Fighting obsolescence

Fighting obsolescence

Delaying new technology is self-defeating, argues Paul Hunt, managing director of Phoebus Software

For economic historians, the name Phoebus immediately brings to mind one of the defining moments in the development of modern corporate practice. While I’d like say it’s because of our company’s gleaming contribution to lender software, the reason is rather darker and – fortunately – completely unrelated. The Phoebus lightbulb cartel was an agreement between Osram, Philips and General Electric that lasted from 1924 to the outbreak of the Second World War. It was the first time the world ever saw a formal agreement to design and produce products with planned obsolescence. The cartel levied fines on members who manufactured bulbs with life expectancies greater than 1,000 hours, allowing the cartel to scale back R&D, artificially hike prices and enormously boost their profits.

The planned obsolescence model proved popular. Since the Phoebus cartel was set up, car, tyre, white good and software manufacturers have all used it to their benefit. But products with limited shelf lives aren’t always bad. While the development of low-energy and longer-lasting bulbs was undoubtedly slowed by the practice, many consumers don’t want products which last forever. How many people buy a car in the expectation it will see them through for the next 30 years? There’s no point spending a fortune on excessive R&D to make products more durable if consumers only want to hold onto them for a few months. While it has the potential to slow innovation in a cartel, building products with a replacement in mind prevents consumers from persevering with ancient and outdated products. It also forces manufacturers to deliver new generations of products with better capabilities than their predecessors.

And it’s certainly less destructive than delaying the arrival of new technology by bickering over who can enjoy the best of the spoils. The antediluvian rush to eke out the most from an outdated product or system by seeking to delay improvements by competitors is even more damaging than the creation of cartels.

Take the UK’s feeble efforts to establish a 4G mobile network. The first 4G network was launched six years ago in South Korea, but in the UK, Ofcom has announced the spectrum for a 4G network won’t be available until at least the middle of 2013. Even then, legal action between network providers threatens to put implementation back even further. T-Mobile’s attempt to use some of its 3G spectrum to support a 4G network immediately led competitors to appeal to Ofcom to prevent any such move. Ultimately, it’s the consumers who lose out.

Despite their non-cooperation, the approach of the UK’s network providers to 4G has exactly the same impact as the most invidious forms of planned obsolescence. Something that is technically possible and has been for years is being withheld from consumers due to an effort by service providers to maximise their profits. Using an outdated network will inhibit technological innovation and provide a disincentive for investment in the UK. Failing to respond to the fact that 3G has reached the end of its lifespan is, for the UK, the high road to economic obsolescence.

The key is for consumers to appreciate the potential damage that slow technological development by suppliers is doing to them. If Phoebus Software were to revive the eponymous lightbulb cartel in the mortgage industry, it would condemn lenders and servicers to old systems which fail to meet the growing demands of regulators for interactivity with borrowers. It would mean systems which give our clients limited ability to rationalise legacy systems, which are inflexible, expensive and immobile. Our clients’ needs are constantly becoming more complex and the ability to respond when improvements are available is the only way we can ensure we continue to offer the service they deserve.