This is an ambitious book - so ambitious that failure was pretty much assured from the beginning of this analysis of a volatile industry. The flaws are not entirely Martin Fransman's fault. Only 20 years ago, telecommunications businesses in most countries were either state-owned or heavily regulated monopolies. Today, Alexander Graham Bell would not recognise his invention. The plain old black telephone has been upstaged by the shiny alloy mobile, a wireless wonder. More and more, calls are being placed to internet computers rather than to people. These developments, along with wireless "hot spots" - not even predicted in this volume - have overthrown the old order.

Then came the fall. Telecoms have seen a $2.5 trillion (?1.5 trillion) collapse of market valuation since March 2000. It would be difficult for anyone to make sense of this unprecedented event. But Fransman, a professor of economics at Edinburgh University, had the misfortune of seeing his book published just as the full impact of the bust was becoming clear. It affected established players such as AT&T and BT, as well as a slew of new entrants the author labels the F-4s - firms that are flat, fast, flexible and focused. He might have dubbed WorldCom (now MCI), Global Crossing and Qwest the F-5s for their fraudulent financial reporting.

Despite the timing, Fransman manages to raise most of the important questions, even if the answers are often less than entirely persuasive. He also provides an essential outline of the perplexing issues that industry executives, regulators, policy-makers and consumers need to face up to if they want to understand what went wrong and what might lie ahead. He focuses throughout on the importance of what he calls "cognitive frameworks" - an unorthodox paradigm, as he admits, for an economist. In plain English, he is interested in the "visions" held by those who shaped telecoms throughout the boom and subsequent bust. He is particularly intent on the supposedly "strategic" views held by the financial community, who advised on a multitude of corporate transactions, appraised corporate strategies and analysed financial results. Fransman offers reasons for the failure of sound analysis and good sense. Yet none of the explanations - bias and self-interest, inherent constraints on rational analysis, the Pied Piper effect - is convincing. Why did irrational exuberance triumph over common sense?

Fransman is preoccupied with the interaction between financial markets and what some refer to as the "real market" for telecom infrastructure and services. Inflated market valuations became the new currency for acquisitions and mergers and provided the impetus for the reckless bidding for third-generation (3G) mobile licences (now widely regarded as white-elephant assets). Overvalued acquisitions are being written off.

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Unsustainable levels of debt for 3G and other once-promising ventures are weighing down balance sheets and leading to shutdowns and lay-offs, and shareholder demands for redress of past excesses.

The telecom troubles may indeed be a result of these "cognitive frameworks", as Fransman insists. However, there is more to them. One of the most controversial figures of the market debacle, Jack Grubman, a now-discredited financial analyst associated with the ignominious collapse of WorldCom, was probably right when he said the blame for the fall ought to be shared more broadly. Fransman, for example, underestimates the contributions of policy-makers, chancellors of the exchequer (including Britain's Gordon Brown, who was an early advocate of the disastrous spectrum auctions for 3G licences) and government regulators. Public officials could, but clearly will not, take credit for the $2.5 trillion hole in the global economy and in stock portfolios of rich and poor for which the telecoms sector is responsible.

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Fransman might also have looked at how antiquated price regulation - a legacy of state control - created major distortions in investment in the sector. Similarly, he gives scant attention to the role of governments as exclusive sellers of spectrum rights. They in essence siphoned billions out the sector, without sharing the risks. Now these same governments are having to stand by while a rival technology - wi-fi (wireless fidelity) or wireless local area networks - spreads with infectious momentum.

In fact, the momentous potential impact of wi-fi underscores the need for further fact-finding and analysis. Wi-fi may not only eviscerate the market for 3G networks and mobile operators (which Fransman, apparently blind to the wi-fi phenomenon, sees as well-positioned for the future), it may also favour the more pervasive and rapid spread of voice-over IP (internet protocol) (VOIP) over wi-fi hot spots - bypassing both local fixed lines and wireless networks. This trend is likely to wreak havoc on the current pricing structures of fixed-line and mobile operators, and once again change the dynamics of competition.

To be fair, Fransman's book focuses more on the old order than the emerging players. Yet the impact of wi-fi needs to be understood. Financial analysts and corporate strategists will do their part, but so should regulators, who ought to restrain their inclination to micro-manage dynamic markets. They ought to stop tinkering with retail prices for the traditional black phones when consumers have mobile and VOIP options. They ought to stop imposing stealth taxes on electronic highways when they act as sellers of spectrum rights. Instead, they should assist in creating new information-gathering and assessment mechanisms that would enable players to see the big picture - constructing more reliable, better tested and more comprehensive "visions".

Robert R. Bruce is a partner in the international law firm Debevoise and Plimpton.

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