Will the Market Meltdown Impact Telecom?

Industry Should Brace for Hit in 6-9 Months, Analysts Warn

Even though the Dow regained some momentum on Tuesday, following Monday’s 500-point free-fall, telecom and cable stocks stayed down as the shock of the Lehman Brothers bankruptcy and the Merrill Lynch buyout rippled across the globe.

The problem with this kind of market meltdown – beyond the obvious, initial job and portfolio losses – is that it impacts more than just one sector. So even though analysts said there’s no direct short-term connection between the stock activity for investment banks and communications services, service providers’ shares are suffering simply by virtue of being part of Wall Street. AT&T Inc.(T), Qwest Communications International Inc.(Q), ]PAETEC(PAET), Cbeyond Inc.(CBEY), Verizon Communications Inc.(VZ) and Comcast Corp.(CMCSA) and Cox Communications Inc. came to several minds. Other carriers that aren’t as Ethernet- or balance-sheet strong (think XO Holdings Inc.) won’t fare as well, analysts said – an unwelcome reality in an ever-sluggish economy. Overall, deeper economic uncertainty, combined with greater competition from cablecos and wireless carriers, as well as continued ILEC deregulation, means competitive carriers could have some tough times ahead. The hope is those times won’t be as painful as the dot-com bust of the early 2000s.

Stock Markets Plunge

On Sept. 15, Wall Street suffered one of its worst days ever. The Dow Jones plunged 504 points; the S&P 500 nosedived by 59 points, its biggest drop since Sept. 11, 2001, when terrorists plowed airliners into the World Trade Center and the Pentagon. The Nasdaq shed 81 points. Telecom, cable and equipment stocks were stuck in the fray, even though they didn’t contribute to it, and hadn’t recovered much by Wall Street’s Sept. 16 close.

Nor, analysts feared, would that likely happen right away.

“This meltdown is going to affect peoples’ psychologies, deepening or creating the recession we’ve been denying in the last six months,” said Norm Bogen, director of networking research at In-Stat. “This is going to negatively impact the economy and, therefore, telecom.”

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