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Telecom sector will be cut down to smaller size

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CIOL Bureau
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Ben Klayman

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CHICAGO: Job cuts at No. 2 US long distance telephone company WorldCom Inc.,

the world's second largest cell-phone maker Motorola Inc. and other telecom

companies are just the beginning of another round of slashing in an already

battered industry, analysts said on Thursday.

"The bottom line is we haven't seen the bottom. It's the worst time in

telecoms history," independent telecom analyst Jeff Kagan said.

"Fortunately, telecom is like oxygen. We need it so it's going to survive

and it's going to recover, but this is just unprecedented."

"The telecom world order will look much different in five years,"

he added, explaining more consolidation is inevitable.

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The telecommunications industry cut almost 318,000 jobs last year and has

announced the elimination of an additional 135,000 positions through May this

year, both leading totals for all industries in those periods, according to

outplacement firm Challenger, Gray & Christmas.

‘Struggling with the bubble’



Any hoped-for rebound has been delayed repeatedly as spending at such
carriers as Sprint Corp. and Qwest Communications International Inc. has further

slumped, forcing more job cuts.

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"I don't think that it's finished," Jane Zweig, CEO of wireless

consulting firm, the Shosteck Group, of the job cuts. "It's an industry

struggling with the bubble." WorldCom and Motorola's job cuts were just the

latest blows, following closely on the heels of new cuts or warnings from such

smaller players as Tellium Inc., Sycamore Networks Inc. and Ciena Corp.

Verizon Communications, the No. 1 US local phone carrier, also said earlier

this year it would cut the equivalent of 10,000 jobs through layoffs, reduction

in overtime and eliminating contract workers. It has not provided an update on

how many of those have been eliminated.

WorldCom faces fraud charges over improper booking of nearly $4 billion in

costs and false reports of profits over the past five quarters.

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The Clinton, Mississippi-based company late Tuesday fired its chief financial

officer and said it would cut 17,000 jobs, or more than 20 percent of its work

force, and slash its capital spending budget by 40 percent to $2.1 billion.

Motorola said Thursday it would cut another 7,000 jobs, or 7 percent below

its previous year-end target of 100,000 employees, and take charges totaling

about $3.5 billion to essentially complete its restructuring. Chairman and chief

executive Christopher Galvin said the Chicago area-based company was taking

itself back to its 1995 size, before the excesses of the telecom and dot-com

booms.

"The investment era of the late 1990s won't repeat itself perhaps in our

working lifetimes because so many of the highly touted business models probably

didn't exist to begin with," he told analysts on a conference call.

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Tellium, which makes optical switches for telephone carriers, said this week

it would slash 200 jobs, or more than one-third of its workers, while last week

Sycamore, another telecom equipment maker, said it would slash 235 jobs, or

one-third of its work force.

Minneapolis-based ADC Telecommunications Inc. said in May it expects to

return to profitability by cutting more jobs and reducing factory costs further.

Ciena's warned last week its fiscal third-quarter revenues could be "down

meaningfully," leading some analysts to predict more job cuts at the

telecom equipment firm.

However, Ciena is not expected to be alone. Numerous analysts expect telecom

equipment giant Lucent Technologies Inc., which has said it plans to reduce its

work force below 50,000, will actually need to cut closer to Canadian rival

Nortel Networks Corp., which has targeted 42,000.

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A Lucent spokesman said the company remains on track to reach the 50,000

figure by the end of September, but it will respond to market conditions as

necessary.

Other telecom companies expected to ax more workers in response to the weak

environment include Citizens Communications Co., and telecom equipment makers

Alcatel of France, Sweden's Ericsson, Tellabs Inc. and Juniper Networks Inc.

Alcatel warned on Wednesday it was headed for an operating loss this year,

and analysts said it could axe another 10,000 jobs, or 12 per cent of its work

force.

(Additional reporting by Yukari Iwatani in Chicago)

(C) Reuters Limited.

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