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Putting The Fiber Glut In Historical Perspective
securitas writes: "This editorial over at the New York Times makes a good case for the optical network buildout being an essential infrastructure project like the railroads, telegraph lines and interstate highways were of previous generations. These projects stimulated new inventions and applications and helped build a great nation. So if you lost a ton on JDS Uniphase, Ciena, Corning, Nortel and the rest, rest easy that you have helped build the future and inspire innovation."
Late last month Digital TV was launched in Finland. Billions of Finnish Marks had been spent on building a next-generation TV network for digital TV.
Now it seems this standard is already on it's way out, and to top it all off, the consumer products needed to actually watch digital TV aren't really available yet...
Just imagine how much better off we could have been if all that money had been spent on a broadband infrastructure for transporting any data, including TV. ARGH.
.: Max Romantschuk
The glut of fiber tends to be more in the metro space. I really don't see the middle of Iowa with a ton of fiber. What this does is give the opportunity for metro buildouts. It's going to be the battle of the cities verus the towns all over again.
Personally, I can't wait to have my own 100mb connection to the net.
dave
Maybe your Uncle Julius has told stories about how he could have bought half of Nevada for $1.50 way back when. It was all just worthless desert in those days, but now it is called Las Vegas.
Your uncle's tales may be worth recalling, now that we are faced with a glut of long-haul fiber optic lines installed by companies eager to cash in on the Internet boom. Something like 100 million miles of these lines were laid in the last two years, and the great bulk of this capacity is unused.
For investors who put up the estimated $35 billion to pay for all this, it has been a disaster. Many companies involved are awash in red ink, and bandwidth brokers report plummeting prices for long-distance telecommunications capacity. Even worse, such a presumably gross misallocation of capital is bad for the entire economy; had the money been directed more profitably, output and employment would be higher and everyone would be better off. Now that the economy is weakening, America is starting to look like a high-technology Gulliver, tied down by costly Lilliputian threads of glass.
But was this really such a wholesale misallocation? Will society really suffer for the misguided enthusiasm of fiber optic investors and entrepreneurs? History suggests not. Again and again, investors have gone hog wild over new networking technologies, spent a fortune to install them and found themselves with vast overcapacity and ruinous competition. Yet eventually the capacity was always used, often for purposes never foreseen when it was installed. And in the long run, the economy was the better for it.
"The turbulence in this market is entirely predictable," said Richard R. John, a communications historian at the University of Illinois at Chicago. He noted that the American telegraph system was unprofitable for its first 15 years, and that in the early 20th century many felt that it had too much capacity, partly because it was built to accommodate huge peak loads during business hours. At first, the telegraph network was not used for what would become a main function: managing the railroad system.
"Almost all of the big-mileage railroads, once you get west of the Missouri, were built in advance of demand," said Maury Klein, a University of Rhode Island historian. Despite serious investor losses, a staggering increase in national wealth would result. "The rail network completely transformed the West," Professor Klein noted. "It created cities where none existed, and businesses where none existed."
Long ago, the railroad historian Julius Grodinsky summed up the process in words that would apply just as well to fiber optic networks today: "The story is typical of a growing industry in its pioneering stage. Competition then and now works itself out in a similar fashion. Some businessmen gain, some lose -- but the public benefits."
In another example, the parkways of the New York area were built to give city residents a way to reach outlying beaches and state parks. But these roads also abetted the suburban development boom and soon were filled to capacity with commuters.
There are many reasons to believe that the vast new fiber optic network will similarly call forth unforeseen new applications. Adventis, an information industry consulting firm in Boston, predicts an "inferno" of bit-burning applications once high-capacity networks overcome the last-mile bottleneck -- the delay in hooking up a high-speed Internet network to homes or businesses. If that happens, it will not be the first time that communications overcapacity turned into a shortage. When telephone numbers were first allocated, who imagined that we would ever run out? And once upon a time, a million shares was considered enormous volume on the New York Stock Exchange.
And that misallocation of capital? True, the money could do something else as we wait for all that bit-burning. But history shows that this is the American way. Many European postal systems, telegraph lines and railroads were built with government money, and sometimes with insufficient capacity. But in the United States, instead of burdening taxpayers, we sell investors the equivalent of high-priced lottery tickets each time one of these technologies arrives.
The proceeds from these speculations -- the capital paid for stocks and bonds -- may seem misspent. In the long run, the results are called infrastructure, and they are what economies are built on.