Subprime 2.0 and the copyright mess

The IT industry by and large ignored the original subprime crisis, boldly declaring itself recession-proof, but Subprime 2.0 threatens to be much more viral.

The extent of the fallout from last week's partial meltdown of United States financial markets ultimately depends on whether the US Government's strategy of loosening monetary policy while sweeping the corporate corpses under the large carpet of the Federal Reserve proves sufficient to stem the carnage, or whether it prompts even bigger dominos to fall in the weeks and months ahead.

The immediate impact of the current crisis will be felt most by businesses that need to raise funds. Telcos and start-ups are in the frame.

You have to feel for Woosh, which is reportedly seeking $150 million of new equity investment to keep its WiMax dream alive. A difficult task has presumably just got a bit harder.

Telecom doesn't believe its $1.4 billion investment in a next-generation network is at risk. "We have of course been monitoring this situation carefully and will continue to do so, which is only prudent given the magnitude of the crisis," says spokesman Mark Watts.

But Telecom has limited near- term refinancing needs and its balance sheet is in excellent shape, he says. "Telecom has been proactive as the financial crisis has developed by raising $400 million through Swiss Bond Telebonds issues. In addition, Telecom increased its committed standby facilities to $800 million in May, and the next major refinancing is due in December 2011."

IDC Research country manager Amit Gupta says it is too early to predict what the fall-out will be on the wider New Zealand technology sector, but is relatively upbeat.

"There is bound to be negative sentiment that comes out of it for businesses and consumers, but it should be short-lived. I think what is probably going to happen is the sales cycle will get a little longer and companies will need to go through more due diligence for IT investments, because some conservatism will come into play."

"But we found companies now view IT as a source of competitive advantage and in tough times that could have a positive impact on IT spending. The need to create higher efficiencies and build a stronger competitive advantage will keep the IT market growing at a rate that you would expect from a mature economy." Let's hope so.

THE Government appears to be taking the extraordinary step of delaying, perhaps indefinitely, the implementation of an amendment to copyright legislation that it enacted and which received royal assent in April.

The clause causing concern says ISPs must "adopt and reasonably implement a policy that provides for termination, in appropriate circumstances, of the account with that Internet service provider of a repeat infringer".

A reasonable interpretation is that an ISP would have an obligation to cut off someone's access to the Internet if they had been convicted of a copyright offence more than once, while the ISP had compelling evidence that the customer was about to use their account to offend again.

But clearly there is concern that ISPs' obligations to cut off customers might apply in a far wider range of circumstances than that. Till those doubts are removed, the legislation is probably best left in limbo.