Are old-time telecoms beyond hope?
High-tech firms say let them fail

WASHINGTON — Many big telecommunications companies now resemble hobbled Thoroughbred racehorses: They still can run, but not as well as in their not-too-distant glory days when they made piles of money for their owners.

Several familiar telecom contenders want the federal government to offer some cures — including changes in regulations, restrictions on fraudulent rivals who could be rejuvenated by bankruptcy and a careful monitoring of upstart technologies.

Forty-four digital-policy gurus and technology developers are proposing a more drastic approach: Put the telecom racehorses out of their misery.

In an Oct. 21 letter to Federal Communications Chairman Michael Powell, the group urged him to "resist at all costs the telephone industry's calls for bailouts" and let failing companies "fail as quickly as possible."

The reason: New wireless and Internet-based communications technologies will make the ancient circuit-based phone system obsolete. So there's no point in artificially extending the lives of phone companies that are tied to it and paralyzed by debt they mistakenly chose to take on.

"It's just time for the incumbents to manage down, restructure their debt and step aside for new kinds of networks and new forms of business," said the organizer of the letter, David Isenberg, a former AT&T engineer and now an independent consultant.

Fighting back

Naturally, the old-school telecom giants are fighting like mad to avoid being put out to pasture. While that letter was on its way to Powell, about 300 telecom-industry representatives were spending two days in a Washington hotel ballroom discussing rejuvenation.

Potentially threatening technologies — such as short-range wireless networking, open-source network systems and an inexpensive means of turning phone calls into data and sending them over the Internet — were among hot topics at the conference sponsored by The Yankee Group, the Boston-based analyst company.

It also featured frank comments from a vital telecom constituency — people who buy corporate data and voice networks. Some said telecoms desperately need to improve their customer service and develop innovative services that consumers and businesses can deploy themselves over the Internet.

"If Clorox can get a premium (over generic rivals) by putting lemon in the bleach, telecom should be able to avoid commoditization by putting something in the network," said Eileen Eastman, a Yankee Group analyst.

However, representatives of several carriers said it will be a few years before customers can provision services for themselves over the Internet — simply because so much network-switching equipment wasn't built for those kinds of functions.

Though telecom's tribulations have been apparent for two years, many participants still marveled at the bleakness of the landscape, with $2 trillion in investor wealth wiped out, dozens of bankruptcies and more than 500,000 jobs lost.

Left over is the paradox of the Internet boom: Telecom companies laid down way too much fiber-optic cable, creating network capacity that won't get used for years, but failed to establish enough high-speed connections to individual homes.

"I've never seen capital this difficult to come by in my 25 years in the business," said David Dorman, AT&T's incoming chief executive officer.

Government's role

Whether government ought to help is one of telecom's most contentious issues.

Kevin Kayes, Democratic staff director for the Senate Commerce Committee, told the forum that Congress might need to consider subsidizing broadband Internet connections for consumers and rural schools. Many executives were skeptical that would fly in these tough budgetary times.

Richard Roscitt, who heads broadband equipment maker ADC blamed the telecom industry for many of its own problems, especially a "failure of skepticism" during the boom years.

But because of telecom's importance to the national economy, Roscitt suggested the government supervise the equivalent of war bonds that would create a reliable fund for the industry to draw from at relatively low interest.

Such suggestions are precisely what prompted the technology advocates to write to Powell.

Isenberg said he has been impressed by the FCC's willingness to consider an overhaul in its regulation of wireless spectrum, possibly making room for new technologies despite the unease of big wireless carriers.

Similarly, he hopes the agency doesn't inhibit other innovations that threaten the old-line companies, such as little "municipal" telecoms that let communities set up their own broadband Internet access.

"If you prop the failures up then, all you do is stifle innovations and stop the companies who have made better decisions and can offer better service," said one signatory, Tom Evslin, head of ITXC, which routes international phone calls over the Internet. "Buggy manufacturing used to produce hundreds of thousands of jobs, too. Most Americans used to work on farms. Things change."

Copyright © 2002 The Seattle Times Company