January 30, 2007

www.telecomweb.com

My friend Debra Wayne, managing editor of the www.telecomweb site, has an interesting website covering the global competitive broadband marketplace on a daily basis. Hope you find the information there useful.
JR

Posted by John Rutledge at 9:58 PM | Comments (0) | TrackBack

Broadband Race

A reader wrote this morning with a question about the role of communications technology in our global competitiveness:

I have a question for you concerning the future of broadband in the U.S. With Verizon and AT&T rolling out fios and u-verse broadband nationwide, do you not think that it's just a matter of time before we move up the ladder with respect to our 16th rank world wide? Both company's are bypassing Federal legislation flaws and proceeding with individual state legislation for relief. I understand this will slow the process but perhaps at the same time we will reach our goals.

I wish that were true. US companies are making substantial investments in new high-speed networks but they are doing it in the face of regulatory, tax, and legal burdens that would make me hesitant to approve the investments were I a director.

You are right that state legislatures have behaved more responsibly that the US Congress. Several have passed legislation speeding new entry into video services. We should send the state legislators to Washington so they can fix the problem.

There is an old joke about two boys who come upon a bear while walking in the forest. "Let's get out of here." said the first boy. "Wait a minute, while I put on my sneakers." said the second. Boy #1 responded, "You're not going to out-run that bear just because you have sneakers on." Boy #2: "I don't have to out-run the bear. I just have to out-run you.

Competition always works that way. You just have to beat the other guy. Unfortunately, in this case, the other guy is investing his brains out both by building massive fiber-optic networks and by building new universities to train young people how to design the next technologies.

Over the weekend, a small story in the Shanghai Daily caught my eye. Iwas reported this morning in the US by Reuters under the title Report: China's 4G wireless launch leapfrogs 3G. A group of 10 Chinese companies is field-testing a new wireless system that will allow data transmission at up to 100 megabytes per second, several times faster than current technology--and put it into commercial use up until 2010.

As Chief Advisor to the Governor of Haidian--China's Silicon Valley in Beijing--I get a close look at these companies. As an Honorary Professor at the Chinese Academy of Sciences, I get to see the quality of basic research. Both are extremely impressive.

We're ahead of the bear--for now. But the bear is hungry. We'd better put on those sneakers soon.

JR

Posted by John Rutledge at 2:20 PM | Comments (1) | TrackBack

January 29, 2007

Technology and Taxes

I heard from my good friend Dan Caprio today. Dan is President of the Progress and Freedom Foundation, where I serve as a board member. Dan wrote that he had recently read a report saying that China was repealing some of the tax incentives they put in place to attract capital and asked for the inside skinny on the story.

Like most stories that come out, the one Dan is referring to is about half right. the Chinese authorities have announced a series of tax changes in recent weeks which they refer to as "equalizing" the tax rates paid by domestic and foreign firms to do the same work. Of course with taxes the devil is always in the details so broad answers are not very useful for real businesses.

It's the story under the story that is interesting to me. China's growth and foreign direct investment (FDI) over the past 20 years has been heavily dependent on manufacturing. As a result, manufacturing makes up a larger share of Chinese GDP than any other major country.

By one account, half the manufacturing capacity in the world is in China. That has made a tremendous impact on the lives of Chinese people; average incomes have roughly quadrupled since the reforms began almost 30 years ago. But it had also led to worsening air and water quality, a widening rural-urban income gap, and worries over the security of future energy supplies.

China's government has decided to attack the problems head-on. They are pushing energy conservation. They are increasing energy supplies and investing heavily in renewable energy projects. Both measures are important, but they only buy time. The real answer is their shift of focus from manufacturing to technology to drive growth.

This is where the tax changes come into the argument. China has increased taxes on steel and other heavy manufacturing industries, but has lowered taxes on information and communications technology companies. And they are aggressively courting tech companies to relocate R&D facilities to China with tax breaks and other subsidies. The biggest carrot of all is China's massive investments in math and science education and aggressive English language education programs.

These are exactly the policies we should be pursuing in the United States. Instead, our Congress couldn't even pass the telecom reform bill last year that would have triggered billions of dollars in new investment. They failed to pass video franchise legislation that would have allowed a massive rollout of optical fiber to homes. And they flirted with price controls to protect the current market cap of the big internet providers under the misleading heading of 'net neutrality." It was a shameful year for US technology policy.

Instead of competing for high-tech capital, we tax and regulate it out of the country--US companies bear a 22% excess overhead load ccompared with overseas competitors. And we tax communications services--the central nervous system of the economy--as if it were a sin to talk with your customer or supplier, or even your family, on the phone. Depending on where you live in America, between 15-30% of your wireless phone bill goes to excise taxes.

Meanwhile in Shanghai last week a pilot project was announced to provide 4G mobile services which would allow selected customers to transmit content at speeds greater than enjoyed by most fiber optic users in the US.

We need to wise up and do the things now to make our technology companies believe they should build their businesses here. We don't have a lot of time to waste.

JR

Posted by John Rutledge at 10:11 PM | Comments (7)

January 26, 2007

Back in the Saddle Again

Blog block--guilty as charged. Too many things going on in the past several weeks to figure out how to write them down. I apologize to my loyal blog readers.

Here's a summary of the things I forgot to write about. 20 lectures at a dozen universities, policy discussion meetings with 2 countries, 4 states, and 3 mayors, 12 conferences, 2 trips to China in 3 weeks (I'm too old for this), one election, 27 TV shows, 11 radio interviews, 3 op-eds, meetings with lots of newspaper and magazine editors, meetings with 2 dozen companies and a load of investors, 5 board meetings, 4 family birthdays, one runaway cat (Lily, the nasty one that everybody liked best), and 37 trades in the portfolio.

During this period we had one election, one "extremely lame" duck Congress, a weak State of the Union address, and a hundred hours of hubris. Wall Street hyperventilated through a recession scare, an inflation scare, falling rates, rising rates, a housing bubble, bird flu, global warming, and the end of the Internet as we know it--none of which proved to be true. In spite of all this we finished the year with good growth, huge profits, moderate inflation, low interest rates, and 15-20% stock market gains.

There, now we are all caught up. Now we can move on to the things I am thinking about today.

1. Technology--we're blowing it. After huffing and puffing for more than 2 years, Congress failed to pass the telecom reform legislation that we need to support the massive sustained investments in the new, high-speed communication networks that we need to compete with China, India, and other countries who are getting it right.

2. A dysfunctional political system. Politics in America today are more divisive than at any time since the Vietnam War. Class warfare is back. That makes it almost impossible for anyone, Republican or Democrat, to put in place the long-term policies we need to compete in the world. That’s why social security reform died even though everyone knows the current structure is busted. That’s why small single-interest groups, like the textile workers, can swing enough power to push American trade policy off a protectionist cliff.

3. Energy. Iraq is not about democracy; it’s not about WMD. Iraq is about oil. The world economy won’t go around unless the oil keeps flowing, and the oil is in the Persian Gulf. Peace is not going to break out in the Middle East. Global supplies are getting tighter every year. It is paramount that we develop more energy supplies and increase energy efficiency, but our politics are keeping us from drilling in Alaska and off the Florida coast, we are not building nuclear plants, and we burn fuel as if it were free. Long-term, the answer to both problems is technology, which means educating our kids in math and science.

Fighting over trade--whose workers will operate the sewing machines—is yesterday’s war. Today’s war is energy. Tomorrow’s is technology. More to come on all these issues.

JR

Posted by John Rutledge at 5:59 PM | Comments (15)