From St. Paul Pioneer Press 3/30/01
pioneerplanet.com
Telecom sector caught in broadband quandary
DSL too costly, says ex-ADC chief Cadogan
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JIM MCCARTNEY STAFF WRITER
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The cloud over the telecommunications industry that has prompted massive layoffs at ADC Telecommunications and its rivals will not likely lift any time soon.
That's according to Bill Cadogan, who retired as chairman and chief executive of Minnetonka-based telecom equipment supplier earlier this year and is now a partner in St. Paul Venture Capital.
Cadogan, who spoke to a group that included leaders of emerging companies, investors and advisers in St. Louis Park on Wednesday night, said that long-distance telephone carriers are caught between switching from their old circuit technology to broadband technology, such as DSL (digital subscriber lines). Although broadband enables homeowners to enjoy all the latest bells and whistles of the Internet on their home computers, those homeowners are not willing to pay enough for the new service to justify the cost of installing it.
It's a dilemma that Cadogan calls ``DSL hell.''
``On average, there's a $500 upfront cost per home for service providers to upgrade to DSL, and that's a major impediment to DSL deployment,'' Cadogan said. On the other hand, Cadogan asks, how much should telephone companies invest in their older systems when this new technology is available?
Cadogan sees no quick fix to this problem, and he expects the industry to remain in ``DSL hell'' for at least a year.
He advocates one solution in the ``Broadband Internet Access Act of 2001,'' a bill pending in Congress that is backed by the Telecommunications Industry Association of which Cadogan is chairman. The legislation would offer up to a 20 percent tax credit incentive to carriers who upgrade to broadband technology.
``The only stumbling block I foresee is if we get into an impasse over taxes or education, we could run out of time,'' Cadogan said.
Under Cadogan's decade-long leadership, ADC grew from a company with $259 million in revenue to $3.2 billion last year, and earnings grew at more than 40 percent a year. But the telecommunications industry has proved tough over the last year, and ADC's profit and sales outlook began to darken -- especially in the eyes of investors.
After hitting a high of $49 a share last summer, the stock closed Thursday at $7.59 a share. Cadogan, who is receiving an annual salary of $742,000 as an adviser, can earn up to three times that salary in bonuses and has $4.4 million in deferred compensation coming to him. He holds or has options to buy more than 8 million shares in ADC, nearly 1 percent of its shares. |
