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Optical/IP

2005 Un-Predictions

It’s the first week of the New Year, when pundits get out their pens (or keyboards) and try to write something clever about the New Year. So I'm sorry to let you down.

This column was set to deliver some tainted and wholly unreliable predictions for 2005. But first, it seemed like a good idea to check with the predictions I made for 2004.

It turns out I didn’t make any (whew!).

That got me thinking [ed. note: uh oh!]. What if, rather than making predictions, more pundits made “un-predictions.” An un-prediction would be the prediction that something won’t happen. Given the plethora of New Year’s prediction lists out there, I think this is a better idea.

So here are my Top Ten Un-predictions for 2005:

10) Investors won’t get rich buying Corvis (now known as Broadwing).

The Corvis Message Board is nearly 6,000 messages long now. Posting on the board is still active. Considering that Corvis no longer exists, this is remarkable!

Life After Corvis.) Things didn’t exactly pan out as planned for this cutting-edge optical networking equipment maker, so it did the natural thing: When times got tough it bought one of its customers (do they teach that at Harvard Business School?). It is now Broadwing Communications LLC, a service provider.

The strange thing about Corvwing is that it still has scads of angry but loyal stock followers, who, long after the stock cratered, still believe somehow they will be rewarded with riches beyond belief, even though Corvis's founder and CEO has done nothing for five years but incinerate cash. In fact, he's still doing it! During the last three quarters, the company has been registering a net loss in excess of about $30 million a quarter. A year ago, though, it was losing about $75 million a quarter. Now that’s improvement!

If you dig deeper, the problems do not appear to be going away. In the quarter ended Sept. 30, 2004, Broadwing reported a net loss of $36 million. If you look at the balance sheet, it somehow managed to burn about $130 million of its cash, leaving it with only $300 million (down from well over a billion in its heyday).

Like some sort of problem shopper in denial, Broadwing attributed the cash burn to its need to buy stuff. "The change in cash this quarter was due primarily to cash expenditures associated with the pay-off of approximately $78.6 million of debt assumed in the acquisition of Focal Communications, $11.4 million in capital expenditures related to our new market initiatives like VOIP and the Media Services Network, network upgrades and success-based investments for recent customer wins."

For a company listing its corporate address as Albert Einstein Drive, you would think somebody there would have figured out by now that it's time to stop losing money.

9) Nortel won’t have the same CEO by the end of 2005.

Ah-ha – here’s a trick. By predicting that something won’t happen, we’re actually predicting something will happen. You see, the CEO, Bill Owens, won’t be there at the end of the year. Got that?

Sources say Nortel’s already started the search for somebody fresh and new. Rumor is they may even be looking for somebody who may have basic math skills (see Nortel: Financial Stuff Really Complex). Look for Owens to be gone by the first half of 2005.

8) VCs won’t pony up.

Okay, here’s a dumb one. Essentially we’re saying VCs will continue to be fairly tight and won’t hand out a whole lot of dough. Big surprise, eh? After all, there’s a reason VCs are the only institutional investors that specialize in penny stock.

You would think that the venture capital market is in a perfect position to take over the reins of the “mighty economic recovery.” After all, the government has done its work: It's dropped plenty of money from helicopters, kept interest rates unnaturally low, and boosted the size of our deficit to historic proportions. Thanks, Uncle Sam!

To get enterprises really humming again, we need more private investment. But the VCs remain coy, and near idle, as they have been for years. Granted, much of this has do to with structural problems within the VC industry. They have more money than they know what to do with. They’re sitting on billions of cash, yet they seem to have trouble tipping the barman.

The big question for entrepreneurs may be whether to consider the big VCs at all. You have to ask yourself: What’s the Venture Capital “value add”? At the moment it seems to be: “We know outsourcing.”

In this era where capital is dirt cheap and cojones are hard to come by, which would you rather have? Personally, I’d rather have the latter. But I'll take both.

7) Copper won’t die.

There’s a ton of copper out there, and DSL is evolving. With ADSL2+ and VDSL, you can get to 25 Mbit/s, 50 Mbit/s, and in some rare, strange cases, even 100 Mbit/s (see Bottleneck Blowout). Not too shabby.

Fiber access sounded like a great idea, before the bubble. The only problem is that during the bubble, everybody figured out that nobody could make money from it. And now that it’s finally cheap, nobody seems to have the money left to buy it.

Case in point: Light Reading operates out of a building in lower Manhattan, just two blocks from one of the largest fiber landings in the world. And we’re still connected via copper. (Thanks, Verizon.) Go figure.

6) I won't use cable VOIP.

There’s nothing more unpredictable than trying to predict what you’ll do yourself.

In my household, we recently weighed moving from incumbent copper to cable broadband and voice. I never could justify it. After crunching the numbers, it didn’t really save a whole lot of money. Cable broadband is a little cheaper than DSL, but not by much. And the whole switch involved a lot of hassle… not exactly worth saving $10 a month (an amount that would probably change anyway).

And what’s the big deal with cable VOIP? It’s not exactly free, it’s dodgy, and when you’re having a heart attack, do you really want to dial 911 over the same system that brings you the Home Shopping Network?

Personally, I like having that trusty old receiver nailed to the copper connection in my wall. It barely costs anything anymore. It almost always works. And nobody’s going to hack into it (except maybe the FBI).

5) Vonage won’t show a profit in 2005.

This one’s easy: Vonage is going to spend money, not make it. Last year it raised a $105 million round, and it’s going to use it. Think of Vonage as the Amazon.com of the VOIP market. It’s got to spend lots of money in order to have any hopes of making money. In the end, that process will likely create value for somebody – but not in the form of near-term profitability. Instead, Vonage gives carriers struggling with their packet strategies an interesting way to migrate out of circuit-switched voice.

So, don’t worry about when Vonage will turn profitable. It won’t. It will probably be acquired first.

4) Triple play won’t work.

Just as it’s unclear whether the cable guys will get voice right, it’s hard to envision RBOCs properly deploying and marketing video.

Triple play may be doomed because folks are already talking about something else: quadruple play. The RBOCs could end up being like the Italian interception machine, Vinny Testaverde… they’ll always be “one play” behind (and too old to compete).

In the end, I think it’s admirable that the RBOCs are at least giving it the old college try. But there’s one thing that bothers me about all this: Incumbents never have been good at launching Internet-based technology. And they’ve certainly never been able to do it quickly.

By the time they dig up everyone's yards and figure out how to deliver ESPN through glass, it will be the year 2025 and most of us might be receiving Gigabit-speed downloads through the new GigaWiMax standard, which will broadcast the Internet from a network owned by ComDisMicroSprintGoog, the new company resulting from the mergers of Comcast, Microsoft, Sprint, Disney, and Google [ed. note: Oprah will be CEO]. In terms of marketing advanced Internet services, I think it makes a lot more sense to keep an eye on all of these folks, rather the the RBOCs, who should stick to the plumbing. 3) Michael Powell won’t resign from the FCC.

Yes, I know. We’ve predicted this would happen. But I’m changing my tune.

Powell appears to have made progress recently in loosening up some regs and making the Federal Communications Commission more industry-friendly. Maybe it’s just that Powell has zoned into the Zen of the FCC, figuring out that the more the agency gets bogged down in meaningless legal minutiae, the faster it’s heading for irrelevancy. Powell’s strategy? Dodge and delay. He realizes that the longer the FCC putters about, VOIP and IP networks will blow past them and leave the agency with nothing better to do than monitor Janet Jackson’s breasts. [Ed. note: Okay, that doesn't sound like that bad of a job.]

2) Lucent won’t get great again.

I still don’t get the “Lucent Recovery.” Maybe it’s because it’s never been clearly articulated (the top Lucent brass – especially Pat Russo – regularly declines to speak to Light Reading).

I’m still waiting for the story here. Unlike some of the great tech recoveries of the past – think Apple Computer and IBM – there doesn’t seem to be any fundamental change in culture, or even a revolutionary new product, or a tweak in the business model to propel Lucent into a new era. Here’s what I see as the vision so far: Borrow and Repackage (a.k.a. “Resell Juniper’s routers”).

As for the folks who are bullish about Lucent’s stock: With so many bright, shining ideas around, it seems like a hard one to get excited about. And value investing in technology stocks has a miserable history (think Wang, DEC, and Stratus Computer). That’s Lucent – a legacy technology company that has yet to find a new direction, which would require violent changes that its board isn’t really up to.

The stock may not go below $3 – but it’s also unlikely to make it to $10. It will just sit there, like the rusty, slow, coal-burning, bonus-paying, pension-laden company that it is, while loads of hedge funds try to figure out the best way to unwind layers and layers of convertible debt and stock warrants they piled up when the company was fighting off the potential for bankruptcy.

Is Lucent the K-Mart of telecom? It is – without the real estate assets or the Martha Stewart linens, and with plenty more parasites.

1) The industry won’t tank again.

The nice thing about tanking as hard as telecom did is that it’s hard to imagine something of that proportion happening again – for at least another 20 years or so. Yes, we’ve still got problems. The IXCs can’t figure out how to make money, and, as mentioned, the RBOCs are struggling with their video and broadband story. Meanwhile, VOIP, and all sorts of exciting new IP-based broadband applications will spring to life.

In the end, the saving grace of the industry will be M&A, which should bring a flurry of high-profile deals in 2005. We’re talking about RBOCs buying IXCs, or cable companies buying satellite companies, or RBOCs buying wireless carriers – or vices versi.

And to reiterate, it’s my guess that it will be a new alliance between certain Internet portals (Microsoft, Google, Yahoo) and the largest telecommunications companies. They’ll figure out ways to package and market the truly new and exciting content they can deliver – generating new sources of revenue.

But that gets us into predictions...

— R. Scott Raynovich, US Editor, Light Reading

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jggveth 12/5/2012 | 3:30:49 AM
re: 2005 Un-Predictions Great column. Very clever and perceptive and likely to be very true as well.
dwdm2 12/5/2012 | 3:30:47 AM
re: 2005 Un-Predictions "7) Copper wonGÇÖt die." I don't know anybody predicted that it would.

"6) I won't use cable VOIP." But many will, provided... kinda irrel.
dwdm2 12/5/2012 | 3:30:47 AM
re: 2005 Un-Predictions It is sure "un-predictions" are more predictable than predictions. So let me add a couple:

3) Many start-ups will not die despite their dire situation

2) Copper will not gain a higher market share

1) Integrated photonics will not mature in the near future, it will not die either
CoolLightGeek 12/5/2012 | 3:30:44 AM
re: 2005 Un-Predictions I won't hold my breadth waiting for LR to give the incumbent Service Providers or Vendors their due.

I also unpredict LR interviews with:
VZ,
SB,
Fujitsu,
Alcatel,
LU

regarding what the optical market is really like today and where it is going.


Scott- Coodoos for the idea of "unpredicting"
dwdm2 12/5/2012 | 3:30:43 AM
re: 2005 Un-Predictions "Sources say NortelGÇÖs already started the search for somebody fresh and new."

How about nominating someone from the LR? Any volunteers?
goundan 12/5/2012 | 3:30:39 AM
re: 2005 Un-Predictions Where is BobbyMax when you need him? I hereby unpredict BobbyMax to either replace Pat Russo at Lucent or Bill Owens at Nortel in 2005. BobbyMax would definetly do a better job than either of these inbred clowns.
fanfare 12/5/2012 | 3:30:38 AM
re: 2005 Un-Predictions Scott Raynovich,

Ever think about spinning out a little unbiased insight for a change?

Lets see, who are the sponsers of LR page? Ever print negative stuff about them? I mean, other than when it was so obvious that you had to print something?

"Copper isn't going away" ..yeah, no kidding, talk about mastering the obvious. It's not about copper going away .. it's about progess being made with better technology. "ADSL at 25 m/sec" LoL.. ok. Scotty boy, how well does this tech work in implementation and what are the limitations? Can you provide us with your take on that?

The point here, Mr. Raynovich is that it seems you are just dying to be seen as a clever writer. though you often do a cursory amount of investigation before writing your articles, your commentaries (such as this one) appear to exhibit you flying by the seat of your pants.

You managed to say the same thing about BWNG that has been said for the last year (or more). More regurgitation of the same negative points of veiw. Nothing original. On the other hand, you seem to have missed pointing out any advantages that BWNG has developed/cultivated over the last year. I mean, are we to believe that the company made absolutely no forward progress?

You also did a fine job of personally insulting the investors of this company.
As a reporter, I guess you can't see any reason to extend others even a minor degree of professionalism or courtesy .. especially when you are so sure of your knowledge about this company. Ever been wrong Scott?

Margins have clearly improved, Focal integration went off with unprecedented success (when has any company in telecom so successfully swallowed another so quickly, with so few problems?) Cost structure for the company's employee ratio is the best in the industry... ect. Any reason why you missed touching on those points?

My point is, every company has strengths and weaknesses. As an unbiased reporter, you should always try and present both sides. Since it seems clear that you can't or won't do this (you never do when you talk about BWNG), how can we accept your point of veiw as one based on valid reasoning? If this is indeed the case, why would your commentaries matter to anyone?

One final point. Since you seem so offended by people who post on your company's board, why not just do away with the chat boards?

:: Shooting from the hip, Raynovich gives us a terrific example of biased conjecture. Bravo Scott, stay strong with that Journalistic integrity! ::

rocksolid 12/5/2012 | 3:30:38 AM
re: 2005 Un-Predictions Woaw...!

It looks like Dave77777 has been reincarnated as "fanfare".

No longer sticking up for the Corvis "dream" of all-optical networking, he seems to have switched to being the knight in shining armor to defend the Broadwing dream of....well....um....come to think of it, Broadwing is as much of a nightmare as Corvis was!

Good job defending the clueless "Mr." fanfare.
Sparxe 12/5/2012 | 3:30:37 AM
re: 2005 Un-Predictions
Scott

Send us a postcard if you wake up one morning and have a clue. I won't waste my time educating you, since you know everything.

Just remember what the closing price of BWNG was today. I'll be back to remind you about how nobody makes money with it. It won't be too long either.

Sparxe Nj
Sparxe 12/5/2012 | 3:30:36 AM
re: 2005 Un-Predictions
Lets see who laughs last bro.
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