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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 agenda.
“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,” Swanson said.
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 economy.
“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.”