Congress passes economic stimulus--finally

After several months of occasionally contentious wrangling, both the House and Senate passed the Job Creation and Worker Assistance Act by wide margins. The vote in the House was 417-3, while the measure passed the Senate by a vote of 85-9.

President Bush is expected to sign it into law.

The key component for telecom industry vendors and carriers is a first-year accelerated depreciation deduction that allows companies to expense an additional 30% of costs related to new equipment purchases made after September 10, 2001 and before September 11, 2004 in the year that the equipment is placed into service. After the first year, the remaining cost of new assets would follow a normal depreciation schedule.

Michael Boland, senior vice president for federal legislative matters for Verizon Communications, said the bill would stimulate investment and create jobs in the telecom sector.

“Most observers agree that we have been in an investment-led recession. Congress recognized that we need an investment-led recovery,” Boland said in a statement. “We are ready to take advantage of this incentive. It gives a green light to more investment, and more investment means more jobs across the industry.”

Leaders of industry trade groups quickly chimed in. Walter McCormick, president of the United States Telecom Association said in a statement: “This legislation will bring needed economic relief to our nation and will have a positive influence on the struggling telecommunications industry by encouraging new investments and creating more jobs for telecom workers.”

“Accelerated depreciation on investments in America’s wireless sector is a clear positive for our national economy,” said Tom Wheeler, president and CEO of the Cellular Telecommunications & Internet Association, in a statement.

But David Hoover, analyst with Precursor Group cautioned that telecom has to recover first before it can take advantage of the incentives provided by the bill.

“Our philosophy right now is that everyone is in a circle-the-wagons mentality,” he said. “Even though the general economy is reviving itself, telecom and tech are still in a depression … Whether that changes because of this economic-stimulus package remains doubtful at this point.”

The negativity that has enveloped the sector for more than a year will cause investors to return slowly and with considerable caution, according to Courtney Quinn, telecom analyst for The Yankee Group.

“When you have companies like Qwest--an RBOC, for crying out loud--selling at $10 a share, enterprises that are concerned about the financial viability of their providers, very high profile bankruptcies--not to mention the whole Enron thing going down--everyone is very wary of what is going on in this market,” she said. “So [the bill] might lead to some additional investment, but I would be wary of predicting a windfall from any sort of legislation, unless it was unbelievably aggressive.”