Ciena chairman predicts telecom industry’s recovery

WASHINGTON, D.C. — The future of telecom is not all gloom and doom, but carriers and service providers should not assume that the industry has hit the bottom yet, according to the chairman of an optical switch manufacturer.

Patrick Nettles, executive chairman of Linthicum, Md.-based Ciena Corp., said he does not know when the industry will show signs of growth, but it will definitely not happen within the next six months.

The demand for bandwidth is strong – driven by applications like video streaming – but carriers continue to default on their debt and declare bankruptcy, he noted. He cited Hamilton, Bermuda-based carrier Global Crossing, which filed for bankruptcy protection Monday, as an example.

Nettles made his comments during a keynote address Thursday – titled Service Provider Optical Networks: A Reality Check – at the ComNet Expo trade show, which ended Thursday.

The number of people attending may be some indication of the state of the industry. Two years ago, the show was characterized by long lineups and crowded rooms, despite the fact that the U.S. east coast was hit by a snowstorm that kept most U.S. federal workers at home.

Yesterday, Nettles spoke to about 80 people in a room set up for 300. Final attendance figures were not available at press time, but show organizer IDG indicated there were about 300 exhibitors this year, down from about 400 last year and several vendors interviewed by agreed attendance was down from previous years.

“”We have had quite a year in the telecom industry,”” Nettles said. “”We hear a lot about layoffs, defaults and losses. Who could have expected that two years ago?””

Although some carriers are still able to raise money for capital expenditures by selling bonds, few are able to sell junk bonds (high-yield debt instruments that are not considered investment grade), Nettles said. Investors are directing their money towards investment-grade, lower-yielding bonds issued mainly by the incumbent local exchange carriers, he said.

Carriers have reduced capital expenditures (when measured as a percentage of revenues) over the last two years, Nettles said. He cited estimates showing that this year, U.S. carriers’ capital expenditures will be 22 per cent of revenues, down from 34 per cent in 2000 – when carriers operated under what he characterized as the “”build it and they will come”” model.

Although the massive buildup has resulted in a lot of under-used or unused fibre optic cabling, some pipes are operating near capacity, he noted.

Last August, routes between 14 of 22 cities were operating at 70 per cent capacity – meaning the carriers will need to expand them soon.

“”Traffic will ultimately drive the recovery process,”” he said, noting digital photography has increased the demand for high-speed services because more people are e-mailing electronic pictures.

Other applications that will increase the demand include Internet gaming and video streaming – as well as Internet access for those who don’t already have it.

“”We’re still adding subscribers to the Internet,”” Nettles said. “”The bulk of the world has yet to log on.””

An increased demand for data services will also drive demand for bandwidth, he said, adding studies show that during the third quarter of 2001, data traffic in the U.S. was up 47 per cent from the previous year.

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