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Ash from WorldCom implosion could smother switch industry
COLORADO SPRINGS, COLO. - In the aftermath ofthe WorldCom implosion, developers of telecommunication chip sets and subsystems had far more to ponder last week than whether WorldCom would last through the summer. The bigger issue was whether the other U.S. service providers would.
Areport from Probe Research Inc. (Cedar Knolls, N.J.) sugBesting that the number of carriers might shrivel to a mere handful (two interexchange carriers and two or three incumbent local-exchange carriers) within the next year or so raised the specter of a disappearing customer base.
Suddenly, existential issues that plagued only the optical transmission and switching specialists six months ago are now reaching into the heart of all switching and router markets. If there are not enough public-network customers to sustain a dedicated hardware business, the effects couldbe devastating on both inventory and product development at semiconductor companies exposed to telco markets.
To be sure, for most equipment vendors the effect of the WorldCom collapse itself is likely to be small. Like most carriers, the company had stopped spending anyway, a phenomenon that has already led to tanking stock prices, sweeping layoffs and mass startup extinctions among OEMs.
"This was merely a case ofthe type of consolidation we'd been expecting all along," said John Burnham, market strategist at Juniper Networks Inc. (Santa Clara, Calif.). "It may have come in a harsh form over the last week, but we'd been planning for precisely this kind of consolidation, and we hope to benefit from it."
Moreover, most equipment vendors-particularly the startups-have already crafted new strategic plans, in some cases making a 180 deg turn to focus on equipment that fits existing networks but decreases operational expenses. As reluctant as they may be to spend on new equipment, carriers can't offord to continue their current operational procedures. The manual provisioning of circuits, requiring a truck roll to every point-of-presence involved in a link, is a particular sore spot. Given the chilled economy, any product that can lower day-to-day costs permanently becomes attractive.
The uncertain future of the service provider industry...