Thursday, February 23, 2012

Telecom boom turns bust in 2001

A mover pushes boxes at Excite@Home headquarters in Redwood City, Calif., on Dec. 6. The broadband internet provider has filed for bankruptcy and will close in February.(PHOTO - Color) (ASSOCIATED PRESS PHOTOS) Workers bore a hole through a Twin Falls, Idaho, street for running a fiber-optic cable in June. A year ago analysts were touting 2001 as a big year for telecommunications, but expectations were not met.(PHOTO - Color)

A year ago, analysts were touting 2001 as a big year for telecommunications. Most consumers were supposed to get high-speed home Internet access and reliable cell phones with snappy Net access and e-mail. Then the lines went dead.

The Nasdaq Telecommunications Index, which tracks stocks of 317 telecom companies, plunged 40 percent in 2001. Tens of thousands of telecom workers lost jobs. Tens of billions of dollars in market capitalization evaporated.
Miles and miles of newly laid fiber-optic cable went unused.
"Last year we were looking toward a year of excitement and exhilaration," said Jeff Kagan, an Atlanta-based telecom analyst. Now, "the sizzle is gone."
Still shivering in reality's shadow, the telecom industry isn't expected to climb out of its cocoon anytime soon.
Analysts say 2002 will be a back-to-fundamentals year, with companies cutting spending and taking refuge in core businesses.
Perhaps 2001's best metaphor is Nortel Networks, the Ontario-based equipment manufacturer.
Nortel shed more than half its 95,000 workers after declaring an unheard of $19.4 billion second-quarter loss.
The company is starting to dig itself out. Nortel landed big contracts in the second half of the year, including a $1.1 billion deal with Sprint and big sales to SBC Communications and VoiceStream Wireless.
Others weren't so resilient. Many companies that burned through Wall Street's cash to build networks now lie on the scrap heap. Investors took back their money as quickly as they gave it. Endeavors without strong revenues failed, Kagan said.
     A band of upstart broadband service providers probably fared the worst. NorthPoint Communications, Rhythms NetConnections, PSINet and Excite@Home are either gone or clinging to life with the help of bankruptcy court.
     Some say these companies were tripped up by poor cooperation from the four "Baby Bell" local phone companies who own the critical "last mile" of the residential phone network.
     Whatever the reason, the upstart providers ran out of cash and fell apart before they could reach profitability. In some cases, customers were cut off and left to fend for themselves.
     For U.S. consumers, most of whom still crawl the Internet from dial-up connections and complain about spotty cellular service, 2001 was mostly a lost year.
Promises of inexpensive broadband Internet connections never materialized. Instead, prices went up.
     Just 10 million U.S. households are now accessing the Internet via broadband, using either DSL or cable, said Joe Laszlo, broadband and wireless analyst for Jupiter Media Metrix.
      By the end of 2002, that number will have risen to 15 million compared with the 53 million U.S. dial-up households, Laszlo predicted. In Japan and South Korea, broadband adoption is growing at a quicker pace, fueled by lower monthly fees, he said.
     Another disappointing laggard was the ballyhooed wireless upgrade to so-called 3G or third-generation capabilities. These upgrades were supposed to provide more bandwidth for better voice service along with faster e-mail, text messaging and Web surfing.
In Japan, 3G capabilities are already available on a limited basis. In Europe, they are expected to begin to emerge in the coming year.
     In the United States, where the broadcast spectrum targeted for 3G service has yet to be vacated by the broadcasters now occupying it, 3G services are still more than a year away.
     "We're way behind," said Deloitte Consulting partner Martin Dunsby.
     Now, even the modest half-step to 2.5G technology -- which will double transmission speed and offer "always on" connections to e-mail and text messaging services -- isn't expected to be deployed across the United States until well into 2002.
      Foot-dragging in the United States is partly the fault of carriers' insistence upon building separate cellular networks using competing standards. Most carriers don't allow customers to roam from one network to another

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