Sue and all,
Please notice QWST as one of the possible new "brat pack", in the last sentence. Maybe this, not current PE, or earnings, are what people are banking on.
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Today's LATimes has an article on telecommunications worth reading if only for Sidgmore's comments:
latimes.com.
<<<Monday, November 10, 1997
DIGITAL NATION
You Thought Ma Bell's Demise Was Big?
The telecommunications business, MCI founder Bill McGowan used to say, is
"just like any other business, only with a lot more zeros." That's still true, and
there are even more zeros now. But these days people in the
telecommunications field seem to wake up every day to face a new world.
There are new regulations and legislation, court decisions that overturn
legislation, big and small mergers and acquisitions, and, of course, new
technologies that threaten to turn everything upside-down.
Even people in the industry, which is notorious for its jargon and
acronym-packed vernacular, have a hard time following what's happening from
day to day. So it's nearly impossible for the public to grasp what's going on.
But there are some big trends emerging that point to a profound shift in
telecommunications in the United States and elsewhere--and for reasons not
yet widely covered in the media. We may be on the leading edge of a
paradigm change as significant as the breakup of AT&T in the early 1980s.
So far, public attention to this industry has tended to focus on the new
environment of deregulation introduced by the Telecommunications Act of
1996 and on the subsequent wave of mergers, such as the marriage of Pacific
Telesis and SBC Communications, or that of Bell Atlantic and Nynex, all
formerly regional Bell corporations. The Telecom Act was supposed to foster
competition in services, but the mergers and the legalistic stonewalling of the
Bell companies have alarmed critics who think that competition in local
markets is being forestalled. This has produced countless droning editorials
about the need to speed up the process of competition in telephone service.
But meanwhile, in the background and beneath the radar of most
editorial writers, new companies and new technologies are emerging that are
likely to be the most important players in any future
arrangement of telecommunications. In fact, the larger and more
well-known companies, particularly AT&T, are beginning to look somewhat
desperate in the face of competition from new names that
most of the general public has never heard of.
The paradigmatic example is WorldCom, a company based in an unlikely
location for the headquarters of a telecom empire: Jackson, Miss. WorldCom
was pretty much unknown to most people outside the industry until it stunned
everyone by offering $29.4 billion in stock to buy MCI, which everyone has
heard of. (GTE promptly matched that offer, but with cash.) WorldCom was in
the news briefly before the MCI bid when it bought out CompuServe, handed
that service's customers to America Online and then kept CompuServe's
networking facilities.
WorldCom is now the largest Internet service provider in the world.
WorldCom President John Sidgmore was a featured speaker at the Technology
Summit, a Wall Street Journal-sponsored conference I attended recently in
New York. "Where is telecom headed?" Sidgmore was asked. His reply:
"Internet, Internet, Internet."
Sidgmore pointed out that Internet traffic is growing at about
1,000% a year, while voice traffic is growing at only 10% a year, a figure that
hasn't changed in decades. Sidgmore then surprised the audience with this
prediction: "In 10 years," he said, "when you look at what's being carried by
telecom lines, you won't even know voice is in there." Consider the fact that
the U.S. market for voice-based services is $125 billion a year now, and his
prediction takes your breath away. Sidgmore believes that the telecom
industry will be a
trillion-dollar industry early in the next century worldwide and that
all the signs point to the Internet as the key to its expansion.
Sidgmore noted, for example, that more than half of all international calls are
faxes, and once Internet-based faxing becomes widespread, which should
happen soon, that will punch a huge hole in the market of conventional
telecom carriers. So will Internet telephony. The capability of the Internet to
carry voice phone calls is limited now but likely to improve dramatically in the
near term. New Internet telephony companies are springing up all over, mostly
to capture the new business model of using corporate intranets to replace
voicemail systems and PBX switchboards.
Reed Hundt, who recently stepped down as chairman of the Federal
Communications Commission, believes that "there will be a war between the
circuit-switch business and the packet-switch businesses," as he told Red
Herring magazine recently. Circuit switches are what telephone companies
use; packet switching, a different technology, is what Internet companies
use. The outcome of this war "will make or break numerous fortune seekers,"
Hundt said. The older telecom companies are saddled with a large number of
liabilities: dated technology; corporate cultures far slower than the
entrepreneurial cultures of the upstarts; and an investor base that depends
on safe, reliable growth instead of the hell-bent riskiness of the newer
ventures. The older giants have tended to focus their strategies for
protecting market share on the techniques they know best, such as fighting
in the courts and lobbying legislators. But the new companies, such as
WorldCom, Qwest, Frontier, Brooks Fiber (recently purchased by WorldCom)and perhaps a reoriented MCI, will be big challengers--and not chiefly because of changes in regulation but because of immense changes in technology. If the Internet paradigm wins out, if packet-switched networks begin to succeed the circuit-switched infrastructure of the telephone network, then we may see several very familiar names become extinct. And several new names will be part of our household conversations.>>>> |
