Are you going to believe what you see or what I say?

This month’s editorial comes to you on the eve of the year-end holidays. (I hope yours were all you could wish for.) Regardless of your religious faith-or lack thereof-the December holiday season is both busy and exciting, between shopping, parties, gift exchanges, and visits with relatives and friends. Because of all this activity, many businesses rely on December either to make up for shortfalls incurred during the previous 11 months or to build up a nest egg for the following year. From what I’ve read, things are not going well for many retail outlets so far. Prices are being slashed in an effort to move products from the shelves and convince shoppers to open their wallets and purses. The current sales levels are particularly disappointing given the expectations many observers had created. The economy was improving, we were told; people would have more money to spend-and more inclination to spend it. I’m not enough of an economist to be able to comment on the accuracy of the forecasts mentioned in the first half of that sentence, but based on what I’ve seen in the papers, consumers remain reluctant to spend with confidence.

The holiday doldrums of 2004 make me wonder if something similar might happen in the telecommunications space in 2005. The end of the year is also a time for market analysts to predict capital and operational expenditures. Things are getting better, we hear (as we’ve heard all of 2004). One market research firm did a survey of carriers in which nearly 60% of respondents predicted their revenues will rise by more than 10% this year. Sprint announced it expects revenues and profit will grow in the single digits in 2005. Yet, Simon Leopold of Morgan Keegan met with RHK in December and says he was told that wireline access equipment market overall will be slightly down-although spending on fiber to the premises should grow.

In both the consumer and telecom sectors, there appears to be a disconnect between what people are being told and how they behave. Either the economy (or carrier economics) isn’t improving the way we’ve been led to believe or, if it is, folks aren’t quite ready to act accordingly. In the telecom space, we see this caution within the vendor community as well. Just about every company with whom I spoke at trade shows in 2004 said their sector of the market was coming back. Meanwhile, they were speaking to me from a smaller booth than the previous year that was populated by fewer people.

Certainly the gonzo spending of the bubble, both from the carrier and the vendor sides, won’t be repeated. Nor should it-everyone is much better off if capital outlays are based on at least a degree of rational thought. Conversely, when times are tough, belt-tightening and count-every-penny fiscal restraint make perfect sense. The problem we may have, I believe, is in determining the point at which the hibernating season has officially ended.

There won’t be a calendar page to turn, a greeting card in our mailbox, or a robin on the lawn outside. What will more likely happen is that someone finally will be brave enough to invest in an opportunity that has tempted them for some time and would make perfect business sense-if only money weren’t so tight. That investment could be the deployment of a new network technology or the expansion into a new geographical area. It could be giving the green light to that R&D project that has been burning a hole in someone’s pocket protector for the last 18 months. Whatever it is, it will catch the industry’s attention and put a scare into the competition. That competition will be forced to react, perhaps by blowing the dust off its own development budget. One domino will knock over another.

Perhaps we have already seen some of the first dominoes start to fall. Verizon’s investment in fiber to the premises was a welcomed bit of fresh air last year, and SBC’s venture into fiber to the node also was a shot in the arm for optical access technology. We keep hearing that reconfigurable optical add/drop multiplexers are on carriers’ shopping lists; maybe we’ll see a few more being purchased this year.

Stephen M. Hardy
Editorial Director & Associate Publisher
[email protected]