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Telecom hell
Sprint PCS' warning is another in a long line of disappointments for wireless. Is there any hope?
June 14, 2002: 3:04 PM EDT
By Adam Lashinsky, CNN/Money Contributing Columnist

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PALO ALTO, Calif. (CNN/Money) - Talk about a disconnect.

In Silicon Valley, there's basically one topic that can get tongues clicking among dejected venture capitalists: wireless services. VCs who've washed out on enterprise software (scorned of late as "shelfware"), dot-bomb e-commerce companies and networking gear makers still can muster excitement about the coming generation of wireless products that connect handheld gizmos with computers and telephone networks.

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And yet on Wall Street, the news couldn't be grimmer for the industry. At issue is the billions of dollars operators have spent on so-called third-generation networks, or 3G. So far the investments are turning into a huge mistake, a field of dreams of epic proportions. They built it -- but no one's coming.

Each new data point of 3G's failure brings down more hurt, the latest being Sprint PCS's (PCS: down $1.97 to $4.02, Research, Estimates) forecast of slower-than-expected subscriber growth. In a late Thursday announcement that whacked the entire wireless industry Friday, the wireless unit of Sprint (FON: down $3.17 to $11.12, Research, Estimates) said it will add just 300,000 subscribers in the second quarter, compared with the 700,000 additions industry watchers had expected. Worse, the number of new subscribers for the year is on track to be 15 percent below the target of 3 million.

Investors reacted with fury, knocking 40 percent off Sprint PCS's value. This isn't some fluky startup. A forty percent cut amounts to more than $2 billion in market cap.

It's easy to see why investors are upset. Revisions among the wireless carriers go in only one direction: Down. As a J.P. Morgan analyst told clients Friday, "these stocks were fighting against darkening sentiment already and now we expect investors to avoid this group for some time."

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But read the fine print on Sprint's announcement and it's obvious that the seeds continue to be sown either for an eventual wireless opportunity or yet another investment disaster. With a painfully euphemistic title on its news release ("Sprint Updates Financial Guidance"), the company reminds investors that "this summer Sprint plans to launch its nation-wide 3G network with aggressive marketing campaigns. Combined with historical seasonality, Sprint currently anticipates that this will weight full-year customer gains toward the second half of the year."

Given the push out in growth, Sprint lowered its planned PCS Group capital expenditures by $100 million to $3.3 billion, assuming "continuing strong customer usage."

Industry watchers always have discussed 3G as a "when," not an "if." Clearly Sprint continues to believe 3G is a "when," though you can see the fudging with every sentence. If Sprint expects 3G to start ramping up later this year, perhaps the true arrival is really early 2003. Perhaps it's 2004, under someone else's ownership.

When customers really do start using the network -- for services like sending pictures, getting maps and whatever else the industry can dream up -- investors will pay attention again to the "group," in J.P. Morgan's argot. The group will include a handful of the startups that make Silicon Valley's VCs excited today. There's plenty of time to figure out who they are. Their time hasn't yet come.

Patriotic note: Happy Flag Day. And have a good weekend.

Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at

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