Saving Telecommunications-- A New Report From Bear Stearns; If Voice Can No Longer Support the...

Business Editors

NEW YORK--(BUSINESS WIRE)--April 24, 2001

The telecommunications industry is in turmoil and significant changes need to take place in order to spur a recovery, according to a new report by Doug Ashton, Bear Stearns managing director and telecommunications technology

analyst. The report, "Saving Telecommunications: The Next-Generation Access and Services Evolution," documents the current state of affairs in the industry and outlines the path to future growth and expansion, including the desperate need for regulatory reform and the need for new technologies and services that can justify the broadband infrastructure that is being developed.

The telecom market has undergone a transformation during the past year, from an industry full of potential, freely tapping financing opportunities, to an industry that has been shut out of the capital markets. "The promise is gone in the industry right now," Ashton said.

Voice Is Not Enough

A major problem facing the industry is that voice communication is still the only significant revenue source and unfortunately does not provide the income that it once did. The revenue being derived from voice is not great enough to sustain and grow the industry. New technologies and services need to emerge to make up for the drop in voice revenue and help propel the industry, according to the report, but there is nothing on the immediate horizon that could accomplish that goal. "There are few, if any, identifiable and profitable alternatives to replace voice," Ashton said. "They need to be found or created."

Crucial Mistakes Have Hindered The Industry

According to the report, the first wave in the modernization of the telecom industry mistakenly focused on the core of the system rather than on services for the end user. "It is akin to building a highway before you have on-ramps, or even cars for that matter," Ashton said.

The capital markets dried up while companies were building the wrong part of the network. Instead of driving demand for products and services, companies spent capital building the core infrastructure, which caused an imbalance between supply and demand. "The correct way to do this would have been to let end user demand drive the introduction of applications, which would have driven traffic growth, which in turn, would have driven changes to the core," said Ashton. "In essence, we got it all backward."

Regulatory Reform Is Desperately Needed To Spur An Industry Turnaround

Ashton believes there is a solution to the telecommunications malaise and it begins with regulatory action. According to the Bear Stearns analyst, even in exceptional cases where profitable services have been identified, an uncertain regulatory environment has kept many of the large telecom companies on the sidelines. "Growth opportunities remain undiscovered and undeveloped. Regulation itself has the potential to release the logjam in the funding pipeline that we have today," Ashton said. According to the report, the new presidential administration and a new FCC could have a significant effect on the telecommunications landscape by weighing in on mergers and acquisitions in the industry, creating incentives for people to deploy equipment and deciding how others can use equipment for competitive purposes. "Regulatory change is a real key here," the analyst said. "The government has the potential to dramatically impact the recovery of the telecommunications industry."

Members of the Press

To read the full report on the telecommunications industry or to speak with Doug Ashton, members of the press may call Russell Sherman at 212-272-5219.

Founded in 1923, Bear, Stearns & Co. Inc. is a leading worldwide investment banking and securities trading and brokerage firm, and the major subsidiary of The Bear Stearns Companies Inc. (NYSE:BSC). With approximately $25.8 billion in total capital, Bear Stearns serves governments, corporations, institutions and individuals worldwide. The company's business includes corporate finance and mergers and acquisitions, institutional equities and fixed income sales, trading and research, private client services, derivatives, foreign exchange and futures sales and trading, asset management and custody services. Through Bear, Stearns Securities Corp., it offers prime broker and broker dealer clearing services, including securities lending. Headquartered in New York City, the company has approximately 11,000 employees located in domestic offices in Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, San Francisco and San Juan; and an international presence in Beijing, Buenos Aires, Dublin, Hong Kong, London, Lugano, Sao Paulo, Seoul, Shanghai, Singapore and Tokyo. For additional information about Bear Stearns, please visit the firm's Web site at www.bearstearns.com.