"Our outlook for the next 12 to 18 months for all segments is negative," said Robert Konefal, managing director of Moody's Investors Service in New York, adding that long-distance carriers face severe pressure. "In the past year, we have downgraded companies with large long-distance businesses - such as AT&T, WorldCom, Sprint and Qwest - by multiple notches."
The telecoms implosion is blamed on an industry that overbuilt capacity while overestimating demand, said experts. Corporate scandals have also proved debilitating. Approximately 500,000 jobs have been lost in the sector, which is estimated to be in debt by as much as $1 trillion.
"We find ourselves in the midst of some very difficult times in the telecom industry," said FCC chairman Michael Powell. He said a major problem facing telecoms companies and equipment makers is access to capital to fund network upgrades and new services.
Powell sees the private sector as the main driver of a recovery. Government efforts to spur competition, such as the Telecommunications Act of 1996, which opened local phone service to competition, also protected new entrants into these markets from failure, shoddy business plans and debt. "The government's pro-competitor industrial policy cracked," Powell said earlier this month at a forum in New York.
Capital "follows its own rules" and not the rules of policymakers, he said. But he also faulted investors for pouring money into firms with weak structures.
The panel told the FCC that companies need regulatory certainty. But there were also warnings that government actions to spur competition can sometimes run counter to market wishes.
"The market generally does not like competition introduced into a regulated industry because it threatens returns in the short term," said Laura Warner, an analyst at Credit Suisse First Boston.
"Competition is still an imperative," said Powell, but he noted that "it's a continuing struggle" to determine what balance to achieve in a regulated market.
"The public good, the public interest in competition, really ought to trump anything else," argued Larry White, an economics professor at New York University.