The changing tides

Thanks to Vince Vittore and Elizabeth Starr Miller for a thoughtful and timely analysis of the CLEC shakeout (Telephony, Oct. 16, page 8). The CLECs are the smallest and weakest boats in the Internet ocean and the first to feel the sea change. The big fiber network companies are right behind them and the incumbents await their turn. Once untouchable Nortel is drifting as well.

This is a big story and we hope you keep up the good work.

All of the problems mentioned in the article - appetite for cash, excessive debt, over-capacity, changing investor sentiment, lack of focus and poor execution - contribute to the current problem. Most of these problems are facts of life that top management has to learn to live with. Lack of focus and sloppy execution are not. As the authors suggest, these companies have to rethink their business model.

Unfortunately, many of them don't have enough of the right kind of management information to make intelligent choices. They don't know which lines of business are making money, which are losing money, what their rate of market price erosion is or how fast their equipment is hyper-depreciating. They don't know this because investment bankers didn't require it in their business plan to get funding.

Today, they must immediately come to grips with their current business model. If they don't do this, they will have no way of coming up with the correct changes. Each of these companies needs to develop a comprehensive model that is flexible enough to respond to a changing marketplace.

Consolidation has already begun. These companies must consider whether they are in a position to acquire other companies or whether they are targets to be acquired. They need to switch from a revenue-driven focus to an investment-driven focus that gives early warning when changing market conditions demand a change in capital programs. They need to revamp their strategic vision and communicate it to their employees and they need to do it quickly. The winners will be those who first can catch the shifting winds of change.