"Armageddon is not here," stated Dr. Herschel Shosteck, president & chairman of Shosteck Group, an international telecommunications consultancy based in Wheaton, Maryland. "Notwithstanding recession and terrorism, the future will continue to center on high technology and, especially, telecommunications."

The 150 page study analyzes when the telecoms industry will turn around and what it will take to move it forward. It concludes that sequential sales will begin to climb in Q1, 2002.

"A global economic slowdown has taken hold but the situation will turn around," states Jane Zweig, CEO of Shosteck Group. "However, this does not mean that things will go back to the way they were prior to the slowdown. Companies who were at the top prior to this slowdown may no longer be there. After the recovery, this opens opportunities for innovative companies who will fill many of the gaps left by the majors. Additionally, the rules which governed the market prior to the slowdown may no longer apply," she continued.

The study points out that despite the excess infrastructure spending of the past two years, the increase in telecommunications subscribers and use - both landline and mobile - continues. These increases will force network operators to resume construction.

"Notwithstanding the over-investment of the past two years and the announced plans of network operators to reduce investment, the sale of telecommunications equipment has likely reached the depth of its recession," stated Dr. Shosteck. "From the First Quarter of 2002, vendors of telecommunications equipment can expect increasing revenues. This will be especially the case for the wireless segments. Based on our analysis of six case study vendors, we anticipate that during 2002, industry sales will recover by 4.5 percent to 11.2 percent above those of 2001. During 2003, they will expand to approximately ten percent above those of 2002."

The study provides an analysis of the impact of the events of Sept. 11 on the telecommunications industry, concluding that the long-term effects will be to add traffic to both landline and mobile networks. It points to, at least, five outcomes in the mobile world. The most important of these, already taking place, is the stimulation of more subscribers to conventional mobile services and the expansion and upgrades of private two-way radio throughout the public safety realm. With the massive layoffs in the industry, firms will face significant challenges in rebuilding. An often unrecognized outcome of the personnel slashing is the loss of "corporate memory." For corporations to downsize successfully, they must be sensitive to this loss and the impact it will have long-term.

"In terms of engineering, losses of corporate memory include the painfully acquired experience regarding which processes and methods work in real world applications and which don't," stated Ms. Zweig. "Within the wireless world one of the greatest benefits of corporate memory centers on the recognition of how long it takes for new radio technologies to mature - a period that typically lasts for five years. In this regard, an experienced engineer may be worth a dozen neophytes and successful companies will spend the money necessary to reinstate the needed competencies that they may have inadvertently discarded," she continued.

"During 2001 mobile networks likely added the same number of subscribers as in 2000, and possibly more. Yet, sales of mobile equipment have declined, albeit not as much as sales of non-mobile equipment. This presents a paradox," said Dr. Shosteck. "How can mobile network operators serve subscribers who are increasing in numbers to the same extent or more than the year before, without purchasing an equal amount of equipment? While subscribers and network traffic are increasing, operator investment in network capacity is not keeping pace. Under these circumstances, operators are quickly using up any slack in network capacity. This points to an impending and unavoidable capacity crisis," he continued.

The Shosteck Group concludes that during Q1 2002, new orders from mobile operators may be "abrupt and substantial." However, firms all along the value chain have reduced their inventories to bare minimums. This is constraining the extent to which vendors of mobile equipment can expand production. Should orders spurt, vendors may not have sufficient inventories to meet the demand. Those vendors that act now to secure a sufficient supply of components will gain competitive advantage. The study points out that in light of losses and negative cash flows, the major vendors no longer have the money to support R&D projects of marginal commercial relevance. Vendors have little option other than to focus R&D onto their redefined core competencies and within those core competencies, to direct their R&D toward projects that have high and near term commercial relevance.

"This refocusing of major vendors onto core competencies is leaving a R&D void. This is opening more opportunities for independent companies - start-ups - able to fill that void," said Ms. Zweig.

During 2000 and 2001, venture capital firms suffered enormous losses. This is leading to a new investment model - longer time frames for return on investment and "milestone based funding." This latter will require more careful accounting from new ventures that centers on meeting explicit technology and commercial milestones, by specific dates, or risk the loss of continued funding. Previously, start-ups may have been required to meet technology milestones. What is new is that they will now be required to meet commercial milestones as well. "It is critical that start-ups continue to be funded. Without sufficient funding, they will die. Without the innovations of start-ups, offerings of operators and vendors will be more limited. End users will find less value and spend less - to the detriment of themselves, the operators, and the major vendors of infrastructure," Ms. Zweig said.