NEW YORK-Despite all the cheerleading about the new economy as a global village, the best bets for investments in telecommunications, the Internet and electronic commerce reside in the United States, the United Kingdom, Canada and Ireland.
Of the 30 countries that accounted for 85 percent of $753 billion in worldwide telecommunications services revenues last year, only this “broadband four … have created a very hospitable environment,” concluded a report published March 6 by Legg Mason Precursor Group, Washington, D.C. These four nations, which have “high growth prospects,” ranked first, fourth, eighth and 29th, respectively, in terms of their percentage of 1999 global telecommunications revenues.
“They talk the talk of communications growth and walk the walk by putting in place most all (of) the regulatory, technical and operational foundations and building blocks for growth in the new economy,” wrote the author, Rudy Baca.
Baca, formerly senior international attorney for the Federal Communications Commission, joined Legg Mason’s Precursor Group as its chief strategist earlier this year. His report is titled, “The Building Blocks of Growth in the `New Economy’: Guide to Global Investment Precursors in Telecom, Internet and E-Commerce.”
The second best as “good growth” prospects for investors are “the broadband aspirants that talk the talk, consistent with [World Trade Organization] commitments, but are not walking the walk of communications growth consistently,” he said.
This group comprises: The Netherlands, 13th in global market share; Hong Kong, 16th; Sweden, 20th; Denmark, 22nd; Finland, 24th; Singapore, 27th; and Chile, 28th.
The Precursor Group’s third category consists of countries that have “uncertain growth prospects” because they “are mostly talk … and have varying … impediments effectively blocking or stalling growth.” These countries range in worldwide market share from: Japan, second; Brazil, ninth; Australia, 10th; Argentina, 15th; Austria, 21st; and Luxembourg, 30th.
“Japan is hobbled by a tradition of top-down, government-controlled decision-making for communications growth … interconnection regimes are barriers to entry and access costs are high,” Baca said.
“Australia has largely put in place the growth factors for telecom and, to a lesser extent for Internet, but is significantly threatening [electronic] commerce by … seeking to impose the inefficient international settlements regime for telecom on Internet transmissions.”
In Spain, a lack of clarity in regulatory and licensing systems “substantially favors the monopoly incumbent.”
Japan and Spain are among Legg Mason’s top 10 picks for countries least hospitable to new entrant competitors. The others are Germany, France, Italy, Mexico, Belgium, Greece, Portugal and South Korea.
“To put this into perspective, almost one-half of the non-U.S. market is not hospitable to new entrant competitors, i.e. foreign investment,” Baca said.
Legg Mason’s fourth group includes countries with “poor growth prospects: ” Italy, sixth in worldwide market share; Mexico, 14th; South Africa, 17th; Belgium, 19th; and Portugal, 25th.
“A communications regulatory system may exist in the laws and regulations of the nominally independent regulatory authority, but there is a disconnect between law and practice that creates investment uncertainty.”
Countries with serious growth impediments constitute the Precursor Group’s fifth category of countries with “very poor growth prospects”: Germany, third in worldwide market share; France, fifth; South Korea, 12th; India, 18th; and Greece, 26th.
“Do not be blinded by the size of the potential market,” Baca said.
“[These countries] are systematically inhospitable to foreign investment and promote strong national champions in their incumbents.”
Last and least, China, which is seventh in worldwide market share, and Russia, which is 23rd, share the dubious distinction as the two countries which “simply do not get it” and should be avoided altogether by investors.
“Despite rhetoric designed for international acceptance into the global marketplace, China has virtually none of the requisite regulatory, operational and growth precursors in place. It also is lacking substantially in meeting the technical hospitality factors that would lead to growth … (and) content issues will continue to hobble the growth of the Internet,” Baca said.
“Russia thwarts growth by a maze-like formal and informal regulatory regime without clear lines of jurisdiction or authority … [and] a thicket of inconsistent regulations and standards that are not codified or uniformly applied.”
The Precursor Group considered telecommunications to be the foundation for Internet, which is, in turn, the launch pad for electronic commerce.
“Wireless is likely to be the preferred platform for Internet access outside the United States … (and) wireless operators are generally subject to a lesser regulatory burden than are fixed wireline access providers,” Baca said.
However, he offered two strident notes of caution that investors should consider with respect to development of wireless Internet access abroad.
“There could be disruptive conflict in developing Internet protocols if the highly regulatory telecom standards process is grafted onto the open protocol formulation of the Internet, e.g. Wireless Application Protocol,” Baca said.
“Narrowband wireless Internet may have the advantage of portability but will remain less useful and content rich than access by a [personal computer …. [It also lacks] the functionality [and] security demanded by business to support business-to-business e-commerce.
“This limits the size of the user market, which may retard development of applications for such wireless access platform, further diminishing the potential market.”
