The Telegraph
Since 1st March, 1999
Email This PagePrint This Page
End to telecom travails in sight

New York, Oct. 21: Don’t send out an SOS for the telecommunications equipment industry just yet. Michael K. Powell, chairman of the Federal Communications Commission, urged in a speech this month that telecommunications companies spend more on new equipment to ensure the survival of big suppliers like Lucent Technologies, Nortel Networks and Cisco Systems.

The carriers’ own recovery, he said, depended on the ability of those and smaller equipment makers to remain solvent enough to continue developing new technology.

As their industry’s brutal recession continues, it does seem increasingly likely that flagship vendors like Lucent and Nortel may be forced into bankruptcy or some other revamping that wipes out most or all of the investment of current shareholders. But the giant carriers like AT&T, SBC Communications and Verizon see no need to write relief cheques to the equipment industry.

Industry analysts say, and equipment makers privately agree, that the key suppliers will probably live on — although as smaller enterprises — by focusing on products and services pegged to equipment they have been selling to the carriers for decades.

“You can’t underestimate the value the carriers put on the people who understand their legacy networks,” said James Slaby, an analyst at Giga Information Group. “Lucent and Nortel will survive as profitable $ 7-billion companies with fewer business lines.”

By that standard, both companies are still considerably overweight: Lucent’s revenues topped $ 10 billion in the first nine months of this year, and Nortel’s were just over $ 8 billion. But Lucent is smaller than it was when the company had annual revenues exceeding $ 30 billion in the late 1990s. And Nortel is a shell of the enterprise that had $ 29 billion in sales as recently as 2000.

Carriers can also take comfort that newcomers like Cisco, which rode business demand for data networking and the internet boom, are increasingly focused on the carriers’ need to migrate from networks originally designed for voice traffic to delivery systems dominated by data and bandwidth-hungry applications like video. And even though research investment has been scaled back, and many venture capital-financed start-ups will fail or be acquired at bargain prices, no one expects a shortage of new technology for sale in the future. “Innovation has to slow, but we are not going to enter a dark age of innovation,” said Steven Chaddick, chief strategist of Ciena, a leading manufacturer of switching products for both long-distance and metropolitan-area networks.

In fact, the telecommunications recession highlights the way long-term technology trends can be largely unaffected by forces that can wreak havoc on individual companies. Particular solutions for problems like signal switching, high-speed connections or turning on new services may disappear for lack of investment. But newer solutions are continually being created.

“Most people being let go are in the development side, not research,” said Frank Dzubeck, president of Communications Network Architects, a consulting firm based in Washington. “What’s happening is that the train is passing some stations. The industry will start up again with the next generation at better price points.”

Email This PagePrint This Page