Esrey Talks Tough, Touts Future
"Investors have been whining so loudly you can't hear yourself think," he told the crowd. "I don't have to tell you the telecom industry has been rocked... [but] this is a solid, expanding industry that's vital to the nation's economic health and future."
Esrey said telecom services will account for $40 billion in revenue over the next three years and will show a 4 percent compound growth rate through 2005, greater than other economic sectors. "I believe you have to be enthusiastic about telecom's future."
And Esrey was tough on carriers who may succumb to the downturn, suggesting that they're only getting what they deserve. They chose to overbuild fiber, driving down prices, he said, and they went into debt while failing to create value for their customers.
On the same day WorldCom Inc. (Nasdaq: WCOM) announced a fresh series of massive cuts and further business changes (see WorldCom Strips Down), Esrey talked Darwin: "In a free market society, what did you expect? There will always be a natural selection process that... defines the enduring players."
Sprint appears to be among the survivors right now, though it's hardly thriving. The carrier beat analysts' revenue projections by three cents in its April earnings report, earning $0.33 per share, even as it cut capex substantially (see Sprint Reports Q1 Earnings). Consensus predictions call for the carrier to match that EPS figure in its next report, due mid-July, according to First Call.
Sprint's expected to eventually wind up among those carriers in a position to acquire the assets of fallen competitors, according to a recent report by the Optical Oracle, Light Reading's monthly subscription research service (see Carrier Crisis: Who's Most at Risk?). The report notes the carrier's strong cash flow and relatively favorable leverage ratios but cautions that things could change, given ongoing market problems.
While confident of future success, Esrey warned listeners that the way won't be easy and change will come at "warp speed," bringing carrier business plans into contact with "hard realities." The industry will continue to transform itself, said Esrey, and consolidation, lack of capital, and changing customer needs must be reckoned with.
The key to success, he contends, will be the ability to deliver "total access solutions" that let business and residential subscribers connect 24/7 to a number of services. And he gave a futuristic example, in which a man maintains a voice call with his college-student daughter while sending messages to his colleagues, riding in the car, and locating the nearest gas stations online [ed. note: presumably without running down any pedestrians]. Arriving at work, he ends the conversation with his daughter shortly before logging onto the corporate wireless LAN with his handheld to get a pre-meeting update.
"Will customers pay for services like these? Customers will not only pay, but they'll be willing to pay a premium."
In his vision, technology and relaxed regulatory policies will help carriers integrate the systems that underlie their networks, so that customers will be able to move among the different offerings without having to use a range of different devices and access methods. Carriers that fail to integrate will suffer "a slow and painful death."
As earlier, he brooked no mercy for laggards: "Today's telecom market is no place for those with single-service strategies, weak balance sheets, and an inability to adapt to regulatory or market conditions."
He boasted that Sprint's taken steps in the right direction by putting local, long distance, and wireless services under one roof and continuing to move its network from circuit- to packet-based technology.
The audience appeared to savor the bravado along with their chicken sandwiches. In some ways it resonated with the speech given earlier in the day by John Chambers, CEO of Cisco Systems Inc. (Nasdaq: CSCO), who stressed the need for carriers to embrace new concepts of service delivery (see Chambers Apologizes, Proselytizes).
But challenges abound. The changes Esrey touts call for software and hardware that hasn't been delivered. Developing what's needed will take enormous resources from suppliers that also find themselves in straitened circumstances. The cycle of telecom supply and demand is a complicated one that calls for a revival at all levels, one that may take a long time to complete.
Still, it's good to hear encouragement for keeping the faith. "I think the best is yet to come." But, he noted, it will only come to those who understand the vision of integrated access and are capable of making it happen.
— Mary Jander, Senior Editor, Light Reading
Editor's Note: Light Reading is not affiliated with Oracle Corporation.