They say the recession is ending
They are everywhere. Nary a day goes by that I don't get an e-mail or a phone call from “them.” Nor does a day go by that I don't hear or see “them” on over-the-air (OTA) or cable media. You know “them”; they are that ubiquitous sea of “experts” who think they have the corner on all the skinny about everything — including when the recession (oops…downturn) will end.
Sooner or later, the recession is going to end — That's a given. But as I write this around the end of February, things still look pretty bleak for a lot of companies. Overall business bankruptcies are at an all-time high. Leveraged debt and some long-term bonds that companies issued at the height of the stock market melee are looming on the horizon.
Even though visionaries like Greenspan and so many of the self-proclaimed stock market experts are telling us the “downturn” is over, I don't buy it. I think these pundits are simply leveraging market perturbations and marginal statistics to alter perception and jump-start consumer spending.
I believe it is difficult to predict when we will start a solid upward climb to better times, but I think I may have stumbled upon a clue as to what to look for — at least for the telecom industry.
I'm talking infrastructure. Despite all the hand-wringing about spectrum, buku bandwidth currently exists. Networks are underused. The predictions that broadband is going to hit the streets running haven't proven true — yet. Thus, it doesn't take a rocket scientist to figure out that, until we start using more of this bandwidth, we're not going to generate a lot of business in the support sectors (what we do).
Furthermore, consumers are tight-fisted right now — even though “they” say consumer confidence is up. When was the last time you heard how the wireless Web was expanding as fast as the big bang? When consumers get nervous, they shun superfluous technology. If you think they will run out and buy a Web phone when everyone around them is being laid off, think again.
Then there's a ripple effect — Most of the wireless design and development industry is at the end (or beginning, depending on whether you're an optimist or a pessimist) of the food chain. By that, I mean we are the infrastructure suppliers — hardware and systems. While there will continue to be a demand for products in the existing infrastructure, not a whole lot of 3G, broadband, multimedia, EDGE, IS-95, W-CDMA, wireless Web, etc. stuff will be sold until a 3G, broadband, multimedia, EDGE, IS-95, W-CDMA, wireless Web infrastructure exists (get my drift?). And, no 3G infrastructure will exist until the demand exists. (Read: killer applications/hardware, a high consumer confidence level and disposable income).
Statistics don't lie — If you look at the statistics, this makes sense. I just heard (as of this writing) that Sprint is down a whopping 61% from a year ago. It has scheduled a 3,000-person cut and is closing service centers (as if they had any “service” anyway). WorldCom's stock is off just about the same, and Verizon is wringing its hands in woe as well as it lays off another 1,000 people. Furthermore, even with maximum effort to control costs and sell something, these guys are keeping their fingers crossed that they can just maintain throughout all this.
Add to that Qwest and Level-3 stocks being at an all-time low, and the demise of Global Crossing and McLeodUSA, and it doesn't paint a pretty picture for the immediate future.
This tells me a couple of things. First it tells me, and this isn't news, that parts of the telecom sector were way overbuilt to begin with (at the height of the craze, there were 140-odd competitive carriers, for example). Much of it was also undercapitalized in real dollars (not dot-com dollars). So, of course, when the consumer stopped spending, the debt burden and overhead became insurmountable. Now the industry will pay the price for a year or two.
Second, I don't think that predicting the end of the telecom industry's debacle is that difficult. Pinpointing it, yes, but knowing when it's going to happen, no. Last year I was optimistic about things turning around by the end of this year — wrong. Now, as I try to digest all of the current financial information from the left, right and middle, I have to think we may be as much as a good couple of years away from exhaling (although I'm hedging my bet by saying that under the best of circumstances, we could see things start to pop by early 2003). But even then, debt load and “aggressive” future income estimates from betting on the “come” at the height of the market will come back to haunt some of these companies — even if the economy is turning around.
The road map to recovery — For our segment of the telecom industry, I feel we just need to keep our ear to the track and wait for the recovery of the carriers. When I start to hear them whine about not having enough bandwidth, I'm calling my broker.
I'm putting my money on Nortel as my barometer. When its stock starts a solid climb, I'm in for the long run (just hope it doesn't turn into another Enron).
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