Transcript Bubbles and the dynamics of network industries

Bubbles and the dynamics of
network industries
Exploring the impact of the Internet bubble
on the development path of the telecom sector
TMP Graduate Consortium Conference
Ir Wolter Lemstra [email protected] +31 653 216 736
July 17, 2015
1
Faculty Technology, Policy and Management
Section Economics of Infrastructures
Agenda
• Introduction
• Process, content, the ‘body of literature’
• The Problem Area
• The Research Questions
• The Methodology and Data Sources
• The Analysis and Preliminary Conclusions
• Q&A
For further feedback and interactions:
In the Boston area untill Thursday, phone: +31 653 216 736
Thereafter preferred: [email protected]
July 17, 2015
2
Positioning the Research Project
US Telecom
Act 1996
Reverse
Plaza Accord
Netscape
IPO
WTO
Telecom
Greenspan
Irrational
Exuberance
EU Directive
Full competition
UK 3G
auction
Lisbon Agenda
• The Internet bubble period: 1995 – 2000 – 2005
July 17, 2015
3
The Hypothesis and Premise…
•
•
The boom of the Internet bubble has contributed positively to the
objectives of the Telecom Reform process in the 1990’s:
• Following the removal of formal entry barriers by legislation,
• By reducing informal barriers through stimulating innovations, raising
demand expectations, and providing ample financial funding,
• Resulting in increased competition, and deepening and widening of
infrastructure investments,
• Providing users with choice, lower prices and improved quality.
The crash of the bubble has dramatically changed the assumptions
and expectations on which the policy decisions were made:
• Industry consolidation, evaporation of demand, investments plunging.
• An understanding of the fundamental changes in the
development path of the telecom sector is expected to
benefit policy making and strategy formation in the
aftermath of the Internet bubble.
July 17, 2015
4
Hence the Research Question is…
• What is the impact of the Internet bubble on
the development path of the telecom sector,
and what are the implications for policy and
strategy formation?
• The sub questions:
• How to describe and explain a development path?
• How to describe and explain bubbles?
• What is the impact of the bubble on the path?
• And to assess the implications for the aftermath:
• Should the Internet bubble be considered a standalone event or as a part of a broader phenomenon?
July 17, 2015
5
Methodological considerations…
• My telecom engineering education would suggest the
application of the Positivist’s paradigm, with an
deductive approach, using falsification.
• However, the subject matter involves interrelated
technological, economic and institutional
processes of change; moreover euphoria challenges
the assumption of the ‘rational economic man’.
• The Institutionalist’ tradition within economics,
applying a holistic approach, using pattern modelling and
cumulative causality, appears to be the most appropriate
methodology. Albeit, not at the a priori exclusion of the
application of deductive laws and empirical
generalizations.
July 17, 2015
6
Sources of data
Longitudinal Case study on the Development of the Telecom
sector, with a special focus on the period 1995 –2000 – 2005
• Informed by the participant-observer:
• 25 years in the telecom (equipment) industry.
• Secondary literature on:
• Industry development,
• Bubbles, cycles and waves.
• Extensive use of Institutional sources:
• ITU data base, OECD, NRAs such as the FCC.
• Complemented with Industry sources:
•
• Market analysis firms: e.g. Analysys on firm entry & exit,
• Firm data: telecom services and telecom equipment firms.
And Expert interviews:
• Academic world, the industry, and the financial community.
July 17, 2015
7
The Analysis: The Development Path
Source;
Kotler (1997)
Processes of Evolutionary and Revolutionary change
• Within the technology cycle, static and dynamic theories:
• Bain -> Scherer -> Economides / Porter / De Jong
• Technology transitions and Regime changes:
• Kuhn -> Dosi / Nelson / Boudon (Rip – Van der Poel - Geels)
• Shapiro & Varian / Christensen / Gawer & Cusumano
• Mapping the development path:
• De Wit & Meyer / Porter (dimensions of industry development)
July 17, 2015
8
The Analysis: Stylized Model of Euphoria
Contagion
Displacement
Expansion
Distress
Crash
Aftermath
Speculation
Expectation::
Growing confidence
Falling confidence
Based on Minsky Financial Instability Hypothesis
Kindleberger -> Brenner / Galbraith -> Chancellor -> Shiller
• Displacements: Internet and/or GSM and/or Reverse Plaza Accord,
• Positive feedback loops: Monetary expansion, Self-fulfilling
prophecy, Herd behaviour,
• Precipitating factors: Manifold – from Triumphalism, through 401k
Pension Plans, to Day trading at the stock market.
July 17, 2015
9
The Analysis: The Impact on the Path
• Accelerated experimentation and innovation and the adoption of
new business models in the field of ICT (e-Enabled Economy).
• Accelerating the introduction of new technological paradigms,
pushing the old into obsolescence:
• Circuit mode to packet mode (Voice => Data driven),
• Fixed to mobile access (#Homes =>#People=>#Appliances),
• Tangible to intangible products (HW=>SW=>SERVs).
• From industry expansion to industry contraction
• USA: CLEC crisis – Europe: Pan European Fiber Optic crisis
• In the aftermath a New shape of competition:
• Based on a re-valued asset base,
• From usage driven to connectivity driven revenues,
• Increasingly global markets.
July 17, 2015
10
Global Crossing
Tele1
Deutsche Telekom
Tiscali/NETS
Telecom Italia
Telia
July 17, 2015
GTS
Level 3
COLT
Kingston
Carrier 1
Viatel
KPNQwest
WorldCom
Versatel
LDCOM
Lucent-driven
Pan-European Networks
11
From bubbles to cycles and waves…
…to historical regularities
Five Technological Revolutions in 200 years
Kondratieff ->Schumpeter -> Freeman & Louçã -> Perez
1771
1829
1875
1908
–
–
–
–
The
The
The
The
“Industrial Revolution” in England
Age of Railways, Coal and Steam Engine
Age of Steel, Electricity and Heavy Engineering
Age of Oil, the Automobile, Petrochemicals and Mass Production
1971 – The Age of Information Technology
Each Wave or Great Surge is characterized by:
• a new Techno-Economic Paradigm replacing the old,
• a new Infrastructure as the platform for competitiveness: the Internet,
• a new Organizational form: the networked firm.
July 17, 2015
12
Euphoria: A Recurring Phenomenon
IRRUPTION
FRENZY
SYNERGY
MATURITY
Golden Age
Coherent growth
Externalities
Financial bubble
time
Socio-political
split
Techno-economic
split
Source:
Perez (2002)
July 17, 2015
13
Implications for policy…
Institutional
Change
Economic
Change
Socio-institutional
frameworks
Production
capital
Socio-political
ideas and behavior
Financial
capital
Technological
Change
Technoeconomic
paradigms
Technological
revolutions
July 17, 2015
“Each technological
revolution is
different, each
paradigm is unique,
each set of
solutions needs to
be coherent with
the problems to
overcome and with
the logic of the
techno-economic
paradigm, its
opportunities and
its best practices.”
Perez (2002).
14
The Work-in-Progress
• The Impact of the Bubble on the Path:
• Further detailing the patterns with empirical data and
performing the validation
• Assessing the implications:
• Exploring the Shift
from the Old to the New Techno-Economic Paradigm
• Formulating policy recommendations:
• Assessing the tensions between
the Old Institutional Arrangements and
the New Techno-Economic Paradigm
July 17, 2015
15
Imagine the Future
It is ours to Shape
Open for Discussion
July 17, 2015
16