Greg,
You are completely unaware of how much I have read on the telecom sector in the past two years. You are showing your naivete in a surprising manner here.
You are probably amongst the crowd that hears that the uptake of broadband connectivity among residential users of the data com system in this country is still a pitifully small number, with about 94% DUN connections extant. You see this as a reason to believe that we have a long way to go on the buildout of the Internet infrastucture. You probably believe that 3G wireless networks are going to change the world in the next few years. You probably believe that the future of the backbone is to operate at OC-768 and will do so within 2 years.
Let me assure you, this is the year that the CLECs are going to be decimated. These were the knights-in-shining-armor, the Don Quixotes who were going to change the telecom universe for the betterment of mankind. They are being slaughtered. Look at the recent sad demise of NorthPoint, for instance. A sweet deal with VZ brings them to the side of the mothership and in a moment of total betrayal, VZ turns its sixteen inch guns at NTNPQ and blasts them out of the water. Brutal? You betcha Done? Yup. Toast. Next? COVD? TGNT? WCII?
The incumbents in Europe engaged themselves in UMTS auction madness last year. They went USD125 Billion in the hole for a system that can't possibly roll out before 2004, and when it does it beggars the incumbent's GSM customer base. A double whammy on profits. Forrester Research is of the opinion that 3G is so bad an idea that the cellular industry is likely to slip into the red between now and 2006 and won't recover profitability until 2013! Is this a business model that makes you drool? Or a pipe dream created by a fantasy driven sell side blather machine.
Greg, not only is the telecom carrier sector in crisis, with shrinking profitability in the only part of the industry that was worth a shit as a business, i.e. long distance telephony, but now there is no one, repeat, no one mouthing the poppycock of the last two years about the utter necessity to modernize the plant in order to compete. Today the mantra is Cash is King. That poppycock about grow or die is history, my friend. The bondsmen have told the carriers in no uncertain terms that they are on an extremely short leash. There has been only a smattering of finance for the sector this year. MCLD and XOXO have managed to shake the junk bond tree and find some sustenance. Many, many others are completely shut out. Of the few companies that appear to have their network completions financed, you have to marvel at GX, which has changed its corporate direction three times in the last year. Keep that pace up and the $1.4 B. it has in the bank will soon be dissipated in ill-conceived ventures.
If you look at the optical component sector, what you find is massive over-investment by the VCs in Q3 and Q4 '00. Some of these companies, (bred like rats in an open granary, according to a network architect/wag) are already dying for lack of Series B financing. Yet those that slip through, and there are a significant handful like Amber, Calient, Chorum, Kymata, Lightwave Microsystems, Procket, Mahi, Yotta Yotta and a few others that are past Series C and have had eight figures to work with. These are going to ruin the prospects that JDSU or GLW will have the opportunity to become the Gorilla & Kings that some bulls rave about. Not only that, but JDSU may be its own worst enemy by increasing its manufacturing capacity by 300+% this year and assuring that the tight component market of the last 4 years is finally brought into balance. The huge growth in individual companies in the FO component sector is over. The market will adjust. It won't be pretty.
So what have we got in the telecom sector? Lousy and dimishing profits, a push to create a broadband future that parasitizes the most lucrative aspect of the ILEC empire, i.e. the T-1/E-1 and T-3 leased lines that are to be obsoleted by the xDSL revolution. And what do the bean counters at SBC, VZ, Q, BLS, BT, DT, FT etc. do? They stall the future as long as possible so they can depreciate the gear that is in place. They nurse along their 5ESSs, their SONET rings, ATM and all the other gear that is so absolutely critical to the five nines reliability of the circuit switched PSTN and they do their level best to fight off the encroachment of IP over WDM wunderkind like Level 3, GX, TSIX and their smaller bretheren. And in the meantime LVLT finds its dream of an IP over anything future is incapably of the latency requirements for toll-grade telephony and has to cease its dream midsentence and spend a quarter of a billion on LU's Softswitch kludge so LVLT can spill its VoIP traffic onto the PSTN to assure quality. Postponing the future that John Chambers so boldly proposed in Scottsdale at a telecom conference in December, 1999 with a banner "Voice will Be Free" in the background. Well, guess what. If voice goes free, there is no profit driver in telecom. Voice is 90% of revenues. Make it free and you have an industry that is committing seppuku.
And, oh, remember the OC-768 dreams and story. Well, there are at current less than 2 dozen OC-192 backbone links in place across the US, ostensibly the most wired country on the planet. Why no more than that? No demand. At least no demand that is willing to pay for the service. And therein lies the rub, Greg, for you see, the vast majority of those 94% of DUN - Internet connected individuals in the US just don't see any reason to upgrade to anything better. That's the big secret no one in the sell side promotion business ever wants to confront. I hope you do.
So, Greg, one of us needs to read more about telecom. But I believe you are pointing the finger instead of using it to turn the page.
Best Regards, Ray Duray, Owner
Tumalo Telecom
Bend, OR |
