Lucent's explanations are wearing thin
 
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The Telecommunications Act of 1996 guaranteed that new carriers could rent copper loops from Bell companies, collocate switching equipment in their central offices, and interconnect their back-office systems with them. But the statute didn't guarantee that if these new carriers obtained those rights they'd be any good at their jobs or find a lot of high-paying customers to buy their services. Perhaps that's something Lucent should have thought about before extending trade credit to any emerging local carrier with a bound business plan, a good Washington lawyer, a bunch of junk bonds and a few ex-MCI employees.
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Lucent this week announced that it was once again lowering its earnings estimates, partly because it now expects that some of the money it advanced to competitive local exchange carriers (CLEC) to get going won't be repaid. Lucent won't actually release the figures it's using to deal with this expected bad debt until it announces quarterly earnings on Oct. 24. But it's interesting to note that a number of analysts don't think the financial impact on Lucent should be that great just from the CLEC debt alone. Rather, it's the interplay of the CLEC situation with Lucent's other problems that's creating such negative sentiment about Lucent on Wall Street. Lucent seems to have signed up a number of CLECs that have no special claim to a better mousetrap for equipment and professional services, in a number of cases seemingly all but running the CLEC through its NetworkCare division. Meanwhile, it's striking how many new carriers with something really interesting to talk about - multitenant broadband, metro Gigabit Ethernet, optical premise interfaces - seem to have no room for Lucent in their product portfolios. To be fair, Lucent is not the only one affected by the fact that CLECs like E-spire and ICG are seeing their stock prices go down the drain. There are too many venture capitalists and bond underwriters who thought that carrier piggybacking via the rights guaranteed under the 1996 act was a guarantee of success rather than a helping hand to get started. Cisco, ADC, Tellabs and Nortel Networks are other big vendors that have been named as possibly implicated in the CLEC bad-debt situation. But the reason it's hurting Lucent so much more than its rivals is that it comes while Lucent is still trying to explain why its optical business is actually dropping 5% under current estimates. It's almost as if Lucent went after all the little carriers with copycat CLEC plans rather than the important new carriers with big ambitions. CEO Rich McGinn has blamed the optical situation on everything from manufacturing shortfalls to personnel issues, and from competitor pricing to delays in delivery a long-haul OC-192 (10G bit/sec) market entry. Now McGinn says new carrier customers have to "certify" Lucent's products, which some observers are taking as just a fancy way of saying he has to actually get these customers to sign contracts. Meanwhile Wall Street is furious with Lucent for its inability to stop juggling executives, promising reorganizations and announcing that its earnings guidance was wrong again. Lucent allowed the media to listen in on its latest earnings discussion with analysts, and Lord only knows why. One after another analyst scolded McGinn for failing to deliver a coherent story about the optical problems, with one finally sputtering: "What exactly is going on with your OC-192 business?" While McGinn works on his management problems, other vendors are coming forward with more network management announcements for carrier network managers. See Accelerated Network's entry in this field on The Edge this week.
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