With billions already borrowed to bring high-speed Internet connections to consumers and billions more still needed to expand wireless broadband in the United States, will a deep credit crunch dent those plans? Maybe, but at least one economist thinks-with or without congressional action-tech may still skate through the financial crisis.
The telecommunications sector was not spared in the Sept. 29 market
meltdown, raising questions about what a prolonged economic slump would do to
the nation's broadband rollout. With billions already borrowed to bring high-speed
lines to consumers and billions more still needed to expand wireless broadband
plans, would a deep credit crunch dent those ambitions?
Nor is the need for borrowed money limited to building new broadband
networks. Upgrades to existing systems and data center construction are also
hungry eaters of capital. The United States
is ranked only 15th in the world in broadband penetration, and policy
makers are banking heavily on the broadband rollout as part of an innovation
"Broadband is really now rolling along. It's coming into its own and it's
really booming right now," said Bret Swanson, the director of the Center
for Global Innovation at the Progress & Freedom Foundation.
The financial crisis could threaten the rollout, he said.
"For the past year or so most of the turmoil has been limited to Wall
Street. The worry now is what effect a real clampdown on commercial credit
would have. If the cost of borrowing rises significantly, it could have an
impact," Swanson said, adding that telecommunications companies rely
heavily on debt.
On the consumer side, less credit equals less cash to purchase computers, smart
phones or broadband connections. "If we do get into a recession-and we may
already be in one-and that gets worse, that could have a big impact on growth,"
He hastened, however, to add, "I don't think we're there yet. I don't
think it [the financial crisis] affects tech as much as other industries tied
to Wall Street."
Swanson noted that with or without congressional intervention, much is being
done to alleviate the crisis. In addition to the bailouts of Fannie Mae and
Freddie Mac (the Federal Home Loan Mortgage Corp.), the Federal Reserve
announced Sept. 29 that central banks are significantly expanding initiatives
to support financial stability and to maintain a stable flow of credit to the
"The feds have already, in effect, taken care of a very large part of
the problem," Swanson said.
Nevertheless, Swanson said he had hoped Congress would
take action. "It probably would have been good to pass something as an
insurance policy," he said. "Nobody really knows if ... economists or
Wall Street [are] trying to ram this through using nothing but fear tactics."