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Probe Prophesizes Super-Catastrophe

Probe Research Inc., long known for preaching doom and gloom, is now predicting a full-blown telecom Armageddon (see Probe Fears Telecom Catastrophe).

Earlier this week, the company released a report that says industry-driven events will culminate in a death spiral.

Of course, you might ask: Exactly how is that different from the industry catastrophe we're already in? Probe officials says we've just entered the beginning phases of the meltdown. The firm characterizes a catastrophe as a situation in which one or more of the regional Bells and large competitive carriers collapse.

Following a devastating day on the market for telecommunications service providers, the doomsday scenario may not seem so far off the mark. After AT&T Corp. (NYSE: T) and BellSouth Corp. (NYSE: BLS) reported weak and disappointing earnings results yesterday, all the big carriers saw their stock prices slide. AT&T was hit the hardest, tumbling nearly 20 percent by closing (see AT&T Results Disappoint and BellSouth Reports Q4).

The catastrophe scenario is one of five described in “Voice and Data Networks – the Next Ten Years,” a book written by Probe chief operating officer Allan Tumolilo, published in mid-2002. Now, for the first time, “the events seem to be leaning towards this scenario catching hold,” he says.

Probe in earlier years professed that only a confluence of a number of extreme external events could lead to the ruin of the industry; but today's danger, as Tumolilo sees it, is the current “industry-adrift scenario,” in which there is little development, along with stifled demand. “There is nothing on the horizon that suggests that telecom is coming back,” he contends, pointing out that many of the large-carrier business models are still seriously flawed. The incumbent carriers, especially, have enormous fixed-costs that don’t just go away when they start losing customers -- and they are very much to blame for their current straitened circumstances. “[The carriers] could have pursued some sound business models a lot earlier. They’ve thwarted a recovery in telecom.”

Other industry analysts agree that the telecom industry might be far from recovery but are wary of talking about Cretaceous-scale devastation. “I don’t think the industry is stabilized. There’s still a lot of rough sledding this year,” says Davenport & Co. LLC analyst F. Drake Johnstone. “But catastrophic?... We’re not looking at a situation where the RBOCs have negative cash flow. We’re nowhere near there.”

— Eugénie Larson, Reporter, Light Reading
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gadfly 12/5/2012 | 12:48:57 AM
re: Probe Prophesizes Super-Catastrophe OK we all know about the depression in the Telecom business but at least most of the carriers will survive in some form, possibly morphed significantly.

But the Venture Capital community continues to invest in startups for equipment and even some components. How can this be right ? Admittedly it is less than during the "boom" and we must make some allowances for them proping-up existing bets or investments.But still..

Do they have more VISION than the rest of us ?

How can they (the VCs) expect to recover from their already abysmal performance over recent years?

Do I hear HDTV-on-demand and videophones ?

Cheers
GAD
DoTheMath 12/5/2012 | 12:48:56 AM
re: Probe Prophesizes Super-Catastrophe I tend to agree with the report. There is a difference
between what we are going through now and what *could*
happen. The basic issue is that the industry's business
model is seriously broken. You cannot fix that by
tinkering here and there.

Let me give an analogy: imagine if Dell were to
be a "computing service provider" (not a far fetched
thought, IBM etc. have long fantasized about this) and
sold you a monthly service for your computing needs
instead of selling you boxes bundled with software.
Assume also that prices are set according to "usage",
and all your software, games etc is also priced this
way (assuming, for now, only the consumer market).

Right off the bat, Dell would have to invest in some
serious infrastructure, consisting of "OSS software",
such as billing, mediation, fault, performance etc.
Remember that in a monthly service model, you will
blame Dell for any crashes, hangs etc. so Dell would
have to track them in their OSS.

Dell also would have to invest heavily to get a certain
user base. Every new user will represent a serious cash
outflow for Dell, so the business model would be heavily
capital intensive. Assume that Dell financed this with
20 year bonds (as is typical in telecom!).

Here is the rub: the business model would work only
if you can assume some "stability" in terms of the
box/software/service configuration offered. With the
PC world moving at the present speeds, obsolescence strikes
every 2 years. The problem is not that everyone would want to
upgrade every 2 years, it is that *some* people would
want to do that, and they would bitch and moan at the
fact that Dell is moving so slowly.

If you project 2 year obsolescence cycle, and assume
a typical loaded cost of $1K for for "base" configuration
and $2K for lots of applications, your monthly price
will vary in the range of $50-$100 a year. Dell's costs
will be much higher than today, because they have to build
the "infrastructure" to measure, bill, upgrade etc.

Basically, Dell would be "upside down" on their
bond payments most of the time (meaning the bonds
paper value is a lot higher than the value of the
assets it bought, because those assets are worthless
in 3 years). They will manage to show good GAAP profits,
but their true position would be bad.

Essentially, telecom went from a "stable" (read, no
innovation) business to a highly "unstable" business
seemingly overnight. The business models haven't caught
up. I believe the correct long term business model is
that the customer pays for his own infrastructure, much
as he does for his PCs and software. Luckily, 802.11
and other technologies may be quickly getting us there,
but that leaves the incumbent telcos stranded in a no-man's
land of debt with declining cash flows.

single mode figure 12/5/2012 | 12:48:56 AM
re: Probe Prophesizes Super-Catastrophe Save the gloom and doom for the pulpit. Telecom current bust is much like the railroad bust in the 1890's. Overspeculation lead to a period when the much needed railroad collasped under the weight of speculation.

Shortly afterwards the railroad roared back to life, and I think telecom will do the same. The telecom barons, engineers, vc's and a host of Grubman like personas riuned a nice run up.

But they'll all be back repentive and ready build a new bubble.
pipesoflight 12/5/2012 | 12:48:52 AM
re: Probe Prophesizes Super-Catastrophe Has anyone checked to see was Nastradamus or their favorite psychic has to say about it?

Does anyone have a reliable 1-800 Telecom psychic hotline we can call?

There has got to be a quatrain that covers this subject.
runrabbitrun 12/5/2012 | 12:48:51 AM
re: Probe Prophesizes Super-Catastrophe you said:

Telecom current bust is much like the railroad bust in the 1890's.
----------------------------
Given the state of railroads in the US today your analogy might be a misfortunate one. The great tulip bubble of the 17th century is what a cynic might use as another analogy.

I pulled up the following quote in reference to this 17th century tulip speculation (sound familiar?) –

"... Never underestimate people's capacity for ignorance in the face of greed ... Dangle the prospect of making ten million pounds in front of someone and he suspends his critical faculties. It's almost as if the dream is more important than the reality."


The railroads did so well because the government granted them ROW and ownership of all lands 10 feet to either side of the tracks. The US road system was created in the 1950’s because of government programs. Sprint was allowed to come into being because Senator Dole (R-Kansas) got congress to grant them a $4 Billion tax credit. MCI got their start on $3 Billion they got from a stupid jury award and social engineering by a Federal judge. The RBOCs did so well because the government granted them ROW and favorable utility rules which gave them free/unobstructed access into buildings for MPOE.

A melt down is possible. But I believe the Federal government will step up to their responsibilities and provide the incentives for Information Age growth.

I don’t believe it’s the telcom industry that is archaic and slow. It’s the FCC and public utility commissions that need to step up to the changes that have occurred within the industry.

The RBOCs describe themselves as fast followers – this is a legitimate business plan. One that GE follows in the medical industry where they are the dominate player. Both industries rely on the small nimble start-ups. They must be encourage, else we will have stagnation, which is equivalent to death.


zettabit 12/5/2012 | 12:48:51 AM
re: Probe Prophesizes Super-Catastrophe Using the little known, but highly accurate mathematical laws of psycho-techno-economics, the great leader of PROBE RESEARCH has predicted the disintegration of the Galactic Telecom Empire. Already week from its over-arching reach over millions of new technology workers, a myriad of technologies, and billions in telecom credits, the Galactic Telecom Empire has been slowly disintegrating since Nortel's sale of $10 billion credits woth of optical networking equipment in Earth Year 2000, and the GREAT IPO HOAX on the planet of CORVIS.

Now the great Victor Schnee and his fellow psycho-techno-economists must set up a FOUNDATION to preserve the technical knowledge of the EMPIRE, and thus shorten the period of barbarism that will afflict the Empire in its decay.

Members are carefully chosen from across the galaxy for their ability to preserve the complete workings of what came to be known as the "Telecom Bubble". Coming from the distant reaches of Bell Labs, Kleiner Perkins, Merrill Lynch, California start-ups, and the lounges of many executive-only country clubs, the members of the FOUNDATION must now work to put together the conditions for a rejuvination of the Telecom Empire. They seclude themselves in a former Nortel optical networks reasearch lab, now empty and barren, in the distant cold wastes of the Northern hemisphere of the home planet, and begin their work.

Meanwhile, the decline of the Galactic Telecom Empire begins. Optical fibers fuse within their underused conduits from the failure of high-power Raman pumps in Corvis ULH DWDM systems. Cisco VoIP PBX servers are annihilated in raids by roving bands of TDM switch fundamentalists. "Everything" over coax causes radiation sickness affecting all the customers of AT&T Broadband, while George Bush reveals himself to have mutant powers that enable him to draw all the remaining credits in underinvested VC funds into the coffers of his new army - the Republican Guard. People flee into the streets in panic, to be run down by the trucks of panicked incumbent tetco engineers who don't understand whether they now work for SBC, Pacific Bell, or Ameritech. Catastrophe starts setting in.

Can the FOUNDATION succeed.

I would like like to get a taste of the super-potent weed the folks at probe seem to be able to get their hands on!
Peter Heywood 12/5/2012 | 12:48:50 AM
re: Probe Prophesizes Super-Catastrophe As it happens, we ran a column on the parallels with the railway industry's beginnings way back in October 2000. Check it out:

http://www.lightreading.com/do...
PresterJohn 12/5/2012 | 12:48:28 AM
re: Probe Prophesizes Super-Catastrophe "But they'll all be back repentive and ready build a new bubble."

Let's hope we never have a new 'bubble'. Bubbles are never are a desirable scenario unless you happen to make your money by fleecing unwary investors...

BTW, railroads reentered a death spiral in the late 30s from which they never recovered.
lastmile 12/5/2012 | 12:48:27 AM
re: Probe Prophesizes Super-Catastrophe Everyone in this world needs to make a living. Probe has always prophesized a Super-Catastrophe ever since they started making a living about 20 years ago. They were wrong 3 years ago but they are right now. By the time you accumulate $2770 to purchase their report there will be no more catastrophe.
Enjoy the weekend and forget Probe.
single mode figure 12/5/2012 | 12:48:22 AM
re: Probe Prophesizes Super-Catastrophe The point remains that railroad after the bust became the structural center piece of commerce.

I lived across the street from the Burlington Northern Railroad and saw firsthand that they got the woods as well, hence the checkerboarding of the north west.

And those long haul routes still reap rewards to the same monopoly, the railroads, not unlike the RBOC's.
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