From the Desk of�� John Barker - Editorial

The Wheels Of Fortunes

Opinion By John Barker, European Correspondent

Wild gyrations in the stock market, collapsing dot-coms, the swelling rolls of layoffs from the high-tech sector...is this Armageddon, or simply an overdue economic adjustment?

The only two constants in these rapidly changing times are the laws of economics and human greed. The collapse of the Internet pyramid can be easily explained in terms of human greed. The rise and fall was exactly mirrored in the last century when railway stocks rose to amazing heights before collapsing. Comparison with the Tulip Bulb fiasco of the seventeenth century and the South Sea Bubble are, however, badly drawn.

The Internet and the railroads were revolutionary in their impact by providing new means of transport. The value of the infrastructure remains and is incalculable in its worth, long after the shares have lost their inflated value.

The dot-com fiasco is less easy to explain away. It was based on a delusion - that dot-com companies were 'new economy' and everything else was 'old economy'. Big mistake. The dot-com companies were merely new shop windows - glitzy front ends for selling conventional goods and services.

It took ages for us to realize that it is inherently more expensive to buy a book or a CD from an Amazon.com than to pick one up from the supermarket. Why? Because goods must be picked, packed and shipped to your door. In a supermarket you do the picking and packing and you pay the transport cost. That is why Amazon loses money on every sale it makes. The more it sells, the more money it loses. If that is the new economy then heaven help us all.

In consequence, the weakest dot-coms have gone to the wall. So-called 'old economy' companies - to add sparkling new shop windows to their properties - have snapped up the surplus staff at bargain basement prices. Make no mistake: the Amazons of this world are destined to be gobbled up by the Wal-Marts. It is inevitable and it is desirable. They will be rendered down to make the oil on which the frictionless economy will run.

Don't be deceived by appearances. By disappearing into the giant maw of the old economy, the dot-coms' journey will not have been in vain. Wal-Mart will still be called Wal-Mart, but beneath the surface everything has changed. The difference is that the consumer is now calling the shots because the world is now his oyster.

What, I hear you ask, has this got to do with telcos? Surely they are not affected by this crazy Internet world? Oh, yes they are. Joe Six Pack now wants his telephony for free - and he's prepared to pay for it! The mobile phone is but one example of how the consumer is now running the show. The telco is now a mere provider of bandwidth. If it doesn't provide the services the consumers want then they will start writing their own software. Think MP3, thing Napster, think VoIP, if you don't believe me.

The wireless age marks the end of the 'natural monopoly' enjoyed by those providing copper and cable connections to homes and offices. But it is not the end of the world; it is merely the beginning of a new economic order. Like the railroads before them, the telcos face a period of painful economics adjustment. Like the railroads, they do not create wealth. But they will survive because they provide the means by which the wealth is created. They are the wheels of fortune.

John Barker can be reached at tossa@pobox.com.

COPYRIGHT 2001 Phillips Publishing International, Inc.
COPYRIGHT 2001 Gale Group