Internet Pipedream A Lingering Nightmare For Telecoms

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The telecom industry is being hammered by financial turmoil and layoffs, with about one-third of all U.S. job losses in the first six months of this year coming from technology companies, according to a study released this week.

The industry suffered dramatic cuts last year, with 317,777 workers losing their jobs in that one sector. And a new study by Challenger, Gray & Christmas Inc., a Chicago-based outplacement company, shows that at its current pace of 165,840 job cuts in the first half of this year, the year-end total of telecom layoffs could easily match or exceed last year’s figures. This year’s numbers are already 27% higher than for the same period last year.

Telecom job cuts accounted for nearly one-quarter of the 735,527 job cuts announced across every industry between January and June of this year. In no other year since 1993, when the outplacement company began tracking job losses, has one industry accounted for such a significant portion of overall layoffs.

“Telecom was the epicenter of the Internet bubble and all of people’s expectations of how it would transform the world,” says John Challenger, CEO of Challenger, Gray & Christmas. “They overbuilt the infrastructure. They overbuilt fiber. They went far beyond what was needed and what they could pay for with revenue.”

Challenger says, like the rest of the world, the telecom industry got caught up in the gold-rush mentality of the Internet. People believed that newspapers, magazines, radio and television would all have slipped into nostalgic museums by now and the Internet would carry the world’s communications. Telecom executives were quick to invest heavily in the infrastructure to carry this dream.

When that didn’t happen, those investments faltered and telecom workers had to pay the price with their jobs.

“There’s no sign it’s getting better yet,” says Challenger. “We only look six months ahead and it doesn’t look like it will improve in that time…None of the high-tech sectors are doing well right now.”

The high-tech industry as a whole may still be suffering but job losses have slowed down from a year ago. Numbers from the Challenger, Gray & Christmas study show that the high-tech industry has lost 243,200 jobs in 2002, 23% less than the 313,939 job losses in the first six months of 2001.

The second quarter of this year was much worse than the first, though, for those in the computer, electronics and e-commerce fields. After announcing just 13,212 job cuts in the first quarter, computer firms dropped the axe on 42,186 workers in the second quarter, bringing the six-month total to 55,398.

The biggest decline in technology cuts has been among e-commerce firms, which have suffered only 1,741 job cuts through June, down 96% from 49,593 a year ago.

Judith Hurwitz, a principal at CycleBridge Technologies LLC, an analyst firm in Newton, Mass., says she doesn’t see the telecom market — or the high-tech market as a whole — turning around until well into 2003, if not 2004.

“They’ve been hit extraordinarily hard,” says Hurwitz. “There’s no question they’ve been disseminated. There are tremendous problems in that space with too much capacity and not enough utilization of what was already there. Did they give us the right stuff at the right time? Were their investments wise? No.”

And the economy as a whole isn’t strong enough to pull telecom back up — not yet anyway. And the recent scandals at industry giants like Enron Corp., Arthur Anderson and WorldCom Inc. are further damaging the public’s trust and further slowing investment and spending, according to Hurwitz.

“It doesn’t add up to people having a lot of confidence,” she says. “People just aren’t taking risks. They’re not spending money, not even on capitol improvements…We’re easily looking at another year or a year and a half of this.”

Hurwitz and Challenger agree that all of this means it’s time for people to be cautious — cautious in their corporate spending and cautious in their efforts to keep their jobs.

Now is the time for IT people to upgrade their skills, earn new certifications, and take classes on teamwork, management skills or organization. Beef up your resume and do the extra work needed so you won’t be the first one out the door when layoffs start coming down.

After the glut of job openings just a year and a half ago, the new reality of layoffs and high-tech unemployment has caught a lot of people by surprise. Challenger notes that unemployment is higher in the IT sector than the national average. That means IT workers and administrators need to realize that their skills are portable and prepare to move out of high-tech businesses and into the IT side of banks, retailers and manufacturing companies.

“It’s a time of greater job insecurity,” says Challenger. “You want to be the one who shoulders the load in your department. Stop thinking there’s a turnaround coming and we’ll be right back in the go-go days.”