As Service Providers Dig In and Wait for Revenue, Jobs Have Been Spared So Far
It’s a good thing telecommunication equipment makers have a scant presence in Orange County’s telecom industry,that probably has spared the county thousands of layoffs.
Telecommunications service providers, which make up the bulk of OC’s telecom sector, have held their own so far in terms of their local operations.
Telecommunication companies’ operations here grew their ranks 5% in the past year (see story on page 31), while the largest telecom equipment maker here,Toshiba America Information Systems Inc.,only lost 2% of its local work force, or three people.
True, the bulk of the job gains came at wireless companies vying to expand their local retail presence, but service providers still laid off relatively few employees in the past year. Some even added jobs.
When the now-infamous telecom spending slowdown hit last year, other areas of the country took it in the chin.
Still, it could be three years before telecom spending gets back on the growth track, analysts estimate. Whether that’s soon enough for big names such as Pacific Bell and Verizon Communications Inc. to avoid widespread layoffs is still in question. So far, it’s growth rates, not actual jobs and business, that have suffered at the stronger telecoms.
But the problem facing the industry is two-fold. In the past several years, service providers have aggressively spent money to build heavy-duty communication networks that can handle voice, data and other Internet communications. The result of these efforts was the growth in the Ciscos and Nortels,which make the gear that makes up these networks.
And along with the rising networking tide, chipmakers like Broadcom Corp., which makes the electronics that goes inside the communication gear, rose as well.
But within the past year, service providers decided to put the brakes on spending to build out state-of-the-art networks, as corporate customers quit spending themselves.
“(Service providers) are at a point where they want their networks to make economic sense,” said Roth Capital Partners LLC analyst Dan Campbell. “Subscriber growth has been a problem.”
Service providers still feel competition to build strong networks, analysts say, just not with the same urgency,a trend that is reflected in the estimates. According to one report from brokerage Robertson Stephens, total U.S. spending among the telecoms,including competitive local exchange carriers,will fall some 13% in 2001, then 12% in 2002 and 6% in 2003.
Much of the drop-off in spending is happening at the small local carriers or more aggressive big players, which spent heavily to build their own networks. Now that private investments and the public market have soured on telecom, their lifeline is running dry.
An improvement in the telecom-spending situation is predicated on few things. First is a general rebound in the economy, which analysts expect to occur over the next nine months as interest-rate cuts take effect. A rebound in the economy will bring back demand for telecom services, which will boost sales at the service providers. The providers need several years of revenue growth outpacing spending to help offset the cost of their networks, and then they will start spending money again.
“For the next few years, we believe carriers will recognize a greater portion of their revenues relative to their investments in their networks,” said Robertson Stephens analyst Paul Johnson.
Until then, service providers could be busy cutting costs,including personnel,as they try to improve their financial situations.
Last year, telecom service providers substantially bumped up their OC head counts. Pacific Bell, which had steadily reduced its local employee base, hired on 9% more local staff, while Sprint hired on 30% more local staff.
Comparatively speaking, the major service providers have already slowed their growth in OC, with Pacific Bell’s growth slowing to 2% growth, Sprint slowing to 1% growth, Verizon declining 8% and AT & T; declining 50%.
Still, even if service providers reduce local ranks, OC’s robust economy,buoyed by healthcare, clothing, technology, tourism and other industries,augers for increased employment in the future. As companies grow, so will the need for corporate telecom services and the need for local employees to staff call and service centers.
In fact, the market for these services is estimated to be growing 30% a year, according to Robertson Stephens.
“As DSL and cable modems increase penetration in the consumer and small business market and as medium and large companies begin to adopt (ultrafast) Ethernet connectivity, we expect demand for backbone transport to continue to grow,” said Robertson Stephens’ analyst Jim Friedland. n
