Help the teleconomy

The first thing to realize is that telecom markets haven't fundamentally changed since Jan. 3. The only thing that has is that rather slippery entity known as ‘investor sentiment.’

With all the recent talk about cutbacks in capital expenditures by service providers, I started to imagine worst-case scenarios and came up with a horrifying one. When an industry slump is really serious, advertisers start to scale back their spending plans. That causes magazines to reduce their budgets and slash the number of editorial pages, and that leads to editors laying off writers. Bingo, I'm out of work watching daytime TV. And no more $4 coffees at Starbucks.

That led me to a shocking thought: It's better for me (and you) when telecom is booming, share prices soar through the roof and venture capitalists spend money like drunken sailors. Damn! If only someone had told me this in the beginning, I could have suppressed all those stories I wrote about Lucent's myriad earnings restatements, data CLECs' inability to raise capital and AT&T's schizophrenic growth strategy.

Starting today, though, I'm turning over a new leaf. And since telecom is staging a brief rally, there's no better time. But I can't do it alone—I need your help. The first thing to realize is that telecom markets haven't fundamentally changed since Jan. 3, the day Alan Greenspan chopped the Fed funds rate and kicked off this little rally. The only thing that has is that rather slippery entity known as “investor sentiment.” And who is in control of investor sentiment? We are! Here's how you can do your part:

Executive management. Talk up telecom at cocktail parties, 12-step meetings and hot tubs in Aspen. Memorize this phrase: “The negative news is already priced into the market.” Other phrases that you should have at the ready: “compelling valuation,” “solid margin improvement” and “reaching an inflection point.” Don't let Regulation FD get in the way of bold-faced lies—your stock will appreciate so much you'll be able to settle shareholder lawsuits with your pocket change. Phrases to avoid: “bandwidth glut,” “scaling back,” “not fully funded.” And, although I don't feel I need to remind you, don't ever mention the “V” word or the acronym “LD” in a crowded room, ever.

Engineers and technicians. I would like to say that your job is to continue to come up with innovative products that customers will buy, but let's not be naive. Sales cycles are long in telecom—we'll be dead and buried before that flashy new OC-192 interface you developed gets purchased by SBC . Instead, how about donating your underwater stock options back to your company so they can be wiped off the books? Or perhaps agreeing to extend the vesting schedule another 10 years? Sure, you won't be in a position to benefit when the stock takes off, but you can always move on to another start-up once the bearish market dissipates and capital begins to flow freely again. Then you get more options. Ain't life grand?

Venture capitalists. Put some money to work. Are you telling me you haven't heard any pitches for service provider businesses that sound even remotely executable? Sure, you may take a hit here or there, but your capital will fuel another buying spree in telecom equipment, which in turn will cause industry analysts to suggest there's insatiable demand for communications services, which will give service providers oodles of PowerPoint presentations to take on road shows and wow institutional investors with. Presto, another IPO boom and bountiful returns for your limited partners.

Financial analysts. AT&T is trading above $20 per share: Pinch me. And it's all thanks to Simon Flannery of Morgan Stanley Dean Witter, who had the guts to put a “buy” rating on Mr. Armstrong's little company. Sure, there was no substantive reason for the upgrade, but since when does that matter? Don't worry your little heads about access to capital and large debt loads. Once EBITDA multiples are in the triple digits again, you'll have scores of start-ups coming to you with investment banking business.

Of course, we could go another way. We could just let market forces run their natural course and be happy in knowing that the surviving businesses are valued soberly and have solid underlying fundamentals and long-term prospects. But I think the first way is more fun. Don't you?

Contact Vincent Ryan at vincent_ryan@intertec.com