[Insight & Opinion] Revisiting "Bubble Warnings" Through the Telecommunications Industry

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Learn from Past Failures and Prepare for the Future

It is now hard to find the names of the giants that once dominated the market when the internet first emerged and mobile communications were booming. Nokia and Motorola are among the most prominent examples. New players have taken the places they left behind. The rapid development of mobile communications and the advent of smartphones led to an exponential increase in mobile traffic, allowing companies such as Apple, Google and Amazon to reach market capitalizations of several quadrillion won and form a new group of market leaders.

The traditional powerhouses largely disappeared into history because they failed to respond adequately to the emergence of new technologies. The bursting of the bubble that had filled the market also played a significant role. Still, it is hard to deny that the companies themselves were more to blame for failing to prepare adequately. There were plenty of warning signs along the way, but they did not take them seriously.

The same will likely be true of artificial intelligence (AI) and semiconductors, which are leading the market today. It seems inevitable that new technologies and players will emerge, bringing new competition. For today’s leaders to hold on to their positions, they need to look back at the companies that disappeared. They must revisit past warnings of a bubble and work to anticipate and prepare for the future.

To take a look back at the telecommunications industry as a whole, in its early commercial days, the internet was accessed by connecting a dial-up modem to the public switched telephone network (PSTN). At the time, the maximum speed was about 14.4 kbps (kilobits per second). Today, speeds are measured at around 1 GB even on mobile devices, making them more than 100,000 times faster than they were back then. The range of services available over the internet has also expanded considerably from basic corporate email and early browsers such as Netscape.

As the internet spread, the telecommunications industry sought ways to increase speeds using existing landline networks. Integrated Services Digital Network (ISDN) offered 64 bps, followed by the launch of xDSL. Offering speeds of 8 Mbps, xDSL drew attention as an innovative technology that extended the existing landline network. However, these efforts were limited to adding internet service on top of existing voice telephone services. Data communications then grew explosively over the internet, giving IP communications an advantage because they were better suited to handling data traffic. Even voice and video communications became possible over IP.

As a result, companies such as Cisco, which had focused exclusively on IP communications from the outset, prospered. In contrast, Nortel, Lucent Technologies and Alcatel, which could not abandon traditional voice communications, eventually faded away. As demand for internet traffic continued to grow, telecommunications companies that had invested solely in communications equipment changed course. The IT industry was plunged into a panic almost overnight. Companies that had inflated their results to boost their share prices were hit hard. Telecommunications companies whose shares had been trading at $100 each saw their prices plunge to as low as $1 within just a few months.

Today’s stock market is not so different from the boom period before the telecommunications industry’s collapse. It is heated to what seems like an excessive degree. This is concerning because it could lead companies to fixate solely on improved results and figures, blinding them to changes and realities. Results and share prices could fall again someday. If companies are unprepared, they could find themselves unable to do anything about it. They must keep this in mind and stay the course. They must not be swayed by government policies or market conditions, and they also need the ability to make sound judgments for themselves.

Hongjin Kim, CEO of Work Innovation Lab

This content was produced with the assistance of AI translation services.