Telecom earnings run the gauntlet

This morning, I looked up the derivation of "running the gauntlet," partly because I wasn't sure of the spelling (it sometimes is "gantlet" or in even stranger forms), and partly because I wasn't sure the meaning was right for how I wanted to use it. However, it turns out that running through a line or double line of soldiers and giving them all a chance to strike you as you pass by, is a perfectly accurate way to describe what it's like for telecom companies posting their quarterly earnings.

So, what can we learn for this quarter's run through the gauntlet? It's a cliché (yes, another one) to say so, but the third quarter really has offered a mixed bag. Some network equipment vendors filed earnings warnings early on, while others posted very positive reports. Meanwhile, in the service provider sector, Verizon doesn't report earnings until next week, but carriers reporting so far have featured stellar postings (AT&T), and as mediocre ones (Level 3).

But the common vein running through all of these earnings reports is consolidation: AT&T benefited from consolidation, but Level 3 is still struggling to integrate acquisitions. Alcatel-Lucent, which doesn't actually report until next week, but already provided a warning, also is dealing with the pains of merger integration. Meanwhile, several vendors who have remained on the M&A sidelines, recently reported generally positive earnings (Tellabs was a notable exception) that weren't weighed down with integration costs.

There are other factors at play, of course. Instability in the mobile services, infrastructure and handset markets affected some companies more than others. But, consolidation in some ways is still obscuring our view of the true telecom industry. At some point within the next several months, many of the integration issues will be put in the past. When that happens, we'll be left with a clearer picture of who might be the strongest candidate to survive the quarterly run through the gauntlet.

- Dan