By Dom Serafini
A few years ago, restaurant cars on Italian trains offered sparkling wine as an apéritif, served coffee in porcelain demitasse and topped the fairly priced meal with a “digestive” drink. After the company that operated the trains’ restaurant service was taken over by a conglomerate, the apéritif was scrapped, coffee was served in paper cups, the traditional bitter after-meal herbal drinks were eliminated and prices increased. The irony is that, not only has customer satisfaction decreased, but profits of the unit also declined.
The moral of the story is that, no matter what journalists operating at the service of Wall Street tell you, in the long run, takeovers, acquisitions, consolidations and mergers are no good for anyone concerned — not for investors, consumers, employees, the political process, market stability, free trade or the economy.
After so much corporate abuse, however, something has started moving in the right direction and the impetus is coming from unlikely sources: First, the conservative French president, Nicolas Sarkozy, who is receiving attention even from business press and politicians elected with the support of special interests. Secondly, from the EU Commission.
Allow me a short preamble before getting to the point I’d like to make. Recently, the Financial Times focused on a Sarkozy speech to the U.S. Congress in which he criticized Wall Street abuses. Some politicians even applauded this criticism.
Against this monopolistic Wall Street mentality, European Union (EU) media commissioner Viviane Reding is proposing to split telecommunication operators’ services and network businesses and to overhaul management of the radio spectrum market.
In effect, regulators should split the parts of telecoms’ business that manage network infrastructures from those that provide services. In addition, electromagnetic frequencies should be viewed as network infrastructures since they provide broadband. But in order to do so, the political process has to be restored. Indeed, according to Reding’s proposal, There is the need for a super regulator which will be able to veto decisions by national watchdogs, since these are too close to the telecom providers to be trusted.
What’s important to understand is that, while the general impression is that we live in a global, free-market economy, in effect world markets are very restricted and tightly controlled by multi-national conglomerates that, as we know, are few in number for each sector. Indeed, as some economists like to say, we have free trade, not fair trade.
Today, markets are controlled by virtual monopolies created by the erosion of rules and regulations at the domestic levels and by over-regulations (e.g. WTO) at the international levels. International markets are also controlled by currency exchanges, which, in effect (as we’ve witness recently with the decline of the U.S. dollar) represent virtual barriers.
Some economists, too, are now asserting that if there were rules, the mortgage-lending crisis could have been avoided. Similarly, regulations would have prevented the high-tech bubble in 2000 and, more recently, the marketing of poisonous toys from China.
Ultimately — and this is ironic — regulations help companies and executives the most. The direct and indirect benefits of regulations are clearly evident in all sectors, in particular, the communication and media industries.
Years, ago, before Democratic U.S. president Bill Clinton scrapped the few remaining regulations that the previous Republican administration hadn’t gotten rid of –– and, in the process, triggered a worldwide chain reaction –– the television and telecommunication industries enjoyed a renaissance. They were reborn from an era of monopolies and quasi-monopolies.
At that time the rules were simple: Sectors were split in various areas and conglomerates were split in competing groups. So, in the U.S., the telephone monopoly was broken up into several competing companies, TV networks weren’t allowed to own financial interests in the shows they aired, and media groups could not control markets. Plus, with the help of a few additional simple rules, consumers were protected and the state of apathy discouraged.
It was an idyllic situation. It was rewarding for the industries, those working in the sectors and for the investors.
Then what went wrong? Simply that the political process lost out to greed, speculation, corruption and special interests that wreaked havoc.
Now that technology is forcing changes upon us, and an industry that used to be called broadcasting (but is moving into an area called broadband), regulations are becoming more important than ever before. And it’s not only the liberals who need to wake up to this, but conservative politicians such as Sarkozy, as well. Fortunately, history is, in this case, repeating itself. Indeed it was conservative U.S. president Richard Nixon, who imposed on television those rules that basically created the great American television industry: fair, balanced, diversified, with riches for all.
Today, however, the stakes are much higher because of the combination of digital technology and broadband. If, this time, the various elements of this chain are not separated, as they are in the EU plans, the whole concept of democracy is in peril, as is the opportunity to create wealth for a vast group of investors together with economical and political stability.
Plus, it’s not accurate to state, as did the Financial Times, that, with the EU’s plans, network investments suffer. By forcing telecoms to focus on one area, they will make sure to operate the chosen business efficiently, thus concentrating their financial resources on improvements by developing the much-touted Next Generation Network.