Wheel of fortunes

If you've gotten this far, you may have already read this week's cover story by Nancy Gohring about what went wrong with the PCS C block auction and what was to have been a secure and encouraging environment for telecommunications entrepreneurs.

You may have also followed, in recent weeks, three different news stories that had much to do with the economic fortunes of telecom industry players. One, the wildly fluctuating stock market and at its core, wildly fluctuating telecom stocks, has been playing out for weeks, and the dips and surges may not be over yet.

Another, the proposed, promising but much-maligned Tellabs/Ciena merger took its final hammer blow last week when Tellabs backed out of the deal.

The third may be a story that is just taking shape. Lucent Technologies talked to analysts last week about its bold plans and predictions to take a huge chunk out of the growing worldwide telecom equipment market after competitive restrictions related to its former parentage by AT&T are lifted later this month. No sooner had it finished this piece of self-promotion than one key analyst came out with a forecast that continuing economic troubles in Asia and South America will hurt the near-term sales efforts of Lucent and others. Lucent stock dropped about three points after the news.

So what do failed PCS entrepreneurs, the unstable telecom stock market, a doomed merger and the validity of Lucent's market forecast have in common?

What they all share is the way in which the world at large-a world that is in many ways not fully knowledgeable of the nature and inner workings of the telecom industry-imposed its own cruel and somewhat illogical rules on this industry.

Some of the PCS entrepreneurs cannot completely escape blame for the ultimate failure of their businesses, but many are blameless. The auction process was mismanaged by a cadre of regulators who misunderstood the ramifications of their grand plans.

This is the only way to explain how companies with seemingly good ideas and experienced management could go south so quickly.

In the market for telecom stocks, excitement over the new has ruled in the last couple of years, as telecom-related IPOs have set records for first-day surges. That certainly may be a bit irrational, but is it worth a broad slap? Companies like Cisco, Lucent and Nortel are making new moves and pursuing new markets, and start-up vendors are more apparent than ever. They are all scoping out a carrier market that could contain more than 600 new names by the century's end. Where's the downside? The Chicken Littles of the stock market think the whole industry is virtual.

With Tellabs and Ciena, Chicken Little was indeed at fault. The exuberance surrounding Ciena in the last few years may have been a bit strong, but the company kept winning carrier contracts. Its loss of contracts at AT&T and elsewhere were misses for them, but they were also misses for every other vendor that did not win these contracts.

The company was to be purchased by an extremely well-managed, technology-rich dynamo-Tellabs-but ignorance won out. Both companies' stocks crashed, and the sky fell on Ciena. This happened even though the sky cannot possibly fall on wavelength division multiplexing, which is Ciena's forte and one of the hottest technologies on the market heading into the 21st century. But the bigger technology picture apparently escapes the financial brainiacs.

In Lucent's world, what can you say? Asia and South America are in turmoil, and both are regions where the company has pinned many future hopes.

However, the pluses are thus: Lucent will soon be free of competitive restrictions that have held it down the last two years. It is buying companies like crazy, better positioning itself to compete in the booming access space while it still has a firm hold on the transport business. It's a great hardware and software company, the model for which others are striving. It's in a great position to win a huge share of the aforementioned new carrier business.

The case is made, but what's the point? So what if the world is making it tough on telecom, right? Well, right. It gives the telecom industry even more reasons to manage wisely. The world has not caught up with the industry's decisive movements, and industry planners need to work with that in mind-and act decisively anyway.