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Wednesday, October 13, 2004

Telecom Costs Less But Consumes And Provides More

Thomas Malone argues that continuing reductions in the unit cost of communication are changing the face of business, leading to decentralization, innovative use of markets, and eventually, workplace democracy. This article in the MIT technology journal argues,if you’re a CFO, you may be thrilled that the cost of corporate voice and data services continues to plummet, but if you’re sitting at home, all you see is one communications bill after another. Twenty years ago, an average US household(after adjusting inflation)spent 80$ on an average every month as against $200 to $250 today.when challenged with this data Malone says,he was referring to the unit cost of communications dropping, not the total cost. “When the unit cost of something goes down, people usually buy more of it,” he said, going on to explain that this "elasticity of demand" is unusually high in today’s telecom market. It’s so high, in fact that “when the unit cost goes down, people buy so much more of it that their total cost actually increases.” Malone adds, that users of information in many cases, have access to better information than was available to the most senior managers of GM, IBM, and the U.S. government back in the ’80s.”
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