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, not Nablus, that's worrying us, Michael Eisenberg of the venture capital fund

Israel Seed

told the foreign press. They were disappointed, of course. They had hoped to hear about the devastation that the rioting throughout the country and Palestinian Authority territories, mainly in Nablus, was wreaking on Israel's high-tech industry. They didn't want to hear about Nasdaq, which they can get more than enough of at home.

If the peace process is killed, the entire economy, and the tech industry, will suffer. This is certain. But right now what is dictating the mood in the high-tech arena isn't Nablus. It's the slide of tech stocks on Nasdaq.

But there's a much more important question, at least as far as the Israeli high-tech industry is concerned: What will happen to the big telecom companies in the foreseeable few years, and to the entire enormous industry clinging wide-eyed to its corporate coat-tails?

It's popular to stand open-mouthed before the technologies being developed by Israeli startups, especially technologies to accelerate and increase communications traffic volumes over optic fibers. No question about it, the appetite for broader bandwidth is bigger than ever. Technologies, optic and wireless, are evolving at a heart-bursting pace and providing solutions better than any known before.

But there's another question. Actually, it's a biggie: How much will they be willing to pay for broadband, for fast communications service, for all these new-fangled telecom solutions?

What is behind the astronomical market value of all these communications-equipment companies is an assumption that the telecom giants -- the domestic and international carriers, the wireless service providers, the newcomers and veterans -- will be making national-debt-size investments in upgrading their networks, switchboards and other systems to provide advanced solutions to their clamoring clientele.

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Future shock and the Israeli startup

Right now the market looks better than ever. Reports by major telecom corporations and leading equipment suppliers, such as


and intelligent optical networking mammoth


, indicate that the telecom sector is spending more than ever on broadband communications network equipment and mobile devices that can access the Internet.

But alongside the burgeoning demand is a much less touted but equally significant trend: The telecom corporations' results are dwindling. Intensifying competition is forcing them to slash prices. Advancing technology is forcing them to invest more and more. The bottom line is that their cash flows are contracting.

This process can't go on forever. Either prices stop falling, or the companies get to charge higher rates for advanced services, or they cut back on investing in technology and upgrades.

Every time a telecom or optics Israeli startup raises some unbelievable amount of money from investors, we hasten to explain that it isn't, heaven forbid, a repeat of the dot-com bubble scenario. No, after all, what does an Internet company have to do with a firm developing communications technology, which can proffer a crystal-clear business model to boot.

Is that so? If the end users, corporate or Joe Citizen, aren't prepared to pay for the cutting-edge technologies, then the telecom and cable giants will have to rethink their business models.

Which is exactly the stage at which Israeli startups hoping to be snapped up by a major equipment manufacturer will be forced to rethink their business models, too.