August 2002

BY ROBERT VAHID HASHEMIAN

Its still hard to believe that the U.S. economy has gone from elation to despair in but a swift couple of years. Being in the technology sector, I sometimes wonder whether it was all a big dream. The money, the over-confidence, the teenage millionaires, the high-flying VCs, the soaring stock prices, the hopes for NASDAQ 10,000 Well, if that was just a dream, perhaps our current situation is a nightmare. In those days, as a Web programmer, I would get ceaseless calls from recruiters just begging me to consider their job offers; no salary was too high to consider and employee stock options were flowing like an endless river. I still receive calls from recruiters, albeit to place candidates who have been caught in the downturn and are now between a rock and a hard place.

Many of us in the Internet telephony sector long predicted the demise of the large telecom conglomerates at the hands of the VoIP equipment makers and next-gen service providers. To some degree our premonitions were true but for entirely different reasons. This is certainly evident in the misfortunes of such giants as WorldCom, Qwest, Sprint, AT&T, and what is left of Global Crossing. International powerhouses such as NTT Communications and Deutsche Telekom have not been immune to the downturn either. On the equipment side Lucent, Nortel, and Cisco have also suffered. It was inconceivable that any harm could come to such solid companies whose bright futures seemed a sure bet. Today, with most of their debt cut to junk grade, their stock prices pummeled down to historic lows, and prospects of bankruptcy hovering over them, they are mere shadows of the titans they used to be.

Certainly it wasnt Internet telephony that brought about such calamity to the telecom market. As most of us know, the fall was mainly due to the abrupt slowdown in the economy, ambitious investments (and the resultant debt burden) during their go-go days, and questionable accounting practices. And while it is easy to judge these companies harshly for their past sins, we should ask ourselves if they really had a choice in how they ran their businesses. In my opinion, they didnt. When times were good, they were merely responding to the environment they were operating within. It is not hard to see that many of them were making bold moves and taking giant risks. Pressure from competitors, insatiable appetite from investors and stockholders, prodding from analysts, and rosy forecasts of exponential demand growth played a part in putting these companies in untenable positions.

Of course Internet telephony companies were also severely punished when the dotcom bubble burst. Some of them simply vanished or were reduced to a marginal existence. A few lucky ones were gobbled up by the big telecoms before their own day of reckoning. Still some have been able to maintain a positive outlook on the future and forge ahead with their plans.

So were the telecoms victims of circumstance or is what they face today a direct result of their own missteps? The answer is somewhere in the middle. Certainly they could have been more prudent to guard against economic downturns, hedging their bets, so to speak. Some telecoms certainly seem to be faring better today, and that might just be the result of better management. For example, Qualcomm in the wireless sector, while beaten down, has not seen the kind of carnage experienced by many others. SBC Communications, Verizon, and BellSouth are also relatively stable.

Unfortunately with all the punishment that the telecom companies have received, they still seem oblivious to what could be their savior. The unfortunate fact is that their White Knight is right under their noses, but they are still too arrogant and self-absorbed to pay attention. And the savior is slowly slipping away.

I am talking about the consumer. It is, after all, their clients that could pull them out of the mess that they are in today. I went on the record in January 2000 (www.tmcnet.com/articles/itmag/0100/0100rc.htm) and in March 2000 (www.tmcnet.com/bizwatch/articles/030800b.htm) complaining about the unfair treatment of consumers in the telecom market. While in the past the consumer was mistreated and ignored because their telecommunications provider was busy making important deals, today they are ignored because their provider is busy getting their house in order.

Like sweet dreams, nightmares eventually come to an end. We all know the current economic downturn will end at some point. The fact is that the money game is a zero sum gain. Money doesnt just evaporate, it just moves around. While panicked investors are currently shifting their assets to more stable vehicles such as treasuries, gold, and real estate, there will come a time that money will flow back to the telecoms as well as other technology sectors. The question is, do the current downtrodden telecoms have what it takes to attract some of that money, or will they give way to a new breed of telecommunications providers who know how to take care of their White Knights?

Internet Telephony companies, take notice.

Robert Vahid Hashemian provides us with a healthy dose of reality every other month in his Reality Check column. Robert is Webmaster for TMCnet.com your online resource for CTI, Internet telephony, and call center solutions. He is also the author of the recently published Financial Markets For The Rest Of Us. He can be reached at rhashemian@tmcnet.com.

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