I would like to begin today’s column tangentially, by admitting to the world that I did something incredibly stupid yesterdaythis past Tuesday
Allow me to explain.
There is a delightful yiddish phrase, kayn ein hora (pronounced “kinna herra” or “kunna hurra”) that has always secretly pleased me. Essentially, the phrase means “to jinx”, but it has a much richer texture and context than this simple definition.
Put in context, kayn ein hora, means, “to call attention to something that is very, very good or special, and by the very act of doing so, cause it to unravel before your very eyes.” The quintessential example of this is an announcer calling attention to the fact that the pitcher has a perfect game through eight innings. Invariably, the lead off batter in the ninth inning will get a base hit.
Well, yesterday I sent the young man who provides my web service a message of congratulations, calling attention to the fact that I had not experienced one second of down time in the several months that I have had my web site up.
And of course, today, my web server went down. Well, I guess technically that is not correct. I am told that the server was up, but the web hosting software on the server was down.
Clearly, this is my fault. You would think I would have learned by now, but I never cease to amaze myself with my own stupidity. Well all I can say is, “Oy vay iz mir”, another delightful yiddish expression which essentially means, “Oh woe unto me.”
Anyway, enough for the language lesson. Let’s talk about why I believe a telecom rebound will happen sooner, rather than later.
Analyst Paul Sagawa is still singing his very negative song about the telecom industry. Sagawa continues to focus on the debt burden in the industry, and in doing so continues to ignore three important factors that could lead to increased capital expenditures by telecom companies sooner, rather than later.
Reason #1:Bandwidth demand remains strong. “Doom and gloom may pervade North American carrier-supplier discourse, but we are just not buying it,” says Insight president Robert Rosenberg. “The sheer number of people in Europe and Asia living in urban environments where there is, as yet, no local fiber networks will drive fiber optic growth for years. The real problem facing carriers is not an oversupply of capacity but their inability to figure out a way to charge customers for anything other than voice traffic,” Rosenberg says. Which brings us to the second reason…..
Reason #2: Telecom companies are starting to figure out how to charge more for things other than voice traffic. Yesterday, AT&T broadband followed recent announcements by SBC Communications and Earthlink Inc. to raise rates for their digital subscriber lines (DSL). AT&T broadband is raising their rates 15% to $49.95. And also yesterday, Bellsouth announced an increase from $55.00 to $75.00 if you have complete choice for business and $59.95 to $79.95 if you do not have complete choice for business. Now given that Bellsouth plans to add almost 700,000 new DSL installations this year, this translates to $168,000,000 per year in additional revenues — just for the new installations.
Now this may be bad inflation news, and bad news for DSL subscribers, but it is definitely good news for broadband infrastructure investors, as a portion of these additional revenues will eventually find there way back into capital expenditures.
Reason #3: Interest rates are coming down, and lower interest rates will eventually translate to higher capital expenditures. Or, as analyst Chris Stix said in a Morgan Stanley report this morning, “We also believe that the third rate cut is finally having an impact on investors’ confidence in the economy, and, eventually, should positively affect enterprises’ ability to spend on IT infrastructure.”
And I’ll end my column today with another, albeit less tangential anecdote. Many years ago, my family and I were going out for dinner at our favorite pizza place in Atlanta, Pero’s. It was a nice day and we had our windows open. As we pulled off of route 75 at the West Paces Ferry Road exit, a young Chinese man was selling flowers at the end of the exit ramp. He looked at my three daughters in the back seat, and then looked at me and smiled and said, “Much hope for the future.”
Which pretty much describes my feelings about the telecom industry.
