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To: KK/MICH who wrote (9360)	11/18/1998 6:50:00 PM
From: Pamela Murray	Respond to of 12468

Bonds and Discipline Karen Lynch Everyone is counting on new competitive entrants to create a vibrant local services market. But who's actually betting on them? Not Wall Street, given today's volatile financial markets. Most of the so-called CLECs have been trading well off their 52-week highs recently. The bond market for these competitive local exchange carriers dried up sometime late last spring, according to Mark Langner. As an analyst at the investment bank of Hambrecht & Quist, Langner sees investors continuing to cool their heels during the current (apparent) recovery. They want to make sure this is the real thing-or as real as it gets on Wall Street. What a change from the early days, a year or two ago, when investors threw money at most any CLEC that came along. At times like these, an industry's got to do what an industry's got to do. For the telecom equipment sector, that means infusing the service sector with funds to keep the market moving. Lucent Technologies has stepped up with $2 billion to help WinStar Communications finance its buildout of a wireless local network in 50 cities-using Lucent equipment, of course. Companies like Cisco Systems and Siemens Information and Communications Networks are also acting more and more like investment bankers these days, they say, providing financing not only for their own equipment but also for the purchase of other manufacturers' wares. Siemens, which says it has $100 million invested in U.S. CLECs today, will even provide some operating capital. More and more manufacturers are ponying up every day. It's not like this hasn't happened before; equipment vendors have been known to use financing to prime services markets. In today's CLEC market, though, it's happening on a much larger scale than we've seen before. If this all sounds like new money for nothing, it's not. There could be strings attached. CLECs may find their equipment options reduced to the very big vendors with very deep pockets. They could wind up indentured to their suppliers. They'll certainly feel the pressure if good times aren't around the corner, since some manufacturers like to sell this kind of debt off to the banks as soon as the market improves. At the very least, CLECs are beginning to face a greater burden of proof. Companies like Siemens only look at CLECs with a solid business plan and some hefty backers already lined up, says Frederick Fromm, president of Siemens Information and Communications Networks. If and when the stock and bond markets revive (the CLEC Covad filed its initial public offering a few weeks ago in anticipation of just such a revival), a new discipline is also expected to govern investors' approach toward CLECs. More than anything, investors will want to see these companies go cash flow-positive in at least a few markets before they continue to shell out. As we bring you tele.com's third Annual Report of the Global Public Network, the outlook for this pivotal market sector is clouded. But here's the silver lining: The recent lack of capital is forcing discipline on the CLECs, which could strengthen the entire market in the long run.