10 Questions With Invesco Telecom Manager Brian Hayward

Sure, there might be bargains among telecom stocks, but there are land mines too.

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When the Nasdaq bubble popped, telecom shops stopped building networks and making money, leading to bankruptcies, layoffs and stunning investment losses. Lucent(LU Quote) and Cisco (CSCO Quote) are both down more than 60% over the past 12 months; the average telecom fund is down some 50% over that stretch. That said, value managers like Bill Miller have been fishing in the sector's choppy water, and the stocks have bounced a bit in recent weeks.

To sort through the sector's risks and opportunities, we're talking to Brian Hayward, who has run the (ISWCX Quote)Invesco Telecommunications fund since 1997. He's taken his lumps over the past year, but he also topped his average peer in each of the previous four years. When will the sector turn around? Will things get worse in the meantime? Where is he investing today? Read on.

1. What caused the downturn in telecom?

The demise of the industry, or many companies in the industry, was prompted by many things. Too many new companies with weak business models were able to obtain funding, and they are now failed or failing. Teligent and Winstar, for example, are both bankrupt, and Intermedia Communications was only saved by WorldCom's (WCOM Quote) bid for them. When those new companies were building their networks and getting all this new funding, pressure was brought to bear on incumbents like the regional Bells, and they began spending more on their networks, partly in response to the new carriers. We had a milestone in March of 2000 in the auction of licenses to allow companies to offer next-generation wireless service in Europe, and many, well, all of the winners of those auctions damaged their balance sheets in the process. Also, the weakening economy is driving everyone's earnings lower.

This is the worst downturn I've ever seen and hope to ever see.

2. What's the case for investing in telecom stocks -- what will turn their earnings around? ...