Tuesday, July 23, 2002
One attorney said the industry is going through a period of reassessment.
CHRISTIAN SCIENCE MONITOR
NEW YORK -- WorldCom's massive bankruptcy marks a turning point for the nation's troubled telecommunications sector.
The question is which direction it will go from here -- toward a historic collapse that could spread to other industries, or to firmer footing for the future?
Optimists argue this is a networked nation. People are still picking up the phone, while businesses send billions of bytes of data over the nation's telecommunications system, despite WorldCom's record bankruptcy filing. Thus, the industry will survive.
Pessimists say that other major telecommunications companies face the same woes as WorldCom: They simply can't compete in a free market where fierce price competition undercuts needed long-term investment. Already, the industry's decline has been startling: By some estimates, it is one of the biggest business failures in U.S. history -- bigger than the dotcom crash and the fall of the railroads in the 1890s.
Still, there is general agreement about one thing. The overcapacity and huge debt loads built up during the 1990s -- which scared off investors, making the situation even worse -- will give way to a period of consolidation. That could result in higher prices overall for consumers, but also a more stable industry.
"It's the great tidal event that the telecom industry was waiting for," says Owen Kurtin, a telecommunications attorney with the law firm Salans in New York. "There's not a lot more that can happen. I think we're going to go through a period of re-examination now that looks at what services people actually need, what capacity is needed to support it, what business models can survive."
What analysts say
Analysts believe the companies that are going to survive are the larger, more stable ones that already have a customer base, solid revenues and real products and networks -- like the Baby Bells and AT & amp;T. And there will be fewer of them. The industry faces several waves of consolidation that could include the first mergers of local and long-distance companies. "There's too many competitors slicing the pie too thin," says Jeff Kagan, a telecommunications analyst based in Atlanta. "Not enough have a big enough market share or a big enough revenue stream. And when you slice the pie too thin, nobody wins."
Consumer activists contend the problem goes far deeper than simply too much competition: There's not enough regulation. They note that telecommunications companies, like electric utilities, require long-term investments to build their infrastructures. During the 1990s, investors bought telecommunications stock without caring that the companies didn't show any profits.
But when the dotcom bubble burst, investors suddenly started to worry about all of that red ink. That set off a selling frenzy, with equipment suppliers like Nortel Networks and Lucent Technologies being hit first, then service providers like WorldCom and AT & amp;T.
"The answer is that maybe these are utilities that can not be run on the high risk, short-term view that absolutely pervades the rest of our economy," says Mark Cooper of the Consumer Federation of America.