Telecom Field Faces Big Questions; Will '04 Have Answers?(INTERNET & TECHNOLOGY)

Byline: REINHARDT KRAUSE

Will telecom mergers finally pick up after a three-year lull? Will an improving economy spur demand for telecom services? Will capital spending rebound?

Those are just a few of the questions facing the telecom industry, which is hungry for good news. While much of the stock market climbed last year, telecom valuations remained depressed.

Phone companies fed shareholders a steady dose of dividend hikes last year to ease their pain. They also cut costs and lowered debt. Still, the moves failed to spark a rally in telecom shares.

Instead, investors seem focused on trends that whittle away at margins, pressure earnings and siphon away revenue. Those trends include new wireless and Internet technologies that have changed the competitive landscape.

The biggest problem, say many on Wall Street, is a surplus of service providers, created by overinvestment in the late 1990s and by regulatory policy. They point to a glut of long-distance networks and six national players in wireless.

While industry consolidation could breathe some life into telecom stocks, it's unclear which companies might take the merger plunge.