LA Times -
A Pause, Then Big Growth for
Telecom
In the wintry aftermath of the 1990s
telecommunications boom, the promise of
new technologies and Internet services to
homes and businesses looks like a pipe
dream. But the boom was real and
transformed a century-old industry,
pointing it toward new possibilities on the
Internet.
Conventional thinking bemoans the
collapse of a "bubble," but what is
happening in telecommunications is a
perfectly normal shakeout of inadequate
concepts and companies. This could lead
to a revitalized telecom industry with a
bright future, as the development of
broadband Internet communications and
services gathers force.
Revenues in the telecom business more
than doubled in the last four years and will
double again in the next four, as
communication through wires, cables and
airwaves becomes the basic infrastructure of every business and a
greater essential in every home. To be sure, the casualty lists are
daunting. Global Crossing, builder of a fiber-optic network, has
entered Chapter 11 bankruptcy. Firms once hailed by Wall Street
as new-wave competitors of the old phone companies went into
bankruptcy last year, including Teligent, WinStar
Communications and Covad Communications Group.
Suppliers of network equipment--Nortel Networks, Lucent
Technologies, Cisco Systems--are treading water, hoping for an
upturn in telecom capital investment to restore their profitability.
Contemplating such destruction, it's easy to forget that there are
victors in the recent telecom wars.
The regional Bell operating companies were challenged by
newcomers and they responded, merging operations and adapting
their businesses.
Now SBC Communications, Verizon Communications and
BellSouth are giant companies with strong finances at a time
when capital is scarce for telecom ventures.
Qwest Communications owns US West, but Qwest has troubles.
Its fiber network is part of the great fiber overcapacity that
already has claimed Global Crossing.
But this is no longer the one-size-fits-all telephone industry.
Wireless telephone revenues nearly equal those of traditional local
telephone service.
Newcomers Vodafone of Britain--which owns AirTouch
Cellular--Nextel Communications and Sprint PCS are prominent
in wireless service, as are spinoffs or subsidiaries of traditional
firms, such as AT&T Wireless, Verizon Wireless and Cingular
Wireless, a joint venture of SBC Communications and BellSouth.
Americans are using a variety of media to communicate more
than ever--wireless and traditional phones, cable connections and
telephony through the Internet.
The industry is in a post-boom pause, and investment in new
facilities is restrained. But the pattern of headlong expansion
followed by consolidation has happened at least twice before.
After Samuel F. B. Morse invented the telegraph in 1842,
investors and entrepreneurs formed ventures and made and lost
huge fortunes for two decades before the Western Union
company emerged to lead the industry, writes historian Daniel
Gross in the Milken Institute Review.
The telephone itself saw enormous growth--phone usage grew
sixfold in the 1890s. Hundreds of companies crowded the field
until Theodore Vail in 1907 started to consolidate the industry
under American Telephone & Telegraph--the present-day AT&T.
The transformation of telecom today lies in the expansion of
broadband Internet communications and services. The number of
homes with broadband Internet connections by cable or digital
subscriber lines will grow from 17 million this year to
23.3 million next year and
28.3 million in 2004, according
to research firm Gartner Dataquest. That's 65% growth in two
years.
The Ciscos and Nortels, not to mention Internet component
makers such as JDS Uniphase, could see their business picking up
late this year and growing again in 2003.
But what immediately lies ahead for telecoms is a period of
intense competition.
"Competition in the next two years will pit Bell phone companies
against cable operators and wireless providers," says David
Cooperstein, director of Forrester Research in Cambridge, Mass.
able company Cox Communications, for example, is preparing to
offer voice telephony over its cable system. AOL Time Warner, a
major cable owner, and Comcast, which is acquiring AT&T's
cable operations, and other cable firms will push further into
traditional phone services.
Wireless companies will add information services to their phones,
and providers of hand-held computing devices, such as Palm and
Handspring, will expand their communication capabilities. The
prospect is for a competitive and technological free-for-all.
The federal government may back greater competition. The
Federal Communications Commission issued a rule last week that
views competition by the form of service offered--telephony,
computing, television programming--rather than by delivery
system, such as telephone line, cable or wireless network.
And a bill to encourage competition could come up for a vote
Wednesday in the House of Representatives, sponsored by Reps.
W.J. "Billy" Tauzin (R-La.) and John D. Dingell (D-Mich.).
Competition is likely to bring lower prices for consumers. AT&T
Broadband--the Internet service division of the long-distance
phone company--is already test marketing a $100-a-month flat
rate for all services.
''It would replace separate bills for Internet access, cable and
telephone services and could be competitive'' Cooperstein says.
As more people have access to broadband Internet services,
experts expect many aspects of life to change. Customers with
broadband Internet access typically spend 25 hours a week
online, compared with 7.5 hours for customers with today's more
prevalent dial-up access.
Fred Chang, head of SBC's technology subsidiary, foresees
customers with broadband access dispensing with newspapers,
radio and television and instead turning to the Internet for news,
information and entertainment.
Services will proliferate, says investment manager Kelly Pan of
Pantheon Capital in New York. Already some fallen dot.coms are
becoming profitable, Pan says, citing IVillage , the Internet-based
service for women and new parents, and Autobytel, the
Irvine-based auto marketing service.
The next two years will be a time of technological development to
bring down costs, says venture capitalist Brad Jones, of Redpoint
Ventures. His firm raised $1.25 billion in late 2000 to invest in
new firms working with lasers and optical components for
Internet networks.
So far, Redpoint has invested $200 million of that money in
start-up companies, such as Sabeus Photonics of Long Beach,
Asymmetric Integral Photonics of Princeton, N.J., and Telasic of
El Segundo.
"We're not impatient," Jones says. "For broadband Internet, we
invest looking ahead five years."
That's a good perspective for an industry with a big future.
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