Telecom: QWST et als
Talking Telecoms: Predicting the Future
of the Telecom Industry
April 14, 1999 6:46 AM EDT
By Casey Freymuth
This week at Andersen Consulting's Global
Communications Forum, several industry
leaders shared their visions for the future of the
telecommunications industry.
Although many laid out company-specific
plans, several themes were prominent. Here
are summaries of three of them.
Don't Expect Earnings from Next
Generation Companies
It's no secret that most of today's tech stocks
are traded on a supply and demand basis as
opposed to a traditional earnings basis.
Qwest (quote, chart, profile) CEO Joe Nacchio
boldly informed the audience that he often
jokes with his chief financial officer that he
wants to be the executive officer of a company
that doesn't turn a profit.
Although many analysts have projected that
Qwest will turn a profit as early as the fourth
quarter of this year, Nacchio confesses that
he is more interested in using available capital
for expansion than paying dividends - at least
at this stage.
When asked about whether the high market
caps of young telecom and Internet
companies are justified, he said he views the
market as currently being at an inflection point
that, when later reviewed in a historical
context, will be recognized as the launching
pad for the information-driven economy.
He also indicated that he does not see
incumbent telecom companies evolving to
become the growth companies of tomorrow,
implying that investments in companies like
his are better for long term investors.
Historical Profitability Is a Competitive
Disadvantage for Incumbents
Deutsche Telekom's (quote, chart, profile)
Chief Strategy Officer Thomas Baubin honed
in on this dynamic as well, quoting America
Online's (quote, chart, profile) 1998 annual
report wherein the company said it didn't plan
to issue any dividends for the foreseeable
future.
He specifically identified the small but
well-capitalized, Internet-driven companies as
challenges incumbent players have to face in
the market.
Traditional operators do not have the ability to
inform shareholders (or dare take the risk) that
they are no longer going to issue dividends but
instead are going to use would-be profits to
fuel growth for an indefinite period of time.
In casual discussions at informal events,
participants actively engaged in speculative
discussions as to how the public would
respond in a company like US West (quote,
chart, profile), for example, would fair in the
public markets if it were to take such a bold
step.
Although no one claimed an accurate
prediction as to how the company would react,
there was unanimous agreement that it is
unlikely that we'll see such a move in the near
future.
There were advocates for profitability in today's
proceedings, however, as William Reddersen,
Bell South Corp.'s (quote, chart, profile) Group
President for Value Added Services expressed
that, ultimately, there needs to be a plan for
eventual profitability.
Meanwhile, Milo Medin, Chief Technical Officer
for @Home Network (quote, chart, profile)
boasted that his company will be profitable by
next year.
Confronting the Future Is a Matter of
Direction, Not Precision
What will the communications industry look
like five years from now? Level 3 (quote, chart,
profile) Chief Executive Officer James Crowe
indicated that, as little as three years ago, no
one could have foreseen the drivers of today's
telecom marketplace.
From his perspective, the same can be said
for the future. However, he did point out that
today's broadband applications are tomorrow's
narrowband applications, indicating continued
growth in fiber plays for high-end bandwidth
applications and wireless plays for the delivery
of narrowband services to consumers.
Mika Vehviläinen, Nokia's (quote, chart,
profile) executive vice president of its IP
Solutions Group, said that he believes that
none of the market projections for e-commerce
and IP usage are accurate because they are
attempting to project what cannot be seen.
He believes all projections will prove too
conservative as innovative services are
developed and deployed.
Qwest's Nacchio earned the quote of the day
on the subject. Claiming that he had no idea
what he would be doing in five years, never
mind the industry, he said that speed
overwhelms precision in this world and that
picking the right direction will get these young
companies to their proper destinations.
"When you're surfing, you always look better
when you're surfing on big waves," he said,
referring to the Internet wave that is washing
the world over.
Casey Freymuth is president of Group IV,
Inc., a Phoenix-based strategy consulting firm
to high tech industries that publishes "The
Telecommunications Service Provider: How
Much is it Worth?" - a comprehensive report
on values and drivers in the communications
industry. His Talking Telecoms column
appears every Wednesday. |
