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Telecom
Behind
the Slump
By: John Thompson
If there were industries that
avoided the widespread unraveling of the
U.S.
economy before the Sept. 11 terrorist attacks,
telecommunications was not among them. September 2001 found much
of the industry already in a bad way. The attacks merely landed
another blow by shrouding the outlook in uncertainty and
paralyzing decision-making.
Telecom has taken a
wild ride in recent years. Deep deregulation—starting with the
breakup of Ma Bell in 1984 and followed by the
Telecommunications Act of 1996—made the industry ripe for
growth. Forecasts of boundless demand and quixotic hopes of high
margins in the late ’90s spawned a deluge of new service
providers, unprecedented debt issuance and capacity expansion.
Sales didn’t come in
as expected, though, and the bubble burst, forcing firms to
revise earnings forecasts downward and adjust investment plans.
When telecom purchases stalled, manufacturers slashed jobs, sold
divisions and liquidated assets. Additionally, deregulation
didn’t go far enough to open local networks, which hurt new
entrants’ ability to turn a profit. Now the industry suffers
from glutted capacity and burdensome debt loads, which have
spurred widespread corporate credit rating downgrades and
bankruptcies.
Although some believe
telecom may have bottomed out during the second half of 2001,
the industry seems likely to languish for some quarters before
improving markedly. Recovery will probably lag an upturn in the
overall
U.S.
economy due to the
industry’s oversupply and investor reticence.
Telecom
down
well before September
Few sectors have been
as hard-hit as telecommunications. From its high in March 2000
to September 2001, the Standard & Poor’s (S&P)
communication-equipment manufacturers index fell 86 percent,
wiping out $793 billion in shareholder equity. The S&P
long-distance services index fell 65 percent and the S&P
communication services index fell...
...Continued
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