FCC'S COPPS: NO SILVER BULLET TO ‘GET US OUT OF THIS MESS’

In a hearing last week on telecom's economic recovery, FCC Commissioner Michael Copps said the federal government and the industry both need to accept the idea that the march to recovery would more likely resemble a stroll. Unfortunately, panelists from leading investment firms and universities agreed.

Too many simplified explanations for the industry's woes have been advanced, and too many silver-bullet suggestions to “get us out of the mess we're currently in” have been floated, Copps said.

“I don't think any of us should be thinking of the 100-yard dash to recovery,” he said. “There are no quick and easy solutions to right a world gone amok.”

The commissioners were told at several junctures that policy reforms would have limited impact on the recovery given the number and complexity of the industry's problems. While FCC Chairman Michael Powell called capital the lifeblood of the industry, Rob Gensler, portfolio manager at T. Rowe Price, said not to expect much of it any time soon.

Gensler said portfolio managers are looking hard at financial metrics that are beyond the commission's control, such as near-term fundamentals, long-term growth outlook, free cash flow, return on investor capital and valuations. In addition, investors believe there are better places to put their money right now.

Confidence in the sector probably won't return for a while, said Robert Konefal, managing director at Moody's Investors Service. Konefal testified that long-distance has the weakest outlook over the short term due to shrinking revenues sparked by increased wireless substitution and Bell company incursions into their markets, he said.

Though consolidation may well be a key component of the industry's long-term recovery, Konefal said it's unlikely that two long-distance carriers will merge. “A long-distance/local combination makes more sense, if permitted, but the performance and debt problems of the long-distance carriers may prove to be a deterrent,” he said.

Powell said that any merger would be reviewed on its merits, with emphasis placed on determining whether the consolidation would “serve the public interest.”

Short of consolidation, the industry can take steps to put telecom's recovery in motion, the panel said. Barry Nalebuff, professor at Yale University's School of Management, said broadband should be a part of the solution, but right now there are no killer applications ready to drive adoption.

“We had one — Napster — but that's illegal,” Nalebuff said.

Ergo, service providers need to start developing rich content focused on movies and music, he said, further suggesting that providers offer the content de gratis to jump start adoption.

But Hal Varian, dean of the school of information management and systems at the University of California, cautioned the commissioners to be realistic in their hopes concerning the role broadband will play in telecom's recovery.

“Residential broadband won't bail us out,” Varian said.

Service providers need to develop new services that would allow them to “cross-subsidize” their investments in legacy equipment, he said, pointing to camera-equipped cellular phones as an example. According to Varian, Japan's NTT DoCoMo collects $11 more per month in fees from users of camera-equipped phones.