Telecom Builders Lost at Sea
By Derek Moscato, AsiaWise
20 Mar 2001 12:30 (GMT +08:00)
It's hard to believe that just over a year ago, international fiber optic network builders were the toast of the investment community. Today, they're sharing the blame in what one telecommunications company has called the industry's "nuclear winter". Another well-known market commentator has gone so far as to call the situation "Telco Armageddon".
In the late 1990s and early 2000 – exuberance was the only emotion most of these companies knew. High-flying North American players such as Global Crossing, Level 3, Qwest and 360 Networks were not just honing in on building networks from New York to Los Angeles, but capturing a lucrative global market for high-speed bandwidth amidst a technology revolution.
First it was the transatlantic links, connecting cities like Boston and Halifax to European hubs like Dublin and Liverpool. Not long after, the industry set its sights on what was considered the next frontier, and for many investors, the real prize: Asia.
And while the deal making continues from India to China and Japan, many of the industry's leading companies are mired in concerns over plummeting stock valuations, analyst downgrades and soaring debts.
At the same time, many experts believe that the industry is beset with a bandwidth glut -- and that it could be years before the demand for bandwidth meets or exceeds the supply currently available. "There are huge economies of scale in this industry, so there's an incentive to create these giant networks," says Tim Stronge, director of research with Washington, D.C.-based TeleGeography. "But the prices have been falling rapidly, and continue to do so -- it's no longer a high-margin business."
Still, diminishing revenues and mounting competition haven't been enough to stop the build-out of Asia. The industry's heavyweights know that Tokyo, Hong Kong and Singapore are as vital to a global network as London, Paris or New York.
Not that the big picture matters to investors. They've hammered stocks like Asia Global Crossing. The company, whose largest shareholders include Global Crossing, Softbank, and Microsoft, made its disappointing Nasdaq debut last October.
Earlier this year, the company celebrated the Hong Kong landing of the first segment of its East Asia Crossing cable system. The network will also connect South Korea, Japan, Taiwan, Singapore, the Philippines, Malaysia, and, depending on the mood of regulators, China. That -- combined with growing analyst coverage from Wall Street and a renewed sense of optimism for the markets at large -- helped buoy the stock to a new high in late January.
But today, the stock is now treading water at about $5.50, close to its year-low and well off a 52-week high of over $11.
Asia Global, and other companies in the sector, are facing a funds crunch at the very time they need the dough to finish their networks in Asia and beyond. That, in turn, has been the catalyst for new alliances and partnerships.
Fiber optic network builder 360 Networks of Vancouver, for example, has also hit hard times. It's been working with SingTel subsidiary C2C installing undersea links to the same countries Asia Global is aiming for. The alliance underscores the need for international companies to ally themselves with regional players in order to quickly lay down networks.
But again, investors aren't very interested. Because of lowered financial expectations for 2001 issued earlier this month, 360 stock is trading at an all-time low of under $4, compared to a 52-week high of over $24 on the Nasdaq. The company is also listed on the Toronto Stock Exchange.
New York-listed, Bermuda-based Tycom is also trading near its year lows. In late-February, the fiber networker announced an agreement with DishnetDSL Limited of India to build an undersea link from the subcontinent to the U.S.
The deal will see TyCom build a 19,000-kilometer high-capacity undersea ring network -- known as the South East Asia Cable Network -- linking India (from Chennai) with Singapore, Jakarta and Guam -- where it will connect with another TyCom network extending to the U.S. The India-to-Guam link via Singapore is to be completed by the second quarter of 2002, and the ring connecting Guam to India via Jakarta is to be finished by the first quarter of 2003.
But that deal, along with other grand and global schemes, has been greeted with a collective yawn from investors.
Valuations on telecom stocks, whether regional or international, are down like never before. Despite the fact that figures pointing to hyper growth for bandwidth uptake in Asia are being thrown around with reckless abandon, investors with short-term agendas know better.
It will be years before the true market for fiber optic networks makes itself known -- and there's no guarantee the news will be good even then.
asiawise.com |
