sales; in it had been larger and more profitable than counterparts Nortel Canada , Alcatel France , and Ericsson Sweden , but in it sold itself to Alcatel Lazonick and March In mobile, US carriers and equipment manufacturers lagged behind Europe and Japan.

American carriers spent billions of dollars and much of the s re-unifying the cellular market King and West , as European firms expanded globally and Japanese carriers innovated with mobile Internet services.

How is the U.S. Doing in the 'Global Bandwidth Race'?

The disruption came in the late s when computer industry players Apple and Google entered the mobile industry. Thus, with liberalization, advent of the Internet, and diffusion of mobile, neither US incumbent carriers nor manufacturers were winners. Instead, US computer industry firms emerged as winners, spearheading high value-added business models. In Europe, in essence, equipment manufacturers emerged as winners, particularly as mobile communications became the central growth driver. Carriers were increasingly commoditized.

In the s, the only major European liberalizer was the UK, in which neither carriers nor equipment manufacturers emerged as winners.

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France and Germany, until liberalization in the late s, retained traditional vertically integrated industry structures of national carriers and a closed set of equipment manufacturers prioritizing single national champion firms. This provided room for specialized Nordic firms Nokia and Ericsson to emerge with the growth of mobile. Liberalization in the s was a UK story. British Telecom was split off from the Post Office in and privatized in Competition was introduced , though cautiously, with a landline duopoly until limiting price decreases.