Monday, October 11, 2004

phone power

On the cheap: Asians are buying up U.S. digital networks
By Rana Foroohar
With Jonathan Ansfield in Beijing and Jason Overdorf in New Delhi
(This article appeared in Newsweek International in October 2004).

Pity the poor western telecom. The digital networks on which American carriers spent billions in the late 1990s are being snapped up in fire sales by foreigners—and Asians are leading the pack. Since last year Global Crossing has been purchased by Singapore's ST Telemedia, Flag by Reliance of India. Now Tata of India is bidding for the network built by scandal-ravaged Tyco.

The buyouts, some of which have been done for a mere 10 cents on the dollar, are only part of the story. Asian telecom manufacturers are also gaining steam, with Chinese companies like Huawei and ZTE challenging Western rivals such as Cisco and Siemens. The new reach of Asian telecoms has two dramatic effects: cheaper calls worldwide, and a boost to the regional economy—from Indian call centers to Chinese and Korean manufacturers. "Instead of being small players who have to pay big fees to use the international networks of companies like MCI or AT&T or France Telecom, some of the Asian telecoms can now sit down as equals and simply swap the use of the networks for free," notes OECD economist Sam Paltridge. The result, he says, is "cheaper calls for all of us."

With more traffic routing through countries like China, a political backlash is inevitable. Manufacturers like Huawei, which reportedly has strong links to the Chinese military, are racking up new contracts in Africa (where it is now the lead player), the Middle East and Europe. U.S. authorities prevented Hong Kong magnate Li Kashing, owner of Hutchison Whampoa, from buying a big stake in Global Crossing last year, saying they were concerned about Li's ties to the Communist Party.

But it will be tough even to see who's handling all the traffic. "There are just so many routes into and out of a country now that it will be difficult for politicians to maintain control," says Tim Kelly, head of strategy for the International Telecommunications Union. Each acquisition will in the meantime fuel growth. "The better networks will further increase Asian manufacturing competitiveness, allowing them to deal with customers more efficiently, and boost the Indian call-center phenomenon, which depends on strong IT connections to the West," says Andrew Odlyzko, director of the digital-technology center at the University of Minnesota. Translation: America's loss is Asia's gain.