If Gilder and Cox are right, new operators buying smart radios could soon reproduce Telmex's nine million local telephone lines for just a hair over $125 million dollars -- a tiny fraction of what they'll invest this year for intercity fiber-optic trunk lines. For a shade over a billion dollars, in 2002 they could provide a new cellular line for every single Mexican -- including a lot who aren't even born yet in 1997.

These new technologies will make Telmex 's nine million local lines look a lot more like a high-grade copper mine than important assets in the competition for Mexico's telecommunications market. Like the ninnies who kept investing in silver mines as digital photography began replacing silver halide film and paper, the only thing Telmex executives who bought digital upgrades for their twisted pairs can say now is "Oops!" It's not like they couldn't see it coming -- analysts have talked about these trends for years. It's just that most large bureaucratic corporations -- Telmex, Southwestern Bell, and France Telecom included -- still haven't learned to adapt to accelerating technological change.

It's ironic, then, that Telmex right now is abusing the very people whose support they'll need most when Mexican society decides whether and how it should help cushion Telmex's sudden fall from dominance. Technological and opinion leaders are up in arms about Telmex's recent unilateral decision to raise tariffs fifteen times over on 64K and one megabyte digital lines. This enormous 1500% increase particularly hurts researchers at academic and non-profit institutions who will advise functionaries about what nations have done and should do when new technologies entirely displace traditional sectors. Having their Internet connections slow to a crawl as they're gathering information to help decide Telmex's fate won't exactly put those researchers in the best frame of mind from Telmex's point of view.

It won't help Telmex very much either that the Education Secretariat is throwing out all their plans to use Telmex lines to hook Mexico's schools up to Internet just as new operators start coming around to explain how the Secretariat can provide each and every Mexican schoolchild with their own cellular personal digital assistant, replacing the old schoolbook by the year 2002 or sooner. Of course, given that nearly all of Telmex's shareholders are foreigners anyway, maybe Telmex executives just realized that they had better grab what they can while SCT and COFETEL look the other way, rather than count on any sympathy when smart radios blow their business away.

A little sympathy is in order, though. The people who work for Telmex and those who bought their bonds aren't responsible for management's mistakes. The tremendous boost that universal modern telephone service will give Mexico's economy means that the nation's winners can easily afford to help those blameless losers to adjust with minimal pain. Preferential hiring at the new companies, retraining subsidies for those out of work, and perhaps even subsidies for the bondholders taking a reorganized Telmex out of bankruptcy seem appropriate in a civilized society. Letting the shareholders take their lumps provides all the discipline needed to keep other directors and managers firmly focused on their futures.

What Mexico has to watch out for, though, is any attempts Telmex might make to influence legislators and regulators to suppress smart radios through inaction. Telmex might just argue that letting the foreign shareholders take their medicine will hurt Mexico's international image. In truth, opening Mexico's spectrum up to build the world's first modern telecommunications infrastructure would attract huge volumes of foreign investment to every sector precisely because Mexico's youth would know telecomputation business applications better than any other population in the world.

With its median age of 21 and more preschool, primary, and secondary students than the USA, just the announcement that Mexico was opening up its spectrum to the new low-interference technologies would instantly concentrate the attention of every forward-thinking investor on the planet. Now that the USA has blown its first chance by ignoring Gilder and Cox and turning its own telecommunications sector into a lawyer's paradise, a single bold stroke by Mexico could set this key sector's international agenda well into the 21st century.

Readers with questions or comments for Dr. White can call 011(525)595-6045, fax 011(525)683-5874, or email white@profmexis.sar.net

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