There's never been a better time to be in the phone business Imagine, if you will, a standard wall graph with the growth line moving right. Give it a slight rise for moderate growth. Now bend it up a bit. Now bend it up again. Bend it a third time. A fourth time. And a fifth. For good measure, give it another boost. What you have is the incredible growth dynamic of the telecom industry, kicked upward by six distinct "inflection points, any one of which could spur tremendous growth in and of itself." So says Bill Stensrud, a partner with Enterprise Partners, the largest Southern California venture capital firm with $500 million under management. Together, these "drivers" have created a trillion-dollar global telecom business. Put another way, there's never been a better time than now, or a better place than California, to be in the phone business. Of course it's not the phone business anymore. It's the go-go days of data/voice convergence -- the "bits" business. Computers turn our words, our sights, our sounds and even our scents, into electronic bits, into "ons" and "offs." In so doing, they now allow us to stuff virtually anything down the telecom pipe: books, CDs, videos, voice and e-mail, faxes, multimedia presentations and almost anything else you can think of. 1.) The Digital Revolution. Now that our society can send virtually anything it wants to down a telecom pipe, guess what? It wants to. Data traffic grows daily, actually by the minute. This, as you might surmise, is the first inflection point. 2.) The Telco Devolution. The second major driver is the recent deregulation of the telecom industry in the United States. The Baby Bells -- those seven sister monopolies that have controlled the Local Exchange carrier market for decades -- don't have the sandbox all to themselves anymore. Literally thousands of Internet Service Providers and new Competitive LECs (or C-LECs) have jumped into the fray, providing a wide array of services to U.S. consumers. A $100-billion market today, this business sector will grow to $200 billion by 2006. If the new C-LECs grab just 60 percent of this pie, as estimated, that's a new $120-billion market -- huge by any standard. Unlike the "legacy" telcos, which traditionally have had no competition in their regions, these new C-LECs and ISPs will have to provide innovative services or they will die. So they, in turn, are funding a rapidly emerging telecom equipment sector. In fact, it's been estimated that just one segment of these new companies -- the C-LECs that have funded themselves by selling stock on the national exchanges -- will spend $6 billion in 1998 on new equipment and software. 3.) The Dumbing Down of the Network. By high-tech standards, few things are dumber than the basic telephone. That's the way the old telcos wanted it. They controlled the "intelligence" at the central office switch. (That's the big windowless building down the street.) But that's all changing, because the new Telecom Bigwigs think it's the network that should be dumb, or really just a transport mechanism. And that the "boundary devices," our phones and computers and faxes and palmtops, should be the brains of the network. This concept, and the technical changes it mandates, mean that the $500 billion worth of installed copper wire is technically obsolete, if not yet functionally so. 4.) The Revving Up of the Internet. And then of course, there's the Internet, which is exploding in traffic and usage. Consider that it took 50 years for radio to reach 50 million users; 32 years for television; and 12 for cable TV. It took the Internet just four. Such expansion beggars the term "growth industry." But we would be remiss if we didn't distinguish the customary Internet functions -- surfing the World Wide Web, transferring corporate files, etc. -- from e-commerce, the payment of goods and services via the Net. E-commerce hasn't even arrived yet, but it will soon. And with a vengeance. Research group IDC claims this business will amount to $200 billion by 2002. 5.) The Building Out of the Globe. So far, we've just discussed the U.S. theater. The truth is, the new telecom infrastructure will build out globally as emerging nations like India, China, Brazil and Russia race to empower their masses with Wireless Local Loop connections, using airborne radio waves to provide phone service into homes. This novel network approach addresses the two major oncerns with copper -- deployment cost and theft (black marketers dig up copper wire during the night and sell it the next day). It also enables emerging countries to "leapfrog" developed countries by going straight to wireless networks. Quicker implementation, lower overall cost and advanced digital services are the rewards. For developed countries, the new build outs mean bigger and better cellular mobile networks, eventually leading to the so-called G3, or "third-generation" networks, that will offer video and other broadband multimedia services via mobile phones or other moveable devices. Soon, you'll be able to watch "Last Tango in Paris" from your palmtop computer while whisking through France on a 90-mph bullet train. 6.) Easy Money and Smart Company. Telecom is, as the Wall Street sharpies understate, an "addressable market." But who's addressing the market? Who's funding these new start-ups? In fact, the money is rolling in from both ends of the investor spectrum, from the "3 Fs" (Friends, Family and other Fools) on the shoestring side to the high yield debt capital market on the other end. Not to mention everything in between. In fact, there is "too much money chasing too few deals," reports John C. Boyle, a partner with VC Matrix Enterprises of Menlo Park. Boyle argues that funding an array of companies that have essentially the same idea can create an unnecessary concept cannibalization in the marketplace. Overall, however, even he admits the tremendous investor activity has been good for technological innovation. Consider the case of two new entities with major operations in San Diego, FirstWorld Communications and RhythmsNet Connections. Both offer dynamic new modes of providing data transport and related telecom services. Both companies recently received major equity placements. Since the capital markets "follow smart money," the equity was followed by high-yield debt offerings that, collectively, raised roughly $400 million -- and at price points far below what would be considered "high yield." In fact, the debt market is offering huge sums of money, at lower cost, to more telecom start-ups than ever before. This, in turn, is driving start-up and early entry companies to breathtakingly high valuations -- enriching investors and management alike -- before any significant revenues are attained. Lest you think that these San Diego investments are anomalies, they are not. Investor newsletters now list our county as one of the major investment "regions" of the U.S. -- putting us alongside the entire Midwest, the Northeast and other regions covering multiple states. In fact, San Diego has become a true technology powerhouse -- especially in the wireless arena -- as evidenced by a striking little-known fact: Aside from Silicon Valley, more money is invested per person in San Diego county than any other place in the nation, maybe even the world. 7). The Worm Will Turn. Still, Stensrud, Boyle and others look to a time when the very high valuations of publicly held and pre-IPO telecom companies will come tumbling down. There will be a reckoning day "for those who think they can throw money in and get taken out later by a greater fool for more money," Stensrud notes. Much better, he says, is to build a company that has a sustained value, one that will survive after the funny money turns into true valuations based on revenues and earnings. Build a company for the long haul, and you will survive the go-go days of telecom. Gregory McQuerter, CEO of the McQUERTER Group, has been providing marketing support to San Diego's top high-techs for more than a decade.