Reuters has an interesting slow-news day piece on how phone companies are welcoming the on-going consolidation in the telecom hardware business. Most phone company executives want to do business with established players, and are reluctant to buy cutting edge technologies from newbies.

“We want to know that two, three, four years down the road that we’re going to have that continuity of business service,” Verizon Communications CTO Mark Wegleitner said. “One thing a small company has to be afraid of ending up as is a one-trick pony.”

Actually this has been the case for the longest time, and even during the bubble the established phone companies resisted from doing business with start-ups. There is already a fair bit of consolidation that has taken place, for instance Tellabs buying out Advanced Fiber, and Lucent snapping up Telica. But the multiples have fallen to such low levels, that venture capital backers of start-ups are happy to walk out with the shirts on their backs, and get rid of communication companies in their portfolios.

“All the mechanics are in place for more deals.” Tellabs CEO Krish Prabhu said. “M&A sounds attractive, but there are not a lot of really healthy guys to deal with,” said Turin Networks CEO John Webley, who prefers an initial public stock offering for his company later this year or early in 2005.

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