Stuck in Time.(telecommunications industry)

Something really strange has happened since the last crash. Nothing. When the dot-coms imploded in March 2000, the money fled to telecom stocks--real companies with real business plans that would lead the real Internet Revolution. Carriers old and new borrowed money and ordered equipment to build the New Economy. Then, when the telecom story turned out to be a bubble, too, operators were left with crushing debt and more hardware than they knew what to do with. Investment dropped nearly two thirds in two years. Everyone expected the next step to be a massive shakeout... but nearly two years later, it hasn't come. "The industry is stuck in the spring of 2001," says Tero Kuittinen, adviser to Opstock Investment Bank of Helsinki, who considers the state of affairs "incomprehensible."

There are reasons for the paralysis, but none quite adds up to a rational explanation. The sense of an industry in suspended animation is perhaps most surreal in the mobile business. In the United States, six operators run nationwide, proprietary networks (on three different technologies). Each is tied to different handset selections, as if ABC and NBC required different televisions. It's as close as it gets to the mid-19th-century railway madness, when rivals attempted to build separate railway networks in England and America. In Europe, still largely a collection of national markets, there are five mobile competitors in the Netherlands alone. Moreover, conventional wisdom says the world does not need seven equipment vendors to supply the wireless networks. They are all global household names, from Motorola to Nokia and Lucent, and at least three of them probably should not be in the business. Meanwhile, dozens of new handset makers keep plunging in, even as Nokia's global share climbs toward 40 percent and experts note that it takes at least a 5 percent share to be cost effective.

One source for the time warp is that bane of the 1990s, the CEO ego. The people running telecom companies started with targets of 20 percent annual growth, a mind-set that's hard to change. "Only gung-ho growth barracudas made it to the top," says Kuittinen. "They can't be seen as the division killers." They also can't accept that these low stock prices are here to stay. The feeling lingers that, once a war in Iraq is behind us and the economy picks up, growth will surge and it'll be back to business as usual. One telecom consultant recently sat down with a U.S. wireless client who wanted to make an offer for another mobile operator, but the target was deeply offended at the fire-sale price. "No one wants to be the fool who cut a deal and sold at the all- time bottom of the market," he says.

This attitude is unfortunately bolstered by a growing sense that the worst of the telecom debacle may finally be over. The Dow Jones World Technology Index hit a post-crash low in October 2002 and has been bouncing along there ever since. Paul Sagawa, the Sanford C. Bernstein analyst who accurately forecast the end of the bubble back when Cisco shares were still skyrocketing, now says, "We're at the bottom. The question is when we start moving up." Per Lindberg of Dresdner Kleinwort Wasserstein in London predicts an 18 percent rise in spending on wireless equipment this year, even as fixed line spending slips a further 15 percent. The dealmaking will likely begin when prices rise high enough, but how high is high enough? "Everyone is waiting for the other guy to make a move," says Kuittinen.

Caution still lingers from the latest bout with merger mania, finally destroyed with the demise of serial acquirer WorldCom last year. Technology deals in particular have a bad reputation going back to the 1960s. Look at the grief Hewlett Packard's Carly Fiorina is still getting over the ...