The Telecom Market - a capital crisis
It's rare that I actually entitle one of my entries, but ever since the initial Worldcom $3 billion announcement, I've been cogitating on the not so obvious impacts of Worldcom's fraud.
The Telecom and Tech markets were already in a precarious position prior to the Worldcom announcement. However, capital funding was still available, albeit at higher cost than a few years ago, to a limited number of financially solid telecoms. But in the post-Worldcom announcement era, capital funding has become extraordinarly scarce. The banks are either themselves compromised by Worldcom or are extremely wary of putting themselves in any sort of exposed position with a telecom.
So there's not a lot money floating around. And guess what - the telecom industry is capital intensive. And I'm not talking about boondoggles a la the Rigas's. I'm talking about what it takes to run a facilities based telecom. Portions of the infrastructure always need to be upgraded. When new customers are acquired, plant expansions are required. Growth equates to capital expenditures, which, in a properly run company, equates to a positive cash flow.
Also, new technology deployments require capital funding. And again, I'm not talking about dot com disasters. Simple incremental technology improvements that lead to greater efficiencies require capital funding. Without the funding, the incremental improvements don't occur or are delayed.
So here's the crux of the matter. The evaporation of capital funding will at the very least, lead to significant delays in technology advancement. I'm so naive, I didn't think it was possible to hold back the march of technology. Well guess what - the march of technology requires money to march on. Duh. Technology's inexorable progress will be slowed. New advances will be deployed 18 months to 2 years later than originally planned. Somehow I just find that amazing.
Fallout from lack of capital funding is also occuring in the vendor sectors. If telecoms don't have the money to buy vendor products, the vendors start going out of business. And speaking from personal observation, I've watched three companies with excellent telecom products go under in the past two months. Their products deserved to be deployed - they were leading edge, reliable, and cost effective. But they're gone now. What happens to their intellectual property? Do we completely lose the advances and discoveries those companies made?
As I worked my way through the above musings, I became angrier and angrier. Bernie Ebbers and the rest of his Worldcom toadies, have put a stake in the heart of the telecom industry. There are good companies in the industry that are honest and financially solid. But Bernie has greviously damaged the telecom sector. I am optimistic that telecom will recover, but the lost time, the lost technology, and the lost people border on the tragic. I knew four years ago that Bernie was scum. But this is beyond the pale. Jail is too good for this worm.
11:56:58 AM 
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