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Market Watch Are Utilities Obsolete ! A Skeptical Eye
Market Watch Are Utilities Obsolete ! A Skeptical Eye 
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| Are Utilities Obsolete ! A Skeptical Eye |
| Saturday, 13 October 2007 | |||||||||
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I’ve never been impressed by hype surrounding supposedly “disruptive” new technologies—developments billed to change the balance of power in an industry. And my skepticism meter goes positively off the chart when the claims pertain to communications and other utility-like industries. Sometimes new technologies do create revolutions. For example, railroads and automobiles in the last century put buggy whip companies out of business. Telegraphs and tele-type machines are now found only in museums, as are the companies like Western Union that once dominated the market. And IBM’s obsession with the mainframe kept it from buying Intel and Microsoft in their infancy, dooming it to also-ran status in the burgeoning PC and later laptop market. More than 99 percent of the time, however, industry leaders absorb the new technology in plenty of time to stay dominant. They may or may not have developed it originally. But they wind up using it to become more profitable. Meanwhile, the upstart developers are either bought out or eventually buried by the competition. But that simple fact hasn’t stopped the financial media from routinely writing premature epithets for the leaders of scores of industries. And regulated utilities and telecoms have been top targets. In its May 21, 1984, issue, Business Week’s cover asked the question “Are Utilities Obsolete?” The accompanying article asserted that power monopolies in particular were outmoded dinosaurs, financially strapped and unable culturally to adapt to the needs of American society.
Nearly three decades later, electric utility companies are doing a lot better than Business Week. But that hasn’t stopped the pundits from repeatedly proclaiming their inevitable demise at the hands of everything from fuel cells to natural gas power plants built by the likes of “independents” like Calpine Corp. It’s been the same story in telecom. Back in the 1980s, it was supposed to be wireless technology that toppled Big Telecom. Instead, it was the giants who developed the winning cellular phone franchises, namely AT&T and Verizon Communications, and are now more profitable than ever. In the late ’90s, the competitive local exchange carriers (CLECs) were the upstarts that were supposed to doom the big boys to extinction. Wall Street threw hundreds of billions of dollars at CLECs to construct direct fiber-optic links to businesses that would compete directly with the copper wires of Big Telecom. Today, the only surviving CLECs are those that have entered other businesses, like Level 3 Communications. All the rest—including the biggest of them all, WorldCom—went completely bust. Not only were stockholders wiped out but most bondholders got back only pennies on the dollar, if they made back anything at all. Instead, it’s Verizon, one of the so-called dinosaurs, that’s constructing the country’s first fiber-optic-based broadband network. Initially derided by industry wags for its cost, FiOS has instead come in ahead of schedule and budget, and sales are topping expectations handily as well. Moreover, we’re seeing cost benefits as the company replaces its aging copper network. And after initially resisting such a move, AT&T is putting its capital to work as well building out its infrastructure. It’s hard to believe now that anyone was gullible enough to believe that Vonage was going to dethrone the telecom industry’s giants. But just a couple years ago, the financial media was choked with stories singing the praises of that company and its supposedly disruptive technology, Voice over Internet Protocol (VoIP). Note that VoIP—which basically involves using an e-mail-like delivery of communications signals—has changed the way the telecom industry does business. It’s not only become standard fare throughout the industry, but it’s set to become the way American communications works. Source Excerpted from: Utility and Income This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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