Everyone is predicting a party — before the shakeout.
By Om Malik, November 29, 2004
Business 2.0: Telecom executives have adopted a glass-half-full attitude these days. After three brutal years, 2004 proved to be a good-enough year, giving them hope that 2005 could actually be better. How can that be? After all, isn’t the industry suffering from overcapacity while locked in a brutal price war for voice services? With companies like Sun Rocket offering flat-rate, $200-a-year plans, how can the Baby Bells make money? Bandwidth prices are still in a decline, and enterprise demand for network services is still spotty. And the telecoms are facing competition from cable providers.
I caught up with Raul Katz, the newly appointed CEO of Boston-based Adventis, a telecom strategy advisory firm that has been on a roller coaster itself. I wanted to get his predictions for 2005. Katz, who advises big phone companies on various strategies, says telecom has become a cyclical business, going through periods of boom and bust.
Other than during the Great Depression, the total number of access lines in the United States and the revenue of the telecom industry grew 5 to 10 percent every year in the 20th century. But more recently, an influx of speculative money, primarily because of deregulation, has caused the business to take on the cyclical behavior of the airline and automobile industries. The early part of this century saw a gruesome retraction. After four slow years, when overall revenue and spending declined sharply, Katz feels that “2005 is going to be a year of rebound for the telecom industry.”
Why? The demand for broadband access lines is on an upswing, while wireless companies are undertaking massive third-generation cell-phone upgrades to offer high-speed data connections to consumers. Emerging technologies such as Internet-protocol TV, fiber to the home, and voice-over-Internet protocol are prompting many in the industry to expect increased spending on gear by corporations and consumers. But isn’t everyone — phone companies, cable guys, and Internet service providers — fighting for the same heap of scraps?
That might be so, but it will be a temporary situation. In the end a handful of cable companies and two large Bell companies will emerge as winners. Experts believe that SBC (SBC) and Verizon (VZ) are in the catbird seat. Thanks to a favorable regulatory climate, the two giants could easily swoop in and buy out the smaller Bells without so much as a whiff of regulatory scrutiny. Verizon could buy Qwest (Q) and SBC could merge with Bell South (BLS). Verizon and SBC could then snap up one long-distance provider each, perhaps Sprint and AT&T (T). How the events will unfold remains to be seen. But this much is clear: 2005 is going to be the most fun we’ve had this century.