Telecom’s Bleak Future

Business Week has a story asking When Will the Telecom Depression End? The answer is not heart-warming:

BusinessWeek spent a month examining the capacity for each type of telecom service, from long-distance to wireless, and comparing it to worldwide demand. The results show that capacity continues to dwarf demand. Prices in America and Europe remain under pressure. Meanwhile, rollouts of new cables promise to extend excess capacity to regions such as Asia that have been spared much of the pain to date. “We’re not seeing any turnaround,” says BellSouth Corp. CEO Duane Ackerman.

The upshot is that the crisis could last until at least 2004. In the U.S., traffic at the core of the networks is leaping ahead at 85% a year, with Europe and Asia at similar paces. Within two years, that should soak up excess capacity of networks in operation, which are running at 35% of capacity in the U.S. and Europe and at higher rates in Asia. An economic upturn, expected by the end of 2003, could spell recovery for U.S. telecom carriers six months later. Europe is expected to follow suit in late 2004.

But things could get worse. If the world economy continues to struggle or if telecom companies fail to lop off capacity and come up with lucrative new data services, this depression could continue through 2006. Even when recovery arrives, most of the once-robust telecom players are likely to perform, at best, like stolid, slow-growing utilities through the end of this decade. Growth is likely to be 2% or 3% a year, predicts Lawrence Kenny, head of the telecom practice at PricewaterhouseCoopers.

If their future is bleak, then who is going to give me cheaper and plentiful bandwidth? My office in Bombay, India has 2 connections to the Internet: a 164 Kbps/64 Kbps ADSL and 128 Kbps via cable (as a backup). We pay USD 200 per month for each of them. [You read right on both counts – the connection is in Kilobits and the charges are in hundreds of dollars.] Is my broadband future doomed?

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Rajesh Jain

An Entrepreneur based in Mumbai, India.