It’s just five years ago that the technology sector, in the full pomp of its role as the equity “Emperor”, had its ‘new clothes’ exposed for what they were — or were not: nothing. Has anything changed?

Well, it would be nice to think that a bit of humility had set in. Every time a ‘Redux’ moment occurs, there is a sense of nostalgia for the good old/bad old days. In the immediate aftermath of the share collapse, with individual and corporate fortunes decimated in a way not seen since 1929, 10% of peak share value was the accepted benchmark for survival. Many ICT companies and nearly all of the dot.coms came in well below that threshold. RIP.

It’s hard not to feel that many of those watching the sector’s performance since 2000, tapping their burned investor’s finger-tips onto their workstation keyboards, are like the acolytes of terrible deposed dictatorial leaders who wait, sometimes for decades, for a prodigal return.

Learn lessons
There are some significant changes in direction, but each seems sufficiently precarious to make it liable to a sudden shift into reverse gear. For the record, here are five positive developments that can be turned into valuable lessons as we seek ‘Redux’:

1) cash versus shares: when the tech-stock bubble over-extended too far, it was common for the inflated currency of stocks to replace old-fashioned cash in the takeover deals that dominated the sector. Financially, mergers were engineered on the basis of paper that could not, it was said, lose its value. The hollow nature of this was only fully exposed when the malfeasance of companies such as WorldCom came to light. The current takeover triangle between Verizon, Qwest and MCI shows how the share and cash balance can be played. The key, which was lost sight of in the 1990s, is the fiscal stability of shares.

2) better accounting standards: it would be nice to think that the US Sarbannes-Oxley Act of 2002 restored investor confidence in North American accounting standards. Passed after the horror of Enron and WorldCom came to light, the new regulations tightened the scrutiny of corporate accounts. Whether S-O will work in the US, or whether companies in Europe and elsewhere will eventually be found guilty of the sort of irregularities involved, is a very moot point.

3) the rout of the evangelicals: when the technology zealots were in their prime, they presented sick-bag presentations of their wares backed by supernatural visions of their own performance. They were so clever and so brilliant that their total lack of business acumen was overlooked by the fawning forces of the investment world, backed by the armed militia of the day-trading community. Get rich quick and who cares? Crassly, the traditional telecom utilities sought to follow suit by appointing CEOs with ‘retail’ or ‘entrepreneurial’ experience. They were rubbish. A new wave of bureaucratic managers are now looking like safer bets for most PTOs. They are unlikely to be found behind anything like the self-penned hagiographies of their ICT counterparts.

4) amortisation: ‘EBITDA’ - ‘earnings before income, tax, debt and amortisation’ was the accounting lingua franca of the dot.com era. Corporate accountants were complicit in endorsing EBITDA in place of EAITDA, where the first ‘A’ in the second acronym stands for after. The difference between Before and After was billions and billions of dollars. Arguably, the telecom industry has played it fast and loose, choosing to amortise the cost of network links over 25 years when, increasingly, as IT and IP elements, they should be costed over three years.

5) mobile and broadband: it was fashionable for a time to ignore mobile communications. It was also fashionable to ignore broadband. This is being swept away by consumers. US consumers are embracing mobile and Europeans are being seduced by broadband. Combine them and you have the biggest challenge to complacent ‘content vs, carriage’ — ever.

One of the curiosities on each of these points is that they can all in part be traced back to Bernard J. Ebbbers, last month convicted of fraud and now facing the sharp end of an 85-year jail sentence. Time for him to think of what he’s done. Plenty of time…
Jim Chalmers