An axiom on Wall Street is that the opposing forces of fear and greed will perpetuate a simple harmonic business cycle of ups and downs upon which to continuously make a profit. Fear of losing money will generally prompt sellers to sell; greed for making money will typically prompt buyers to buy.

In every industry the tug-of-war between fear and greed defines the extreme boundaries of behavior through which, as Da Vinci noted, inequality provides all local movement. Before budgetary pressures can be applied to control these two extremes, identifying the fears that drive us in OSP are best seen only against the backdrop of greed that exists behind the scenes in many facets of our industry.

Fear
OSP is rife with industry-wide fears that consume our professional behavior, likewise with greed. Fundamentally all fears are irrational -- for if you were rational about what you were afraid of, you would understand or accept it and no longer be fearful of it. But the mind is a terrible thing to change; it is far easier to rationalize than to be rational.

Instead, fear thrives in realms where there is limited understanding, or where the unknown is allowed to grow unchecked. Since the Great Recession beginning in late 2007, economy-based fears are prevalent in almost every industry lately except the growing sectors of education and healthcare. There are 3 fears in the OSP industry that prevail:

Fear Factor #1. Wage Loss or Stagnation
Believe it or not, hourly wages in the telecommunications industry for production workers, defined as front-line employees and their supervisors, have risen at an annual average of 4% above the previous year since 1999, according to the Bureau of Labor Statistics. (See Figure 1.) This has immunized the telecom employee from the recessionary influences of wage stagnation that has afflicted most other industries.

Figure 1. Average Hourly Earnings of Production Workers.
Source: Bureau of Labor Statistics

Typically in times of high unemployment, industries rely on improved productivity gains by demanding more out of the remaining employees. The thought is once the economy picks up, productive companies will be in a better position to ramp up for the increased customer demand than unproductive companies. The down side is that this usually occurs at the expense of employee wages. Known as wage slavery, employees are less apt to complain of stagnant or falling wages since doing more with less is better than doing nothing with nothing else. The good news is that for the telecom production worker, wages are not as bad as they could be.

Fear Factor #2. Fear of Job Loss in Wireline
With domestic unemployment currently over 10% and holding in the U.S., the economic outlook for job creation hasn’t been this bad since the recession of 1981-1982. In most recessions since World War II, businesses were sluggish to slash payrolls in the face of slowing sales. However, during the last few downturns, businesses in general have learned to reduce their work forces faster than in the past.

In OSP, the fear of unemployment is real and causes a lot of shift in behavior. According to the U.S. Bureau of Labor Statistics, the wired telecommunications industry lost approximately 43,000 jobs from 2008 to 2009, a 6.5% reduction; and a total of 67,000 jobs from 2005 to 2009, a 10% reduction. (See Figure 2.)

Figure 2. U.S. Telecommunications Employment.
Source: Bureau of Labor Statistics

Just when it seems like employers have exhausted their supply of workers to fire, force reductions seem to start again and outsourcing work to contractors picks up. The telecom bust of 2001 reminds us how rapidly jobs can be cut. Many of us recall that within 3 years after the bust, 300K+ jobs had been lost with more than two-thirds of those reductions occurring in the wired telecom industry.

Reducing headcount forces low-bid contractors into key functions in OSP like engineering and DLC installation as a way to reduce variable cost and risk. Unfortunately, what ends up happening is that outsourcing, if carried too far, threatens the American corporation’s long-cherished standing as a core institution of American society. Core institutions like schools, hospitals, and our legal system, for example, could weaken if the front-line employees were outsourced to third-party vendors. Employers must be reminded that the value of an employee is often worth far greater than their cost on the general ledger.

Fear Factor #3. Shift to Wireless.
The real fear for many in the wireline OSP side lies in the long-term trends of our customers shifting to wireless services. POTS circuits continue to hemorrhage as subscribers cut the cord. This shows what parents with teenagers already know: the telecommunications industry is changing its focus and regrouping to new wireless technologies as new consumers’ taste for wireless services grows unfettered.

Wireless-only households in the U.S. grew to 20.2% of total U.S. households as of June 09, up from 8% back in June 05. There are now 280 million wireless subscribers in this country; that’s 89% of our population. According to the Bureau of Economic Analysis, U.S. personal consumption of expenditures on wireless services outspent wireline services for the first time back in 2007 and has not slowed down since. (See Figure 3.) The good news is the telecom industry has been ensconced by the stilts of wireless demand during a financial storm that was not a garden-variety recession.

Figure 3. Personal Consumption Expenditures by U.S. Consumers. 
Source: Bureau of Labor Statistics

Wireless has also turned out to be a shiny spot for telecom employment. The wireless industry managed to weather the economic storm with no sustained damage to their employment base. Job levels were constant from 2008 to 2009 and gained 11,000 jobs from 2005 to 2009, a rise of 6%. Not every industry has a growing subset in the current economy, but telecommunications does with wireless.

Despite the earlier-noted job losses, it could be worse. Wireline jobs in OSP currently outnumber wireless jobs by a factor of 3. (See Figure 4.) These jobs will eventually approach a limit as the embedded base of feeder and backhaul OSP relies on the wireline employees to maintain it. Thankfully, this will not saturate in the foreseeable future.

Figure 4. Factor of Wireline Employees That Outnumber Wireless Employees.
Source: Bureau of Labor Statistics

Greed
Perhaps Gordon Gekko of [the 1987 film] Wall Street fame said it best: “Greed is good.” As shocking as this sounds, we can see this counter-intuitive dictum becoming a metronome for our culture with customers’ insatiable OSP appetite for data services. They demand more fiber, more bandwidth, more spectrum, more handsets, more apps, more cell phone functions.

A step from the sublime to the ridiculous takes us to the realization that one should be careful to not pay too much for the promise of the future. Greed is generally harmful if not harnessed and channeled. If greed can be considered a form of controlled growth, then it is socially beneficial. Below, let’s examine 3 greed-oriented forces that impact our industry today:

Greed Factor #1. The Telecom Act of 1996
The main objective of The Act was to: let any communications business compete in any market against any other. From a regulatory standpoint this left the door wide-open to greed in OSP by encouraging competition. With it, anybody in search of a profit could become a phone company for a small fee -- even a community college.

These companies soon learned that one cannot profit on Wall Street by doing what is popular or obvious. After a brief surge of startup telecom carriers in the early 2000s, most are now defunct.

Known as tragedy of the commons, a classic theory by economist Garrett Hardin (first published in the journal Science in 1968), summarizes what happened across our industry during that time. Hardin argues that when groups share a finite resource (like OSP facilities), they will greedily end up destroying it because each party has an incentive to use it before others do.

Interestingly, two American economists won the Nobel Peace Prize in 2009 for their work on managing common-pool resources, claiming that the greed in tragedy of the commons could be controlled by clearly defined rules, conflict resolution methods, and monitoring. The telecom industry today is comprised of phone, cable, and satellite operators grabbing a share of each other's subscribers. This clearly proves that greed born from the Telecom Act of 1996 is thriving.

Greed Factor #2. Fiber Growth
According to economist Christopher Carbone with the Office of Employment and Unemployment statistics, overbuilding on fiber optic cable contributed to the large employment decline of 2001-2005. During this time, wireless technology began seriously cannibalizing the traditional wired services and the demand for fiber capacity was much less than expected. In the latter half of the last decade, just the opposite has happened. The strong emergence of wireless has fueled demand for fiber to be placed to cell sites to relieve the backhaul T1's feeding the sites on traditional copper cables. Along with the industry's push for FTTP for video needs, there has been a resurgence in fiber optic cable needed in the OSP that reflects the industry's shift to higher bandwidth services.

Greed Factor #3. Wireless Growth
According to the CTIA, the wireless trade association, there are 245,912 cell sites in America as of June 2009, an increase of 38% since June 2005 and 157% since June 2000. Signs are beginning to percolate that everybody wants to be online all the time now. That means cell phones have to become IP pipes connected to the Internet.

In fact, today's cell phone is not even a simple cell phone anymore but a smart phone, of which the phone feature is just another app, almost like an afterthought. This threatens the industry's long-held belief that people only want to connect to each other directly; they don't. Consumers now want to connect to data streams from other people more than ever before. Recent trends in bandwidth demands reflect that consumers want to research things on their own, provided that the apps on the smart phone send the answers quickly and easily. From finding the nearest restaurant, to downloading songs, to getting recipes, to playing games, the trend is that people want more bandwidth to be able to connect to data, not live people, more than ever before.

According to the CTIA, annualized wireless data revenues in the U.S. jumped to $37 billion in 2009, up 335% from 2005. Comparatively, the annualized minutes used on a cell phone increased only 77% from 1.3 trillion used minutes in 2005 to 2.23 trillion in 2009.

Changing the Mindset
The intricate parts of fear and greed in OSP are kept in check by budgetary pressures within the industry. Nothing stops greed in its tracks better than facing a deficit. Likewise a budget freeze helps make all the afore-mentioned fears in OSP seem less of a personal attack and more like events that are out of one's hands.

For the past 5 years, the total value added by the telecom/broadcasting industry has contributed to 2.5% of our GDP each year in the U.S., compared to 2.9% for transportation, 9% for education and 7% for healthcare. This means out of the $14.3 trillion in spending in 2009 for all goods and services, the telecom industry accounted for $358 billion dollars.

It would be a repugnant abuse of responsibility for any industry to ignore budgetary constraints since a budget is the leash tethering senior management to the work force about what management is really planning. As the forces of fear and greed shape their vision, senior management steers direction and allocates finite resources through an imposed budget that can only stretch so far to the front lines. Without budget analysis, any OSP organization trying to stay efficient would walk right past the most obvious answer on their way to more exotic and more expensive ones.

Greed encourages capital expenditures, but fear of spending capital before customers materialize halts many executive initiatives. Which side wins depends on which is more affordable and less painful. Future-looking companies prefer to invest especially during economic hard times because it enables organizations to cheaply come out of the downturn faster and stronger than the competitors. CapEx, after all, is the planted seed for future growth for any company since capital dollars buy assets that will generate revenue for the business in the long term. Imagine the bandwidth bottleneck, for example, if the telecom industry waited until 2009 when the recession ended to start investing again in infrastructure.

Let us not let a good economic crisis go to waste. Fears in OSP seem to focus on new ways of losing money when the old ways work just fine. Wireless may be cannibalizing wireline, but the underlying growth story in wireless is a panacea for the whole industry.

The real high-water mark of economic pain for many with contained earning power is inflation. Wait until higher prices in everything from gas to food wreaks havoc on consumer spending. At two-thirds of our GDP, anticipating the return of consumer spending will be our true test as a warrior or as a worrier.

Sources   
Bureau of Labor Statistics, www.bls.gov
Bureau of Economic Analysis, Department of Commerce, www.bea.gov
The Federal Communications Commission, www.fcc.gov
Christopher Carbone, "Cutting the Cord: Telecommunications Employment Shifts Toward Wireless," Monthly Labor Review, July 2006.

About the Author
Brian Lackovic is a Lead Budget Analyst for Construction & Engineering with AT&T. He has more than 10 years of experience in OSP Engineering and budget. He holds an MBA from Palm Beach Atlantic University, an MS in Applied Mathematics from the University of Central Florida, and a BS in Physics from the University of Florida. For more information, contact Brian at email brian.lackovic@att.com.

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