As Markets Quake, Strong Will Survive In Broadband
By Jeanie Stokes
from the March 19, 2001 issue of Broadband Week
NEW YORK -- Solid execution, strong back office infrastructure and continued access to capital will be the benchmarks investors use in 2001 to decide how to allocate money to broadband carriers, service providers and equipment makers.
Meeting amid the most volatile stock market activity in memory, analysts and high-level company executives attending Merrill Lynch's Global Communications Conference said demand remains strong for broadband services, even with weak stock prices, dried-up capital markets and financial outlooks being revised downward
"Eighty percent of businesses have less than a T1 connection (to the Internet). Someone will meet that demand,'' says Afshin Mohebbi, president and chief operating officer of Qwest Communications International Inc.
The emerging broadband group should see a "slow and steady'' upward trend for the year despite the market's vagaries, says Merrill Lynch analyst Ken Hoexter. He notes that the prices of broadband stocks such as XO Communications, Allegiance Telecom, Time Warner Telecom Inc, and McLeodUSA, rose an average 26 percent during the first two months of the year, after declining an average 76 percent in 2000. The stocks added $18.2 billion in market capitalization in January, only to fall back an equal amount in February.
"This is going to be a terrific market. The fundamentals behind broadband deployment are still there," says Guy Campbell, president and chief executive officer at Andrew Corp., the largest maker of radio frequency (RF) transmission equipment for both fixed and mobile wireless broadband networks.
Still, Hoexter says there's reason to be cautious about weaker carriers that will continue revising their business plans, and he expects there may be more bankruptcies such as those of DLECS NorthPoint Communications, ICG Communications and GST Telecom.
The weakened economy has given companies a chance to refocus their operations on more profitable activities. Case in point: ADC Communications. Last year, about 30 percent of its sales came from its broadband access and transport business, which expanded as ADC acquired other companies.
"This business is going to be pruned," to focus on fewer platforms for delivering high-speed connectivity, says ADC chief financial officer Bob Switz. He says ADC is concentrating on the parts of its business that are geared to the delivery of next-generation products and that offer the greatest profitability.
Concerns about delays in another key area of broadband deployment--the delivery of mobile Internet broadband services through third-generation wireless technology--aren't deterring equipment manufacturers like Andrew. Campbell sees the broadband industry as beginning to move forward after a temporary pause mode brought on by financial and economic factors.
"Even if the timing slips a little bit, the builds are going to occur," starting this year and definitely next year, says Campbell. That's because 3G operators need additional spectrum, must generate revenue to service the debt taken on to pay for 3G licenses, and must meet service delivery deadlines specified in those licenses. Revenue from Europe's 3G deployments should begin having an impact on Andrew's results in the June and September quarters.
Merrill Lynch wireless analyst Linda Mutschler isn't surprised to see some 3G deployment delays such as those announced by Europe's Alcatel SA and others. "In the wireless industry, technology deployment generally takes longer than estimated and ends up costing more than anticipated," she recently reported.
Japan's NTT DoCoMo is expected to launch the first commercial 3G system based on wideband-CDMA technology in May. Andrew already has begun supplying 3G equipment to DoCoMo, Campbell says. The company also is talking with DoCoMo and other carriers that are expected to build 14,000 3G sites in Japan during the next three years.
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