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Getting the picture

Research analysts at investment banks are retreating, lemming like, from the telecom sector. Some banks are abandoning research in the sector completely, citing the diminishing potential for activity, such as mergers and acquisitions, initial public offerings (IPOs), bond issues, rights issues and even wrongs issues. Telecom has gone out of fashion with a vengeance.

Sentiment toward any industry sector in the financial markets is driven partly by fashion. Money can be made by skillfully riding the waves of sentiment; getting a good seat on the bandwagon is a precursor to profits. The underlying performance and prospects of the industry sector concerned are often secondary factors.

But predictions of performance and profits are a powerful factor in determining sentiment. The predicted massive potential of mobile data, recycled religiously in numerous analyst reports, was a major factor in hyping the prospects for third-generation (3G) services. The perceived value of 3G licenses was largely determined by these predictions.

Mobile was a booming business. The Internet was expanding like crazy. The mobile Internet could only be a runaway success.

Now the mobile Internet has suddenly gone out of fashion. Bemoaning the burden of excessive 3G license fees is the latest fashion statement. Supporting the long-term prospects of 3G has become a sign of mental instability, incontrovertible evidence for committal.

3G was hyped outrageously by research analysts at investment banks and other members of the financial community. The telecommunications trade press largely failed to resist. Rather than emphasizing the long-term character of 3G service deployments, they went along with the promises of instant gratification. Rather than being the source of hype, as commonly portrayed, the press were among its victims.

Most of the research analysts are now walking away, seeking new fields to conquer. But not all. Coverage of 3G still exists within the financial community. And it is focusing on a new source of hype.

“Camera phones and multimedia messaging services will be the savior of 3G” is the latest mantra. Note the word “savior.” This is the last chance saloon according to many within the financial community. And be very afraid. The assumptions and expectations buried within this statement are utterly unrealistic.

Picture messaging will undoubtedly become a significant 3G service. But according to the hype, it will be launched widely before the end of this year. It will achieve instant ubiquitous coverage and availability. It will be an immediate success, tracking the explosive growth of short message service (SMS) within Europe from day one. It will contribute significant revenues by the second quarter after launch. The airwaves will become saturated with images. Mostly of flying pigs.

If this does not happen, the 3G adventure will be over. 3G will have failed. The remaining analysts can then walk away with a clear conscience. They gave it their best try; the industry let them down.

The telecom trade press should not let them get away with it. They should object violently and vociferously to this nonsense. Let’s hope they do so. And soon.

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