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Financial

Carriers Hit Back at Wall Street

WASHINGTON D.C. –- Ask any telecom analyst why optical and telecom stocks have taken such a beating in recent weeks and you’ll hear all sorts of reasons why carriers have fallen out of favor with Wall Street and been forced to pull in their horns on capital expenditure.

Ask any carrier why they’ve fallen out of favor with Wall Street, and you’ll get some surprising replies, judging by a panel of telecom operators' executives here at the Next Generation Network conference.

The most surprising answer of all? Elizabeth Fetter, president and CEO at Northpoint Communications (Nasdaq: NPNT) blames analysts for her company’s woes.

After touting her company's strong fundamentals, Fetter lashed out at analysts by implying that they had cut ratings on telecom companies just because they were bent about the ever-shrinking information gap between big Wall Street firms and the individual investor.

"Wall Street analysts, with the SEC's full disclosure rules changing the flow of information, are seeing the very foundation of their jobs being shaken," she says. "They were exercising what power they can in the market," she says, referring to company ratings cuts during the most recent drop in telecom stocks.

Of course, it's not hard to see why Fetter spits such venom at the mention of a reactionary stock market. This year alone, Northpoint shares have lost 73 percent of their value. The stock now trades around $7 a share, well off its 52-week high of $39.

Shortly after the session, analysts in the corridor were rolling their eyes at Fetter's remarks (see Runaway Research). "You give us a lousy business model and we'll give you a lousy valuation," said one New York-based telecom analyst. "Blaming analysts for your company's share price is definitely indicative of a management problem."

Still, other panelists felt that their companies had been misunderstood by Wall Street and that someone must take the blame. "We're a little hacked at Wall Street right now," said Robert Azzi, vice president of engineering at Sprint Corp. (NYSE: FON). Investors' focus on the declining margin of voice services and the influx of Sprint competitors overshadowed some of Sprint's attractive attributes, such as its fast-growing wireless phone business, he said. Azzi also chided the Street for lumping Sprint in with less attractive carriers.

The third speaker on the panel was Matthew Bross, CTO of Williams Communications Group (NYSE: WCG).

Bross counseled calm. Carriers should focus on business fundamentals in the same way that pilots fly by instruments rather than looking through their windscreen to see what’s going on, he said. In some respects this response is even more surprising than Fetters’, bearing in mind that Bross has substantial investments in a number of optical networking startups.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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