After the fire
The forest of telecommunications stocks and companies was overgrown, with weeds choking the roots and stealing the nutrients from the strongest and oldest companies. Vines of speculation crawled over the ground and slithered up the trunks in parasitic delight.
Rot in the form of negative earnings littered the floor of this once vibrant forest. With an increasing gasp of dust and mold, profitability was driven deeper into the dampness until it too could not be recognized beneath the twigs and twisted briars that tore at the bottom lines of wireless companies.
But all survived in a rain forest of financial largesse, which poured billions into promises, speculation, returns on investment, public offerings, and the parade of Gs — 2G, 2.5G, 3G and now 4G. But perhaps no disease was more fatal to the health of the forest than “killer app.” It spread from vine to vine and bow to bow, worming its way into business plans, short and long-term strategies, and into the mindset of the forest’s inhabitants. And it was thirsty.
Killer app drank great gulpfuls from the financial rains and let rivulets fall to the floor to nourish the weeds, vines and, only tangentially, the oaks. Killer app poured buckets into short term investors’ pockets and siphoned off the fuel that was needed to maintain the health of the forest.
Rains level off
While the rains fell in abundance, the forest appeared green and healthy and lush. All appeared stalwart and growing and strong. But the undergrowth of the forest would not allow the roots to sink deeper and spread to make the oaks stronger. Instead, the lushness was only a mildewed patina upon which the rays of reality would eventually fall and destroy.
In late 2000, the financial rains began to subside. Not all at once, but by noticeable degrees. A drier season had come and with it blew the low winds of change. It was as though the inhabitants had forgotten to honor the rains. Their neglect offended the rains.
The dry winds blew away the seeds of start-ups and evaporated the new money needed to sustain the green luster of the forest. As the rain became less frequent, the twigs on the bows of the smallest growths dried, cracked and split. Still, the inhabitants did not take heed.
In the spring of 2001, in a torrent of wind and hue and cry, lightning hit the floor of the forest and a small fire began. It consumed the hopes of ISPs and fed quickly on the negative earnings of paging companies that had grown sick from years of unhealthy pricing. It raged against the stock prices of even the largest entities and tore a swath through the tangle of speculative companies that depended on a prolonged monsoon of financial rain.
Kindling of arrogance that had accumulated on the forest floor went up like a tinderbox, and the cataclysm rose up and burnt off the bows of mighty Cisco and Lucent. Stripping the bark from AT&T, it moved through the industry, a fiery plague of justice to smote and cleanse the forest floor of the vines and weeds of false promises, short-term successes and dependence on debt.
In less than six months the fire burned up more than 30% of the market value of all wireless stocks. It destroyed the momentum of the tower companies, which quickly dug into the ground and buried their stems more deeply into asset performance, rather than the showier display of tower counts and alleged market share.
Rainmakers were called in to beat the drums of “buy” and “strong buy,” but their drums and cannons had no effect on the financial rains. The fire would be allowed to consume all but the strongest in its path, to bring down the pretentious and to smite those that had lived long on arrogance and rejected the path of righteous business.
The gods of financial rain had spoken. This fire was repayment for the neglect and the failure of companies to pay closer attention to value creation, EBITDA margins, price/earnings ratios and the true impact of required capital expenditure.
By the end of the first quarter in 2002, the fire probably will have run its course. The tangle of weeds and vines should be cleared, and old wood will have been consumed in its devastating wake. The ash and debris left by the fire will fertilize the forest and remind the survivors of what is possible when tech companies start believing their own hyperbole.
A healthier industry is coming. For what does not destroy us makes us stronger. It is up to all of us to survive and to enjoy the financial rain that is slowly building on the horizon. It will not come in immediate torrents or cloudbursts of cash. It will come gradually, first in mists of opportunity and later in the cooling waters of financial wherewithal to create revived growth and hope.
The ions are being formed, and I feel a cooler, lighter breeze on my face. Let us pray that we are more respectful of the rain this time.
Schwaninger, MRT’s regulatory consultant, is the principal in the law firm of Schwaninger & Associates, Washington, which is counsel to Small Business in Telecommunications. Schwaninger is also a fellow of the Radio Club of America. Hi s email addres is firstname.lastname@example.org.