Eli Noam is professor of telecom, finance and economics at Columbia. Wrote some controversial nonsense recently in the FT. There was a lot of backchannel disagreement with what Noam was saying.
Am supported by Alfred Sloan foundation and institute for telecom industry. Not aligned with any company. Had a conference two days ago on convergence. About to have on Internet consolidaton trends conference. Write for FT online.
“Let them eat megabits”. Context on WSIS in Geneva. Big push on BB development. “Why the Internet is bad for democracy”. Almost excommunicated. Big belief in democracy and Internet. But may not come together. Not so worried about short term of the journey, but also what it will be like when you get there.
Economists make distinction between microeconomics and macroeconomics
Example, in parade, stand on tips of toes get a better view. But if everyone does it we’re all worse off.
Article on why information sector may be in structural fundamental crisis. Information products have become smaller, faster, cheaper. But now bad news. We know about .com bubble, music burst, advertising dump, semiconductor slump, etc. Why do these predicaments hit the information sector?
Getting converging digital headache. Telecoms not only information industry with problems. Tend to be unstable. Two explanations.
First. Perfect storm scenario. Rare confluence of factors. Incompetent managers, regulation, bad stockbrokers, naïve investors, etc. Such confluence not likely to be repeated.
This is a view of denial. Of course things will be coming back again.
Alternative scenario is fundamental instability. Not random but systemic. Due to basic characteristics. Seeing gigantic market failure in slow motion.
When market prices do not sustain a competitive structure have market failure. We are causing it, but success has its price. Basic reason for it is information products have high fixed costs, low distribution costs. Information products becoming commoditized, open, competitive. Prices for content, network distribution and equipment are collapsing.
Becoming difficult to charge anything for content and services. e.g. music, publishing, phone calls, national news, software, academic articles, TV, radio, cable TV, etc.
Symptoms of chronic price deflation. We are both consumers and providers. Marginal cost is close to zero and doesn’t cover full cost.
The more efficient the information technology becomes the faster this happens.
KaZaA and Napster are symptoms not causes. Gets worse. There were cycles in individual industries. Overall economy aggregate smoothing. But digital convergence links everything. Tend to go in sync. Information industries go through boom/bust cycles.Information becomes commoditized and like pork bellies. Move to outsource, diversification.
Micropayments to break up value chain. Lock-in from personalization. Bundling. Anything to get out of commodity trap. Result is to postpone the inevitable.
Not everyone can be a winner from innovation. Limit to absorb rapid change over a prolonged period. People aren’t improving along Moore’s law. Believe’s you can’t run an economy based on millions of niches. “Embarassment of niches”.
As a result prices will rise following consolidation. Expansion, new entrants, new price collapse, general downward trend. Price fluctuations exacerbated by credit cycles. Outsourcing increased by collapse in telecom prices. Oversupply of transoceanic infrastructure. Outsourcing collateral damage of telcos that have bombed. As societies become information economies they become more volatile.
People touting volunteerist activity and communal as an alternative. OSS, public hotspots. Don’t solve problem long term. These subject to instability of “tragedy of the commons”. Overloading destroys the commons over time.
OSS will ensure diversification of economy. Economy is a diverse portfolio.
If wireless business in Korea turns weak, whole country is at risk.
Will come to appreciate industries uncorrelated with information industries. Low-tech industries.
The notion an information-based economy is inherenctly prosperous is falswe. Yes, information wants to be free.
Q: Should there be government policies to counteract this?
EN: I don’t think they work. [Q] We should tell people that the government is not likely to solve this problem
Q: What are your views on commons vs aution approach on spectrum. The idea of spectrum as a social good an innovation commons.
EN: I’ve been arguing for over 10 years that auction approach is bad. Auction is not a market approach. It’s a way of giving away exclusive rights to slices of spectrum. Exclusivity is the problem. I would advocate open (not free) access. User-charge based. Price based on congestion and dynamic. No exclusive licenses.
Q [Roxane Googin]: live used to be brutish and short. Couldn’t agree more that the economics of technology are very scary. Hasn’t been meant as an end in itself. Just lowers the effort to get the goods we want. We are focused on the economics of high tech which we don’t control.
EN: Yes, people will come to new forms of production and consumption
Q [Gilder]: this crash got to you! [Noam: I got tenure!] I see tons of new activity around the world. We’re about to enter boom period of amazing creativity and properity.
EN: George has boundless optimism, but some network industries seem less stable than rest of economy, and maybe we just to live with that.
DI gives EN rose-colored glasses as a gift.
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