The $100 billion question

Almost before the ink was dry on the FCC's recent ruling that new investments in fiber optics “close to the customer” are not subject to any of the 1996 Telecom Act's unbundling requirements, SBC Communications and Verizon Communications announced expanded fiber-optic deployments.

Do these quick responses signal a resurgence of investment in the telecom industry? Will we see more such smoke signals — and some real fire — in response to further anticipated regulatory decisions and potentially clarifying telecom legislation?

I believe we will. This belief is substantiated by discussions held by my firm with many players across the industry — including incumbent and new service providers, equipment and software vendors and the investment community.

Voice over IP is one of the first sectors where legislation is likely to eliminate uncertainty and stimulate new investment, resulting in more innovative services and better prices. FCC Chairman Michael Powell indicated during October's Voice on the Net conference that the FCC will take action this year — possibly even this month — on determining whether VoIP is an interstate service subject to regulation by the FCC. If the states don't challenge it and if the action is clear, investment could begin immediately. The states won't challenge such a decision because, as Chairman Powell said, regulation, public safety and taxation are separable issues. The states should focus on the latter two and leave regulation of VoIP, which is likely to be very limited, to the FCC.

With this clarification and simplification, companies planning to enter the market or expand or extend existing VoIP offers will realize a significantly shorter time-to-revenue and a lower cost of goods without having to deal with 51 different regulatory procedures. Incumbent carriers, cable operators and new VoIP providers are all likely to make new and expanded investments, stimulating more equipment and software purchases. The expanded markets will create a viral marketing effect, and the growth will be positively reinforced. Early 2005 decisions on access charges and universal service will further the viral effect.

New telecom legislation is not likely to happen as quickly, nor will all the regulatory decisions find universal acceptance without challenge. The gnarly issue of what happens to the enormous tax base provided by the legacy telecom industry must be addressed. But a new positive investment climate has been launched with clarification of the rules of the game, and many subsequent decisions will provide positive reinforcement. If the industry and investors are prudent and careful, the industry can again grow.

DOSSIER DAVID YEDWAB

Occupation: Executive vice president of The Eastern Management Group and manager of the firm's public and private networking practices; longtime telecom industry consultant and pundit

Location: New York

Favorite Web site (besides his firm's, www.easternmanagement.com): internetbonsaiclub.org/galleries/index.php

Device inventory: Laptop, Palm, insulin meter

Current listening: Beatles MP3s on my Palm

What's next: VoIP stimulates an industry turnaround, and M&A is spurred by both horizontal and vertical consolidation