Will they all go bankrupt?

I had an interesting conversation yesterday with the former CEO of a communications infrastructure software company. He doesn’t see things getting better for a long time in the telecom sector, because all the major carriers are going bankrupt. “Every one of them, without exception.” Eventually, he says, a new data-centric industry will rise from the ashes.

Conventional wisdom today is that the local Bell operating companies are safe, because of their monopoly control of the last mile. They aren’t. Bell revenues declined 3 percent year-over-year last quarter. That may not sound bad in this economy, but you have to remember that local telephone service is normally a recession-proof business that has grown 8-10 percent annually for decades. Andy Chapman of Narad has publicly bet that one of the Bell companies will face bankruptcy by 2007. I think he’s right.

My friend from the software company raises a scarier prospect, though. Creative destruction is all well and good, but where does the creative side come from in telecom if every player dies? I have one answer, and it may surprise you.