Telecom: The Fear Factor

Fear of wholsesale meltdown in the telecom market had investors running today, pummeling the Light Reading Index. The LR Index closed down 11.83 (6.09%) at 182.49. Most leading telecom equipment stocks took heavy hits: Several events conspired to roil the telecom markets:

  • More losses at Williams Communications Group (NYSE: WCG) caused investors to dump the stock and generated discussion of potential bankruptcy filing among analysts and traders alike (see Williams Winding Down?). Williams dropped 0.42 (29.58%) to 1.00.

  • Several Wall Street sources said that rumors were circulating that WorldCom Inc. (Nasdaq: WCOM) would miss its upcoming earnings numbers and that financial pressure at the leading carrier was growing. WorldCom dropped 1.48 (15.40%) to 8.13.

  • Enterasys Networks Inc. (NYSE: ETS) acknowledged that it was under investigation by the Securities and Exchange Commission related to accounting practices at an Asian subsidiary. The bad news spread to Riverstone Networks Inc. (Nasdaq: RSTN), which shares the same heritage as Enterasys, but denied any connection. Riverstone has operated independently after being spun out of Cabletron Systems, the former incarnation of Enterasys, earlier in the year. Enterasys stock fell 6.60 (61.11%) to 4.20.

Industry observers attribute the market weakness to a general lack of confidence in the industry and a growing panic that the financial metrics of the carrier business are not stabilizing.

"I think today was a complete loss of confidence as people looked at balance sheets and quarterly results and saw cash flows declining,” says David Segelov, an independent money manager. “When cash flows are declining there is little hope that sales of equipment will improve. There was a decline in data revenue across the board, including at Verizon Communications Inc. [NYSE: VZ] and Level 3 Communications Inc. [Nasdaq: LVLT]. If you start stacking up all the earnings, it’s not a pretty picture.”

Other industry experts said the only hope is that the market may start to consolidate, potentially stabilizing pricing pressures, which have caused the most damage to earnings statements and balance sheets.

"My motto is: 'Learn to love your ILEC,' " says Peter Tierney, a long-time telecommunications executive who is now president of Chronos Communications Inc., a carrier startup. "There will be tremendous consolidation. All of these telecom guys with their stocks under $10 will have a hard time addressing their balance sheet issues."

"This debt issue is suffocating not just [Williams], but the whole space," says Vik Grover, an analyst at Kaufman Bros. LP, speaking of the Williams Communications conference call. “It’s really disappointing what’s happened to the industry. It’s almost unstoppable."

— R. Scott Raynovich, US Editor, and Eugénie Larson, Reporter, Light Reading
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let-there-be-light 12/4/2012 | 10:59:13 PM
re: Telecom: The Fear Factor They say it's always darkest just before dawn.

I just wonder how dark it's going to get yet...
rakes 12/4/2012 | 10:59:11 PM
re: Telecom: The Fear Factor Interesting day ....I believe this could be the beginning of the end for many companies and individuals.

HarveyMudd 12/4/2012 | 10:59:10 PM
re: Telecom: The Fear Factor The probllem is that the SEC (Security and Exchasnge Commission)and other agencies of the government responsible for enforcing the laws. The laws are selectively enforced and the companies are not afraid of the enforcement agencies.

Lucent has violated accounting procedures the same way as Enron has. There is a lot of abuse with respect to the stock options.

The wall street brings up the stock value at will through manupilations and lies.

IThe employees of Williams Comunications used to hold stock in the companies who they would buy the equipment from.

There is a plenty of corruption within the VC community insofar their role in taking the company public is concerned.

There are almost no llaws that govern the conduct of conduct of start-ups before going public. Any company can go public whether not they have potential to generate revenue.

Frankly speaking the corruption in companies would go till eternity as there is no incentive on the part of the US Government to enforce the laws.
rafaelg 12/4/2012 | 10:59:09 PM
re: Telecom: The Fear Factor LR,
I did not violate any af your editorial disclaimers. I did not address or insult any specific individual(s). I did not disclose any volatile information.It was an opinion. I maintained proper etiquette throught. Yet LR edited my post! Is it because I may upset one or 2 of your sponsors?
Now I see the truth. I won't be supporting this site anymore with my time. Not that that matters to any. But it matters to me.

Rafael Gonzalez
Daveman 12/4/2012 | 10:59:08 PM
re: Telecom: The Fear Factor Harvey,

Why do you say, Lucent has violated accounting procedures the same way as Enron has? This SEC investigation has been ongoing for a long while now. What I have heard is that SEC will soon announce that no laws were violated in respect to this investigation... What have you heard?
Scott Raynovich 12/4/2012 | 10:59:07 PM
re: Telecom: The Fear Factor because we can ... try posting again, in a more efficient manner.
Scott Raynovich 12/4/2012 | 10:59:06 PM
re: Telecom: The Fear Factor To Harvey Mudd,

Harvey, you post a lot, but I notice that you never respond to the quetions/and or critiques that are leveled at you. I find this peculiar. Is there a reason.

This is, after all, a message board on which we encouraged civilized discussion.

Scott Raynovich 12/4/2012 | 10:59:06 PM
re: Telecom: The Fear Factor p.s. your last post is also off-topic and is likely to be removed... so get back on topic and you'll be fine.
ny2wn 12/4/2012 | 10:59:05 PM
re: Telecom: The Fear Factor
MSNBC reported on Friday WCOM could be
headed for bankruptcy.

A memo from the CEO to all employees
denying the report was leaked to


erbiumfiber 12/4/2012 | 10:59:05 PM
re: Telecom: The Fear Factor What on earth is going on over there? Reading the Yahoo message board there appears to be a lot of rumors regarding their debt level- since WCOM purchases from so many optical equipment vendors, perhaps LightReading could probe this issue further? It does not seem that fear of accounting or merely missing numbers by a bit should account for this stock completely tanking.
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