Telecom executives talk down expectations

A year ago, the telecommunication industry boasted some of the highest-flying startup companies in the Internet age, fueled by cheap money and a "Field of Dreams" vision - build it and they will come.

In Sunday's opening salvo of SuperComm 2001, the telecom expo in Atlanta running through Thursday, a panel of top telecommunication executives grappled with the loss of investor confidence and wistful memories of better days gone.

"I hear a lot of reason on this dais, and I'm glad," said Paul Grosse, Deutche Telecom AG's president and chief executive officer for the Americas region. "I wonder what they would have said a year ago."

The vision of telecom riches hung like fruit on a tree for anyone who could build a fiber-optic footstool to reach it last year. Telecom took some of the hardest hits with the market downturn, as this year investors discovered companies like U.S.-based broadband infrastructure wholesalers Rhythms NetConnections Inc. and NorthPoint Communications Group Inc. couldn't make enough money to pay their debts. Both companies - along with a legion of other network operators and service providers - have filed for bankruptcy.

One indication of how far the mighty have fallen: The Nasdaq Telecommunications Index peaked at 1230 in March of 2000. It closed at 342.90 on Friday.

"Enough of the vision already, let's get on to talking about why the vision hasn't become reality," said Hugh Bradlow, chief technology officer of Telestra Corp.

Investors have moved from irrational exuberance over all things Internet to an "atmosphere of increasingly reckless pessimism," said Jost Spielvogel, a member of the board of Siemens AG, in a frank presentation of the fundamental problems the sector faces.

"We have a misalignment between investment and revenue generated," he said, pointing to a three-line graph showing investment in network infrastructure climbing over time while revenue grows slowly and profit margins shrinking.

Spielvogel said investors had been misled, and blamed startups looking for cheap money. The startups had overstated business opportunities, and there were too many companies in the network field. As a result, he said, "the trend for consolidation is set."

Most panelists offered a view of the technologies that would drive the next generation of networks, and pointed to potential problems. While noting the abundance of fiber-optic lines laid last year, one panelist warned that the parsimonious capital markets could constrain supply.

"There's a lot of fiber out there, but there isn't a lot of lit fiber," said Jack Waters, chief technology officer for Level 3 Communications.

Panelists urged the industry to move toward simpler network design, at all levels. Waters said Ethernet will replace the SONET (Synchronous Optical Network) layer in network transport, saving money for service providers. Another panelist said the protocols of network architecture are simply too complex.

"The backbone of the network is too complex," said Stefano Pileri, network services president for Telecom Italia SA. "We need to simplify the backbone structure."

Pileri said broadband services will pave the way for growth in wireline networks, but warned against a complete embrace of optical technology. "It is a mistake to think optics used in residential (services) will give an effective return on investment," he said.

While each speaker placed some hope in the growth of wireless and data services, most seemed to be talking down expectations.

"We need to keep building the next generation Internet and we need to keep building the services that drive growth," said Edward Barnholt, chief executive officer of Agilent Technologies Inc., noting however that "the future .. is dangerous to predict."

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More about Agilent TechnologiesAgilent TechnologiesAgilent TechnologiesDeutche TelecomLevel 3 CommunicationsRhythms NetConnectionsSiemensTelecom ItaliaTelestra

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