Fiber-Optic Overdose Racks Up Casualties
This ought to be a glorious moment for the telecommunications industry. Around the world, people are spending record amounts of money to use its networks to talk and e-mail and exchange gobs of information. The pace of technological innovation is positively breathtaking. Trillions of dollars have been invested in its growth.</br></br>Instead, the industry is in the midst of a financial meltdown. The ouster this week of founder Bernard J. Ebbers as chairman of WorldCom Inc. is but the latest twist in a saga that almost certainly will involve more resignations, more bankruptcies and a period of painful industry consolidation.</br></br>The ripples from the telecom implosion extend well beyond the industry. It has become a significant factor holding back the economic recovery, not just in the United States but also globally. The stock market's current funk stems in significant part from concern over telecom stocks, which drove the late-'90s rally but since their peak have generated paper losses of more than $1 trillion, by some estimates. The amount of telecom debt and equity investments already written off by banks, bondholders, venture capitalists and private equity funds approaches $500 billion and continues to rise.</br></br>"Without expectations of robust growth in this debt-ridden, risky, increasingly competitive sector, the economics of the telecom sector simply don't work," declared Scott Cleland of the Precursor Group research firm in Washington, who sees no revival in sight.</br></br>In the boom years, there seemed no limit to telecom's prospects. Success bred success, confidence led to more confidence, growth produced growth. Now the same feeding-on-itself dynamic is at work in reverse, dragging with it not only weak companies but the strong as well.