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Telecom Industry which was not so long ago pitted as one of the front runners in terms of employment capacity, RoI, long term stability and a sustainable growth sector with respectable contribution to the overall economy. It no longer seems to be holding up on its own with visible signs of cracking up at the core, which could very well spell disaster. When Analyzing the basic fundamentals of the industry, it does not take time to understand that Voice which was the prime earner for the industry no longer seems to rake in the amount of moola it used to for long time. This is primarily due to the Technological advancement, which made possible for Voice to be carried over data networks thus making the huge voice networks worthless and almost redundant. This has also resulted in huge loss of revenues for the biggies like the Nortel and Lucent's who did not face much competition in the Voice arena and thus were able to employ tens and hundreds of thousands of people. But with the advent of VoIP (Voice Over IP), even though the call volume has increased, but the size of the market in terms of sheer revenue has decreased considerably. To top it all we have hundreds of new Networking start-ups all over the bay area trying to get a slice of already shrunken pie. Let us look into some of the specific problems the Equipment vendors, Service Providers and other competitive start-ups are facing.
The big telcos are burdened by debt with ever decreasing revenues, which seems to be a steady trend. The new competitors are starved for capital as the venture capitalist have already been burnt enough and would rather prefer to sit on the side lines, watching the show. The equipment providers are on thin ice with low sales, nothing much on the horizon and feeling the pinch of wallstreet with falling stock value. The component providers are also seeing their revenue expectations unmet. This gives a fair idea of the state of affairs in the Telecom sector.
Broadband was looked upon as the one bright spot which was pitted to be the next big wave which could bail out lot of Telco players, by creating a huge market which would inject demand for heavy infrastructural investment, technology build up, system upgrades, new network components, demand for new services etc.. But these hopes seem to have died out in the relentless pouring of woe's from all quarters and now there is lack of confidence for huge broadband rollout investments. Lets look at one of the latest troubles, which has hit the Telecom Industry big-time.
The recent Accounting snafu by Telecom Major WorldCom has taken the Wallstreet by surprise and eroded the Investor confidence to new time low's, similar to the NASDAQ levels. In what is being seen as the height of Irresponsibility in corporate governance, the FCC watch-dogs and US Govt. have issued strong warnings and initiated serious investigations against the Telecom firm. But many legal and financial analyst have already written it off, saying its usual practice and that the senior executives would go scathe free and other things being a mere face wash.
The implication of this snafu has been major on the Telecom Industry, which is already fighting for survival. This would imply that now the Telecom equipment vendors have lost a substantial market, WorldCom, which operates one of the world's largest backbone networks for voice and data and also being the second largest long distance service provider in the US. Worldcom's predicament will have an adverse affect on the already battered Telecom players. Though Nortel, Lucent and their likes seem to be reporting minimal exposure in terms of business revenues from worldcom. But Juniper and EDS seem to be the worst effected by the recent flawed accounting disclosure. Juniper was hoping to upgrade most of WorldCom's telecom network with its Networking gears and EDS which has a multiyear contract agreement with WorldCom, which also happens to be one of its largest customer.
The global telecom scene is frightening with major players announcing big layoffs and not able to predict or issue any guidance as to how this market is going to emerge out of the troubled waters. Analyst's feel that this is the worst time for Telecom Firms and people associated with the Telecom Industry, where there is nothing good coming out of it. Though the silver lining in all these could be that there would be lot of consolidation in the coming years and we would find a different market set-up in the next 5 years which would be much cherished. All this would happen not before having witnessed one of the most horrific impasse in the Telecom History.
More articles by Ramachandran Iyer
- "Andersen & Enron: Products of Capitalism"
- "Predicament of the Telecom World"
- Human Race over the Centuries
- SIP "The Re-Defining Factor"
- "US Economy and impact on IT Jobs"
- Business Process Outsourcing (BPO)
- "Asian Heavyweight Economies: China & India"
- "India Speeding in on IT enabled services"
- SIP "The Re-Defining Factor"
- Evolved Human Genre- driving Wireless Growth
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