TELECOMMUNICATIONS

Battered telecom industry licking its wounds

Sector execs remain guardedly optimistic

By Peter J. Howe, Globe Staff

Biggest telecom cos. All the charts

he telecommunications sector shows few signs of getting much better anytime soon. But telecom executives are guardedly optimistic things have at least stopped getting much worse. And for an industry still suffering a pounding hangover from the epic good times of the late 1990s, they'll take that as progress.

Local telecom equipment start-ups such as Avici Systems Inc., Sonus Networks Inc., and Sycamore Networks Inc. saw sales fall by 40 to 70 percent during 2002 amid a glut of overspending and bankruptcy filings by start-up carriers. Even as it posted a 27 percent increase in sales, telecom components and software maker NMS Communications Corp. of Framingham warned more layoffs and cutbacks could be needed this year to return to profitability.

"2002 was a horrible year for telecom — we all know that," said Hassan M. Ahmed, chief executive of Sonus Networks. But Sonus posted sales ahead of expectations in the first quarter of this year as it grew business in Japan and Germany and even managed to pull off a $60 million secondary stock offering last month to bolster its cash on hand.

"The viewpoint that nothing is ever coming back is wrong," Ahmed said. "But the viewpoint that everything will come back is wrong, too. I think telecom will once again emerge within the next 12 to 18 months as an area of growth, but it will happen much more on a sector-by-sector basis" in areas such as wireless and network-access services.

"It's been downhill ever since that peak in 1999, but I'd say it bottomed out in 2002 and we're starting to see a slow return to normal growth beginning," agreed James Dolce Jr., the Westford-based senior vice president of Juniper Networks, and one of the leading local telecom start-up entrepreneurs of the last decade.

Companies hoping for a return to 1990s-style lavish spending by start-up carriers on new equipment, billion-dollar takeovers of fledgling start-ups, and dazzling stock performance are deluded, Dolce and others warn.

"We should not assume that what we saw in the late 1990s was normal. That was not normal. Erase that from your brain," Dolce said, adding: "The rising tide is not going to float all boats this time. Many of the boats have gaping holes in them, and they're just going sink as the tide rises."

Just two companies from the Massachusetts telecom sector squeaked onto this year's Globe 100, and both are essentially customer-management software and systems vendors that focus on wireless telecom: Boston Communications Group Inc. of Woburn and Burlington-based Lightbridge Inc.

BCGI's chief executive, E.Y. Snowden, said the grueling economic conditions of the last year have helped drive business for BCGI, which specializes in systems wireless carriers can use to sell prepaid calling plans.

"More than ever in 2002 the industry was moving to a place that really played into BCGI's strength," Snowden said. At the same time, BCGI benefited directly from the collapse in telecom by snapping up a state-of-the-art network operations center in Bedford built by bankrupt PSINet, which BCGI picked up for less than 20 cents on the dollar.

"It's times like these that you really earn your stripes," Ahmed said. "I don't think telecom as an industry is going to go away, but companies like Sonus are going to grow because someone else didn't."

Peter J. Howe can be reached at howe@globe.com.

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