Sunday, August 14, 2005

Communication Breakdown

Communication is the foundation of any prosperous society. It is not only the backbone of the economy, but a steady flow of (accurate) information is necessary for both democracy and technological innovation. And if you want “proof” that capitalism and market-economies have “delivered the goods” you need look no further than the telecom/internet industry.

I remember back in the 1980s when it cost $.25 a minute to make calls within the U.S. during peak hours, $.10 a minute on nights and weekends, and international calls required a second mortgage. These days, thanks both to innovation and deregulation, it costs about $.05 to call within the U.S. at all hours, which accounting for inflation is a drop in price of over 90%. International rates have dropped even more, and now you can call Europe for $.03 a minute and China for $.02, which for all practical purposes is essentially free. Whereas cell phones initially cost over $1,000 (remember those huge clunky things?) and rates were upwards of $1 a minute now you can get what amounts to unlimited usage for around $40 a month with free phones that are pocket-size, complete with email, cameras, and all sorts of nice features. On the computer front, you can now get internet phone service (such as Vonage) which is even cheaper than land lines, and I just signed up for a new high-speed DSL contract for the outrageous price of, drum roll please, $15 a month. Unlimited email remains 100% free and customers get tons of additional free services like maps (some even with Satellite photos- see Google Maps), attachments, and photo-sharing.

Digression: Where I live in Central California, in close proximity to many of the architects of these wonderful consumer windfalls, the telecommunications and internet revolution has led to a record surge in real-estate prices (above and beyond the national increases). For property owners this has meant huge profits, while for renters like myself I have steadily watched my prospects for owning a nice house diminish (or at least become vastly more expensive). Putting aside whether or not I believe there is a housing price bubble, my attitude has remained largely unchanged. I am a believer in the merits of the free-market system and it would be hypocritical if I were to praise all the great services the telecom and internet revolution has brought the world (which allows me to publish this blog and has made my life as an academic vastly easier), while at the same time bemoan the fact that the people responsible for this innovation have become vastly wealthier, driving up home prices. I say good for those lucky enough to buy at the right time or who can afford the high prices; people like me will just have to be a little more creative and frugal with our money. Nowhere in the Bill of Rights does it say that all Americans shall have the right to buy beautiful beach front property in sunny California.

Back to communications…

I recently returned from a trip to Mexico where one can witness the opposite of the telecom revolution that we have experienced in the United States and the rest of the developed world. Mexico continues to suffer under the heels of one of the worst telecom monopolies in the Western Hemisphere (Telmex). Not only is service hard to get and spotty in many areas, but the prices are through the roof. It is not uncommon for households to pay $.20 or more to call within Mexico and since most people don’t have phones they must rely on calling cards, which are even more expensive (as much as $.50 a minute). The cheapest calling card I was able to get to call the States from Mexico was $.35 a minute. That’s a markup of an order of magnitude over standard international rates. DSL service in Mexico costs upwards of $100 per month and it’s slow. The monopoly rents that Telmex extracts from the Mexican people in reverse Robin Hood fashion are at minimum billions of dollars a year. In fact, the owner of Telmex owns much of Mexican industry and is one of Forbes richest men. His telecom enterprise is also predatory and criminal in every sense of the word. Rumor has it that when AT&T was allowed access into the country his company sabotaged AT&T’s lines so that it was hard to hear people using their service.

The telecom revolution that began in the developed countries has quickly spread throughout much of the developing world, as many poorer countries have allowed competition and solicited foreign direct investment in the telecom sectors. Public access to telecommunication services has skyrocketed in many areas, and cell phones have played an especially critical role since they allow countries to forego providing expensive land-line infrastructure (which has left most poor rural areas of the world largely isolated).

Unfortunately, countries like Mexico, which continue to allow a monopoly to blatantly exploit its citizenry, will find their economies falling further and further behind as the world globalizes. Telmex’s monopoly not only deters business investment, but acts as a hugely regressive tax on the already (mostly) poor Mexican population. Hopefully, some courageous Mexican politician will eventually challenge the status quo and build his or her candidacy around the promise of breaking up Telmex and reducing phone rates; there is almost no single thing that would help the Mexican people more over the long-run. Low-cost and reliable communication is truly that important.

J.S.

P.S. A while back I critiqued Thomas Franks’ What’s the Matter with Kansas. This article seems to lend credibility to my analysis.

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