Recovery in a cold climate

Is the industry due a substantial revival purely on a rotation basis, or do the recovery signs reflect a relief that the bad news (as far as we know anyway) is out of the way?

So, recovery has begun (at least according to stock prices and sentiment). Vendors are reporting stability, operators are seeing continued take-up, the debt burden in the industry seems to be subsiding, and the industry apparently feels confident enough to launch multi-billion dollar deals (think AT&T Wireless or Comcast/Disney) to take other players over. But when will the rest of us see it? For those of us used to feeling that sentiment--like data on the internet--should be transmitted nearly instantaneously, the wait is irritating, even painful. But what does the word 'recovery' actually mean?

For the major European vendors like Ericsson, the return to operating profit was unashamedly good news with a swift and positive impact on the share price. Other vendors likewise have seen good financial portent. But does this reflect an essential kneejerk reaction from the people who recommend and buy the stocks that the entire telecom sector was probably oversold anyway. On this line of thinking, was it due for a substantial revival purely on a rotation basis, or does it reflect essential relief that the bad news (as far as we know anyway) is out of the way, the dirty business across the industry in losing hundreds of thousands of staff is more or less complete, and margins as a consequence will automatically improve? Or does it reflect a "real" increase in demand for services and products that can be profitably satisfied? More strategically, does it reflect a belief that whatever happens, we simply cannot do without the global telecom industry as we know it and therefore, there absolutely has to be an upturn at some stage?

If I knew the answer to any of this, I would probably be doing a different job, if not retired and spending my days on a beach. But the short answer is probably all the above are involved. The problem is: what happens now, and has the uncertainty overall been reduced? Here, I must admit, I find the industry in as much of a problematic state as ever. It is certainly the case that inbound telecom executives, along with other sectors with problems, are quite prepared to do their utmost to get the bad news out into the open as soon as possible in the firm belief that what follows must reflect an upturn even in the most otherwise prosaic of circumstances. Such is corporate life, after all.

In fact, the climate that you are currently experiencing probably depends where you are both geographically and in the value chain within the industry. And this patchy quality to the perspective is probably going to be around for a while and contribute considerably to the ongoing confusion. We are used to being inundated with outrageous statistics about how well Asian telecom is doing, at least in terms of subscriber and traffic growth. Elsewhere, in more "mature" markets, it is often a different story. But on the other hand, it depends on the segment. Some retail applications are doing pretty well, and the mobile community enjoys rattling off statistics about the billion subscriber point expected in 2004, but if you look at the broad infrastructure segment it is different again. The satellite people seem optimistic (but is this a careful confidence trick?). Submarine telecom, the ultimate carriers' carrier tier, seems to be stuck in a seemingly never-ending nuclear winter of extreme coldness. Predicting recovery is a bit like making a weather forecast or giving a medical prognosis. We may like to congratulate ourselves when it happens, and forget it when it doesn't.

Stephen McClelland, editorial director, Telecommunications[R] International

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