Telecom Industry Hemorrhaging

To most people, the telecommunications industry is a tangle of wires, acronyms, sagging stocks and confusing phone bills, not a source of flash and pathos like Hollywood or Wall Street.

But telecom generated a remarkable amount of drama in 2002.

As the industry's business problems -- too many players chasing too few dollars -- came into sharper focus, so too did a cast of characters who used questionable or downright rascally means to try to mask their companies' falling fortunes.

We saw the spectacular collapse of WorldCom Inc. and founder Bernard Ebbers, and the $9 billion accounting fraud that sparked criminal charges against five of Ebbers' underlings. And there were lesser scandals at former high-flyers like Global Crossing Ltd. and Qwest Communications International Inc.

The Yankee Group, a technology analyst firm, even borrowed a movie title to describe what has hit telecom: "The Perfect Storm."

Although the destructive waters have yet to completely recede, the damage already is visible. An estimated 500,000 jobs have been lost. More than two dozen publicly held telecom service providers filed for bankruptcy in 2002; down from 34 the previous year, according to BankruptcyData.com.

There's too much network capacity in downtown areas of big cities. Forget that 1990s prediction that homes would soon get all their communications services through one "fat pipe" -- the industry still hasn't solved the "last mile" problem of hooking nearly everyone to fast Internet connections.

Even where people can get broadband, many show no interest.

Don't expect telecom's angst to subside quickly. All those bankruptcies -- including WorldCom's, the largest in U.S. history -- figure to keep assets cheap and prices low for a while. Telecom badly needs a marked improvement in the economy and in spending by big businesses.

For other clues about what lies ahead in 2003, look deeper into the telecom turmoil and notice that it hasn't caused a crisis for consumers.

Competition is keeping prices down for cellular and long-distance services. Even with the broadband mess, analysts estimate 18 million American homes and small businesses have it, up more than 50 percent from last year. Clever wireless technologies are expanding the ways we can stay connected to the Internet and each other.

Each of those trends is worth watching in 2003.

Some consolidation is expected among the six national mobile phone providers, which could bring a lull in the price war consumers are enjoying. The likeliest scenario involves Cingular Wireless LLC (a joint venture between SBC Communications Inc. and BellSouth Corp.) acquiring either AT&T Wireless Services Inc. or T-Mobile USA Inc., a unit of Deutsche Telekom.

Also, federal regulators are expected to make important decisions as soon as January on how local phone companies, including the so-called Baby Bells, have to grant competitors access to their voice and digital Internet lines, known as DSL. The Bells consider this fight crucial to their survival, because business is slipping away to wireless phones and cable broadband.

What really irks them is being forced to sell competitors -- new players, long-distance companies such as AT&T and Sprint -- access to their networks at below cost. They call it an unsustainable model that discourages them from investing in upgrades or expanding DSL availability.

The Bells also gripe that DSL regulations should be loosened to provide parity with the rules governing cable companies.

So much is at stake that analyst firm Network Conceptions LLC predicts that long-distance companies and the Bells soon will be forced to merge, with the government's decisions in 2003 determining which side does it out of strength and which out of weakness.

Consumer groups advocate keeping the current rules in place for the Bells -- and tightening regulations on cable, to prevent its big providers from exercising too much power over whose content can cross their networks.

The Bells "are just using this as an excuse to get rid of competition," said Mark Cooper, director of research for the Consumer Federation of America. "Are they not making as much money as they want? Absolutely. Then again, they want to be an unregulated monopoly."

Look for big developments in 2003 involving the short-range networking system known as WiFi, which lets people surf the Internet wirelessly. Many big telecom companies have eyed the technology cautiously because it takes some control out of their hands.

Thousands of hotels, airports, coffee houses and bookstores have set up WiFi "hot spots," and a new company called Cometa Networks, backed by AT&T and technology giants Intel Corp. and IBM Corp., plans to roll out thousands more.

Intel also plans to release Banias, a new chip for mobile devices that will have WiFi connectivity included, to improve its performance.

Perhaps WiFi's biggest flaw has been its relative security weakness, but its boosters say such issues are all but solved. One challenge that remains: resolving ways for users to roam from one WiFi network to another.

Even further behind the scenes, other wireless companies are making progress in speeding data to mobile devices over great distances.

Flarion Technologies Inc. has invented what it believes is an efficient way of transmitting desktop-quality broadband Internet access to laptops and handheld devices, even when the user is traveling 200 mph.

Flarion has been testing its technology with cellular carrier Nextel Communications Inc., opened offices in Asia and Europe and hopes to launch service in at least a few cities around the world in 2003. Flarion CEO Ray Dolan calls it "an orderly approach to something very, very large."

Even more mundane aspects of communications are getting upgrades.

Consumers should see even more options for making phone calls -- through cable TV lines, inexpensive "dial-around" long-distance companies and other services that use an improving technology that converts conversations into data and inexpensively routes them over the Internet.

And in November, consumers should finally get the right to bring a phone number with them when they sign up with a new wireless provider.

By Brian Bergstein
  • Austin Burke

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