The Greening of Information and Communications Technology and the New Compliance Ecosystem

By: Grant Seiffert, President, TIA

Picture yourself the product director for a mid-sized manufacturer whose first international product line is due to hit the shelves in the European Union (EU) just before Christmas. After countless quarters of hard work – growing your company, making the right deals with component or chip vendors and even carriers – your team hit its biggest deadline in stride and you’ve even shipped the product. Now, you’re just waiting for the marketing team to bring it all home.

And then you get the call: a compliance violation in the EU. Your handset’s battery doesn’t meet the region’s new lifecycle requirements, so it’s perceived as contributing to a growing environmental problem. In the blink of an eye, even though you’ve met every regulation in the United States, Brazil and China, you’re out of a major market.

If this sounds like a nightmare, it is. Fortunately, it’s not a frequent occurrence in today’s logistics-and-data-driven consumer market, but environmental compliance failures have kept companies’ products off the shelves in overseas markets on many occasions. The financial hit of such an event is only compounded when the violating company has taken pains to comply with environmental regulations in its native country, or even globally, but missed a new development in one crucial market.

Vendors of products at every stage of the telecom supply chain – chipsets, software, components and handsets – face a globalized economy that they have by and large embraced. But globalized markets don’t necessarily mean globalized environmental laws. As more markets open to the information and communications technology (ICT) industry, and climate change and other environmental concerns motivate governments worldwide to act, we’re witnessing an emerging patchwork of regulations being established region by region. Some of these new regulations may run contrary to previous trends, and in some cases may fly completely beneath a vendor’s radar.

Another developing trend is toward product-based regulation. For years, governments have calibrated environmental standards to the perceived impact of manufacturing facilities. The conventional image, for example, is of an EPA expert enforcing the Clean Air Act by measuring mercury output from a factory somewhere in our nation’s heartland. Over the past three to five years, however, there has been a move toward regulators scrutinizing the products those factories produce more closely, rather than the facilities themselves. Factors like handset lifecycles, battery life and LCD screen disposal methods are watched ever more closely by the various bodies authorized to set such standards.

This means that ICT companies will face new challenges for securing and maintaining market access where these new environmental regulations come into effect.

Manufacturers and vendors, particularly those that partner to make the handsets and computers that network the world, must now ask themselves, “Will the handset we sell in Vermont need to be different from the handset we sell in Europe? In Brazil? What about Israel or China?” In many cases, these questions affect every step of the product development cycle, reaching through the design process and often as far back as research and development.

This is not to say that everything is changing haphazardly, or that uniformities are not emerging. A significant example of this is Europe’s RoHS (Restriction of Hazardous Substances) Directive, which works to restrict the level of hazardous substances in the manufacture of electronic devices – essentially phasing in the maximum concentration levels for these chemicals among member states of the EU. It states: “Member States shall ensure that, from 1 July 2006, new electrical and electronic equipment put on the market does not contain lead, mercury, cadmium, hexavalent chromium, polybrominated biphenyls (PBB) or polybrominated diphenyl ethers (PBDE). National measures restricting or prohibiting the use of these substances in electrical and electronic equipment which were adopted in line with Community legislation before the adoption of this Directive may be maintained until 1 July 2006.”

The RoHS Directive is in a sense quite stark. It met with some resistance, to be sure, even among ardent environmentalists, including disputes over exemptions and a potential rebranding loophole. But the importance to electronics manufacturers of the European market, with its handset penetration rates of more than 100 percent (on average, every person in the region owns more than one handset), coupled with the EU’s willingness address violations rigorously, means that compliance was ultimately inevitable. Now fully in place, the RoHS Directive has in short order accomplished an intriguing feat: it has played an outsize role in shaping the global supply chain.

In the past two years, we’ve seen China adopt a modified version of RoHS, as has South Korea. Japan took on a labeling scheme inspired in part by RoHS, and recently California – which is authorized by U.S. law to set standards at the state level that exceed federal stringency regulations – adopted RoHS-like rules as well. Other U.S. states have enacted what amounts to RoHS a la carte, including minimum required notice rules and many single-substance restrictions. More states are studying specific substances for eventual phase-outs.

Companies are increasingly getting in line with RoHS or RoHS-like compliance. This is happening because in today’s logistics-driven supply chains, manufacturers quite literally have no idea where a specific handset or PC will end up when they start engineering it. Shipping costs, labor strikes, natural disasters and simple market fluctuations can change product deployment plans on a metaphorical moment’s notice. If smartphones designed for compliance in India end up in Indiana, manufacturers are learning that they’d better meet the appropriate environmental standards. In an industry with such narrow margins, at a time when vendors are competing for the business of ever-fewer consolidating carriers and service providers, a compliance failure that pulls significant inventory off the shelves could be a major disaster.

For electronics and communications manufacturers, the primary challenge becomes avoiding surprises that could restrict a company’s ability to manufacture or market products. In-house or third-party environmental consulting with robust forward-looking capabilities is essential. This clearly includes tracking emerging emissions and product-content standards. But it also must account for the ability to navigate the maze of new collection, recycling and end-of-life management mandates, to track the multitude of global legislative action, and to effectively deal with the very serious corporate social responsibility liability for the ICT industry as a whole.

In the end, manufacturers need to think about how they can work with legislators and agencies at all levels of government, environmental and consumer non-governmental organizations, and various standards-development organizations to promote globally-harmonized approaches to detecting materials of concern. This can be done at either the legal or the technical level, or both.

Over time, of course, the goal is to bring global legislative and regulatory regimes into harmony as well, whether through bodies like the International Telecommunication Union or through effective free trade agreements like those recently signed between the United States and South Korea, Peru, Colombia and Panama. There are more encouraging signs. Of particular note: the Environmental Protection Agency is developing national R2 (Responsible Recycler) guidelines that should provide a solid base for future state-level enforcement.

What we still don’t know is precisely how Congress will affect the proceedings, let alone the many bodies setting the rules worldwide. In the case of the trade agreements, for example, only Peru has been approved by Congress, and the other three, while alive and well, are likely to face opposition or indifference in an election year where the status quo rules.

That is why solid environmental intelligence and management are so essential. ICT manufacturers need to have the right kind of integrated product managers, design teams and compliance teams, and each must have a mechanism for properly understanding what the others are doing. Without those tools, vendors will find themselves increasingly affected by the multiplicity of compliance bars they must meet.

It’s an issue that goes right to everyone’s bottom lines, in our industry especially. If an auto manufacturer fails to meet U.S. standards, or even EU standards, it can face very stiff fines. But a telephone is much easier to pull off the shelves than a car is to pull out of a showroom. Losing a sales cycle simply for failing to be aware of the latest compliance debates, or for misreading a developing nation’s commitment to environmental legislation, is something profoundly more damaging. It’s a worst-case scenario a well-managed compliance team will help vendors avoid. IT

Grant Seiffert is President of the Telecommunications Industry Association. Seiffert joined TIA in 1996 as Director of Government relations. He was promoted to Vice President in 1998, directing domestic and global policy to help the association’s supplier members gain marketing opportunities around the world. In that role, he oversaw policy, including interaction with the U.S. Congress, the FCC and the Administration, as well as with international regulatory bodies and government leaders, and fulfilling the senior management role for association membership and TIA tradeshows. He succeeded Matt Flanigan as President in January 2007. Prior to joining TIA, Seiffert served five years with Senator John McCain (R-Ariz.), former chairman of the Senate Commerce Committee. He holds a Bachelor of Science degree in political science from Radford University.

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