April 12th, 2002
“Well, we’re scared but we ain’t shakin’
Kinda bent, but we ain’t breakin’…
Who can go the distance?
We’ll find out,
In the long run” - The Eagles, Long Run
We live in a confusing, unpredictable time.
Last week, the jobs numbers released by
Statistics Canada showed that 88,000 new jobs were
created in Canada in March.
It was the single largest increase in jobs in any
month since 1987. It
was also, in absolute terms, bigger than the increase in
jobs in the US (58,000) and they are 10x our population.
Yes, if you don’t work in technology.
The tech sector is still moribund for jobs.
The stock markets are in continuing doldrums,
despite the positive economic news (perhaps because of
the fear of interest rate increases or perhaps because
profits still suck, across the board).
Where are we going? Is
this really the bottom of the technology market?
With seemingly contradictory data on recovery or
further problems in various markets, what are we to
good decisions about your business, whether to start
your business, whether to sell or wind up your business
or whether to start a new job requires good information. In today’s column, I will focus on one big sector of the
Next time, I will look at another big sector,
A warning about what you read out there.
In my 4 years as a writer for T-Net (www.bctechnology.com),
I have learned that it is far easier to rant than to
write positively. It
is so easy to be a cynic.
To dump on someone or something seems like more
fun and less disputable.
This is an extension of gossip, really.
Isn’t it more fun to tell someone about someone
Isn’t it easier to believe someone’s story if
it is bad or, even better, salacious?
Don’t bother checking the facts when you are
ready to crap all over someone, because the audience is
more ready to believe.
It is very hard to write an upbeat article,
because you have to do far more research to get people
to believe you. Why
is it that good news is not really as good as bad news?
But I digress…
Telecommunications Sector Recovery
Let’s talk about the most pessimistic of all sectors,
shall we? Who
wants to dump on telecom? Everyone,
it appears. I
rely on three sources of information to judge what is
going on in telecom: Investment bank analysts,
independent researchers and actual live, breathing,
in-the-flesh telecom managers.
I also read daily news feeds on optical telecom,
wireless and networking, but they tend to regurgitate
company news releases, which are the least reliable
source of what is actually happening.
For your own decisions, find the sources that
back up their conclusions with more than anecdotal
around and see who listens to whom in your sector.
Starting at the very end of the telecom value chain and
working back, customers of telecom and datacom services
are consumers and enterprise.
Consumers are looking for secure, reliable, fast
data services and enhanced voice services, all for lower
we are increasingly wary of paying “menu style” for
more features (call ID, voice mail, for example), hands
up all you consumers that are paying over $250 a month
for voice (Wireless, wireline, with all features and
long distance) and data (Internet access, personal
Add it up. You
are paying a hell of a lot more than you did six years
ago, before wireless phones, before Internet access and
before enhanced phone features. In a country where real income per household has not grown
faster than inflation for the past 10 years, how much
more will we shell out for this stuff, and at the
expense of what?
The enterprise seems to have figured out a few things in
this recent age of cost cutting.
First, the phone is still the primary conduit of
business. Second, e-mail has come out of nowhere to be close in
importance to the phone.
Third, their spending on software automation of
their business has reaped some increases in productivity
and profitability. But, fourth, for now, the enterprise
can stretch the life of their existing systems and
solutions and not suffer in the market.
Bottom line is that telecom spending by the
enterprise is not growing and that replacement cycles
Next back in line are the carriers.
The most important thing to note here is that
there are far less of them around now than there were
two years ago. The
competitive carrier market has combusted.
But existing carriers are not the
anti-competitive titans that have vanquished their
upstart foes. No,
these stalwarts are saddled with debt which affects
their ability to purchase equipment. There is a long story here about why this happened, but the
bottom line is that I was shocked to learn just how sick
this industry really is.
In an excellent analysis of the health of the
industry, the independent analysts at Optical Oracle
concluded last month that, of the 14 leading carriers in
the US, five have the ability to survive.
The rest are sinking fast.
Some big names are sinking like Qwest, Level 3
and Time Warner Telecom.
One of the survivors is Verizon, a massive
carrier with a market cap of $113B.
It also has debt outstanding of $64B.
With a B.
If some of your customers (the ones buying all of your
fancy new gear) have gone bankrupt, still more are
teetering on the edge and your stalwarts have massive
debt and lower capital spending, you have a dismal
business right now.
Nortel at 7 year lows in its stock price is
for those that supply Nortel, Lucent and Alcatel (JDS
Uniphase, PMC-Sierra, etc.).
I have searched my sources for a prediction of when the
telecom sector improves.
No one wants to venture a guess right now.
The party line goes something like, “Inventory
levels are low now and all the used equipment auctions
from failed or downsized businesses seem to have ceased,
so the bottom appears to be now.
But 2002 capital spending budgets can only be
revised down, not up.
So spending will not increase until 2003 at the
for no growth in 2002 and slow growth in 2003 and 2004.
Until demand is steady, the shell-shocked sector
won’t try the new, new thing either.
So start-ups are wise to focus on efficiency and
cost savings if they want to sell anything in the next
The bright spot in telecommunications is wireless.
The growth in wireless spending by consumers and
This is why you hear rumours about Nortel buying
Motorola’s wireless systems group.
Nortel’s only way out of the current mess is to
find growth markets and rally around them.
1xrtt and GPRS are the buzznames de rigeur as
these higher speed wireless data networks are rolling
out around the world.
With data speeds of 56K to 120K, these networks,
their handsets/PDAs and the applications that can take
advantage of the speeds will proliferate.
The wireless industry appears to be shifting gears.
New improvements in the building blocks of a
wireless system are creating dramatic shifts in
performance and cost.
It takes a dramatic improvement to give the
beleaguered carriers a good reason to swap out old
technology and invest in new gear.
This appears to be happening.
Also, the wireless applications industry is in
its infancy. It
seems obvious that messaging is the first killer app and
Research in Motion has capitalized on that in a slow
data world. Now
that the aforementioned new networks support 5 – 10x
the speed of the first generation of packet data
networks, more functionality is possible.
This is not a hype driven world. Breathless predictions don’t work anymore.
But conversely I don’t think all the news in
the world is bad. We
are in a business cycle low that is amplified in the
technology sector. We had a higher high two years ago and we are in a lower low
many of you in the telecom sector, this column may just
be reinforcing what you are already seeing yourself.
I hope so. If
you are seeing something different, don’t take my word
for it. Look
for other sources to validate what you are seeing… and
let me know.
Letters From Last Time –
A point of advice I try to make to the new
entrepreneur is, "don't underestimate the sheer
volume of things to be handled as a business
emerges". The volume is the same in either
"success" or "failure", just a
different set if items for each.
This volume is tough enough to handle if you "know
what to do". If you are new and have to stop and
think too much, you can eventually drown in stuff not
done. To try and make a list would be tedious, and no
one would read it. This advice just needs to be
Tom, thanks for the additional advice.
Said another way, “The start-up is about things
that should get done, not getting done.
The corporation is about finding things to do to
keep yourself relevant.
Very different motivations and very different
types of stress…”
Very good column and I hope that everyone has recovered
One thing that you may want to bring up in a future column
is the importance of having a good board. A good board
has only one person from inside the company, has
invested at least some money in the company themselves,
and has the will to fire the CEO if necessary.
Steven – I did write once about the importance of a good Board (see
Grab Your Boards… www.bctechnology.com/statics/bh-jul2701.html),
but I received follow-up requests to talk about the
actual operations of a good Board.
I’ll get to that soon.
Thanks for the request.
I like your analogy about Canada Tax cuts (10 customers at
a restaurant) comparing the rich and the poor. It puts
things in perspective.
I then went on to reading your previous articles .. most
interesting. However, I really wish you (or T-Net) has a
'Search' function where I can search your articles with
certain keywords. Anyway, just a thought.
Like any unemployed IT worker looking for a job, I am
unsure of BC's future. My friends from Toronto, Ottawa
and Montreal are screaming at me to look for jobs in
their province. Montreal for example, my friend is
boosting about a mega multimedia center that they are
promoting. As you indicated, Ottawa and Toronto attract
more investments. Most people out in the east (my
friends anyway), all thinks Vancouver is not a real
'commerce' city like Toronto or New York. We get a
reputation for having a relax life-style, but not a
Don't get me wrong, I love living in Vancouver. But having
the highest real-estate/rents, higher taxes, glooming
lumber sector and guaranteed union strikes each year (if
not nurses, then teachers). There are so many things
hampering BC’s success. While our minimum wage is the
highest across Canada, survey best cities to live in and
our universities ranking top spots, it did little for
the economy. I won't delve into how many Asian
immigrants went back to Asia just because our taxes are
And this gets me thinking, should I move out to the east? I
would love more than anything to contribute back to the
very province that give me a degree in Computer Science.
But when faced with unemployment and just the fact that
there are more job postings in Toronto/Ottawa area
compare to Vancouver (by a factor of 7 to 3), how long
can I stay here?
Chris – You are not alone in your grief over
not getting a job.
My advice to you is to find work where you can.
Don’t stay here just because you feel
responsible or beholden to BC.
As for your comments about the gloom in BC, I
think you speak of the overall depression in the tech
sector here. But
don’t be fooled by there being more job listings in
Ottawa/Montreal/Toronto as an indicator of the health of
their tech sector.
They simply have more companies.
They are getting in the teeth just as much as we
are, even with our additional economic stress of
softwood lumber duties and a tight fisted provincial
is ALWAYS a grass is greener feeling when times are
they are tough all over.
For now, Vancouver is a smaller version of those
other cities. In
the future, I feel that this area’s technology
industry will grow faster than those areas. If you do
go, keep in touch with Vancouver, because it will get
I enjoyed your article on the pitfalls of startups.
Very close to the metal!
I felt otherwise, though, about the Salmon Arm article that
seems to have found a life of its own (I've received it
5 times from different sources). It is factually
Here is the reality (for 2000):
Top 3 income deciles in Canada earned 59% of the income
and paid 66% of the taxes (not 89%...)
Bottom 3 deciles earned 8% of the income and paid 4% of tax
(not 0%). Source:
those renowned socialists... the Fraser Institute
The reality is our tax system is not nearly as progressive
as he suggests.
Gordon – Good for you to go and get the real
deal on taxes. The
spirit of the parable remains the same, though.
That, with corrections to the dollar amounts, is
the story that needs to be told.
The fair thing to do is reduce everyone
unfair thing to do is shout about how rich people get
all the benefits of tax cuts, when in fact, the rich
people pay their fair share of the tax base and get the
same proportionate reduction.
The left wing voices are not dumb.
They are hoping the rest of the public is, in
fact, too dumb to notice the flaw in their argument.
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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