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Telecommunications in Europe.

Eli Noam. (Oxford, UK: Oxford University Press, 1992) 523 pp.

Telecommunications in Europe takes on the bold task of comprehensively addressing the economic and political issues affecting the telecommunications industry in the region. A companion volume to Television in Europe, Telecommunications in Europe is timely: Telecommunication services remain a contentious issue for the General Agreement on Tariffs and Trade (GATT) negotiations, and the Clinton administration, spurred on by Vice President Al Gore, intends to create a so-called information superhighway.

Eli Noam, professor of finance and economics at Columbia University's Graduate School of Business, analyzes "the rise and beginning of the telecommunications in Europe." Part one of the book recounts the changes and forces that alter the conventional post, telephone and telegraph (PTT) systems. Part two focuses on the individual countries in Europe, including East Central Europe. In part three, Noam considers many telecommunications topics, including industrial policy, transatlantic-trade friction and the clashes between the differing policy approaches taken on both sides of the Atlantic. The final section examines the future of the industry in Europe.

The book opens with a focus on the origin of Europe's centralized network system of communication, starting with the postal system -- an organization that eventually generated a great amount of revenues for European rulers and thus "was ardently protected through the centuries against encroachment by private competitors and by states." Noam goes on to describe that in time a unified state monopoly system of PTTs was established throughout Europe, and that it developed immense power because of the gradual importance of telecommunications and the extensive command that the industry possessed -- both economically and politically.

Noam aptly terms the system the "postal-industrial complex." The author tells us, for instance, that PTTs are among the largest employers in their countries; that in Germany alone, before reunification the Bundespost had the single largest work force in the nation -- some half a million employees. These PTTs justified their telecommunications monopolies through the concept of public service: universal, accessible, affordable and redistributive.

Noam argues that this traditional system encountered pressures and fierce political debates because of its success, not due to its failure. He writes:

As the system expands, political dynamics take place that lead to

redistribution and overexpansion. This provides increasing incentives

to exit from a sharing coalition, and to an eventual "tipping"

of the network from a stable single network coalition (the public

network) to a system of separate subcoalitions. For example, much of Latin America is successfully engaged in the privatization of telecommunications. japan has given serious consideration to dividing its almost monopolistic Nippon Telephone and Telegraph into local and long-distance companies. Noam also devotes one entire chapter to the "forces of centrifugalism" that he believes destroyed the monpoly. The major factor in reconstructing telecommunications has been the stunning increase in user demand for the industry, an element that is grounded in the shift to a service-based economy. For Citicorp, the largest bank-holding firm in the United States, telecommunications are the third-largest cost item. Another "force of centrifugalism," argues Noam, is the saturation of basic service; this stems from the fact that an important policy goal of many industrialized nations was to create a network that would access every household. Some other forces include the diseconomies of scale and scope, reductions in equipment costs and increase in productivity. For all these developments, then, the author predicts this process of disintegration will continue to weaken the traditional PTT infrastructure.

Part two of Telecommunications in Europe "serves as somewhat of a handbook on Western European countries' telecommunications systems, and provides a bird's-eye view of the continent." Particularly noteworthy is Noam's discussion of France and East Central Europe. With an emphasis on industrial policy in France, he demonstrates the failure of a "high-technology renaissance" -- a plan that established the development of France as an international pace-setter and exporter of telecommunications equipment as a primary goal -- pursued by President Francois Mitterand in the 1980s. Mitterand implemented the plan in three steps. First, the government nationalized the electronic sector. Second, it restructured the industry so that nationalized companies, in effect, were assigned specific functions: CII-Honeywell-bull (CII-HB), for example, was designated for computers; Thomson for consumer electronics. The final step was a five-year, $20 billion government plan for electronics, which was partially carried out.

In the end, however, the telecommunications industry lost 17,000 jobs, and losses for nationalization cost $4.2 billion. "All in all, the socialist experience was sobering," concludes Noam. "It dampened government's high-technology ambitions, and challenged traditional socialist ideology."

In the chapter on East Central Europe, the author shows the disparities of monopolistic control. For instance, an applicant for a new telephone typically had to wait a decade or more for service. So controlled was this sector, in fact, that international direct dialing was usually not allowed and telephone directories were regarded as classified documents.

The third part of the book focuses on specific topics such as industrial policy, U.S. trade friction and the internationalization of conflict. Here, for example, Noam shows the two paths that European and U.S. high-technology developments have taken. In Europe, large firms became increasingly significant, while in the United States, the giants of telecommunications like AT&T were challenged. Moreover, because economic growth in Europe has practically ceased, the author predicts that the PTTs will reorganize and extend their market power vertically; that is, these state-owned firms will begin to cooperate with private manufacturers. The process has already started in the United Kingdom, Spain, Italy and Sweden.

Not surprisingly, the European interpretation of U.S. telecommunication policy is unsettling. Noam writes:

European PTTs had a great amount of respect and sympathy for the

old AT&T. Although the American telephone operating company

was privately owned, its dominance was similar to that of European

administrations. The decision to dismantle AT&T confused the PTTs, because it challenged the status quo in the European telecommunications field. Rather than view AT&T as a company that possessed vast power in the U.S. economy, the PTTs saw this efficient and successful company as the victim of economic zealots.

The best section of Noam's book is the final one, entitled "The Future of Telecommunications." The discussions of the origins of telecommunications, forces of centrifugalism and individual country studies come together neatly here. Noam reiterates his thesis that a telecommunications system in Europe will become

more open and integrated in a gradual process, which he calls "creeping liberalization.' While the author foresees the PTTs as maintaining a strong presence, he argues that in time they will surrender their monopoly, and a more pluralistic network system will appear. In the final analysis, large PTTs will still be connected with powerful bodies in society, but without exclusivity.

Nevertheless, this conclusion is bound to present problems of instability, discord and new forms of regulations for policy makers. With respect to the regulations dilemma, Noam forecasts that

telecommunications is in the process of moving from one of the

most regulated industries to one of the least regulated. One reason

is that the growing complexity of the system makes it increasingly

difficult to fashion consistent rules, whether behavioral or structural. Noam's book is surely formidable both in its comprehensiveness and ambition, and he tackles a technical subject well. Telecommunications in Europe is, however, also peppered with economic jargon that is not for the layperson. The author assumes that the reader has a working knowledge of economics. The book, for instance, is fraught with terms such as marginal cost, average cost and economies of scale, and Noam's models, including mathematical functions and derivatives, can be intimidating.

Although Noam has prefaced his book as "not a comparative study in the sense of contrasting different countries' approaches," Noam might have granted the same attention to Japan's telecommunications system as he gave the U.S. system. Telecommunications in Europe would have been even better had Noam applied his meticulous research to a country that is planning and putting a data highway in place. Still, despite these few problems, Telecommunications in Europe is an important contribution to the debate on industrial and high-technology policy. It perpetuates the argument that information is the commerce of the future. As Noam writes about the telecommunications industry: "Their physical presence is ubiquitcus, and their services reach daily into almost every home and office."
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Author:Chaudhuri, Jay
Publication:Journal of International Affairs
Article Type:Book Review
Date:Jun 22, 1993
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