If you think the board of British Telecom deserves a public hanging for the halving in its share price over the past year, then just take a look at what's been happening to some of the more entrepreneurially driven newcomers to the telecommunications market. When banking regulators warn of overexposure to telecoms, it is companies such as Global Telesystems (GTS), which yesterday defaulted on one of its subsidiary bonds, they mean most. In the past year, shares in GTS, one of those cobbled together mish-mashes of different telecom interests which came to epitomise the Wild West frontiers of the New Economy boom, have lost an astonishing 98 per cent of their value. Its bonds trade at less than half their face value, while the subsidiary bonds it yesterday defaulted on - those belonging to the long-distance phone network, Esprit - are a good deal worse. The GTS default didn't come as much of a surprise to bankers; the company has been signalling such action for months as part of a financial and business restructuring which it hopes will eventually lead to Esprit's disposal.Nonetheless, GTS would not have allowed such humiliation had it not been strapped for cash. Given the nervousness in capital markets, it is hardly surprising that its action should be widely seen as a harbinger of much worse to come.

Just how difficult are things going to get?Every business downturn has its defining bad debt experiences, and they are invariably in the industries where the speculative money has flowed the strongest during the preceding boom In the early 1990s, it was property and small business. This time round, it looks like being telecommunications.To telecommunications might have been added the dot and technology sectors, only fortunately for the banks, their runaway growth was largely financed by equity rather than borrowings Not so the much more capital intensive telecoms sector. It was as if the very expense of financing the telecommunications boom, both mobile and fixed line, made the whole thing somehow feel safe and comfortable for bankers - a bit like the old joke that it is virtually impossible to borrow £1,000 from a banker, but ask for £100m and you at least get an audience. It is too early to say with certainty that bankers and other debt lenders have made plonkers of themselves once more, but invariably they are the main mischief in any boom to bust cycle.As money becomes easier, barriers to lending are progressively eased, and although the mistakes of past cycles are generally avoided, there are always new, growth industries to lend to which bankers eventually convince themselves are immune to the downturns of the past. Telecommunications are the railroads of the New Economy, and money has been poured into them like there's no tomorrow. A huge overhang of excess capacity has been created, prices are dropping like a stone and the finance needed to construct this new backbone infrastructure is beginning to look distinctly unsafe.Perhaps the most intriguing feature of this latest, speculative investment boom is that it was to a large extent founded on solid ground and logical thinking.

Data traffic is continuing to expand at a phenomenal rate and only the blockage caused by antiquated "last mile" networks into the home prevents it from growing even faster. Eventually, demand will grow to a point where even the apparently unlimited capacity created by the spending binge of the last few years gets used up.With economies across the world beginning to slow, however, that point may be a good deal further out than once thought. As conditions become tighter, it gets harder to justify leapfrogging rivals with ever higher levels of spending on ever more state of the art networks. Thus does boom turn to bust, as inevitably as night follows day.In every economic situation there are always winners, and in economic downturns it tends to be the plodding old tortoises which do best. BT's share price looks sick by any standards, but this is not a company about to go belly up, and compared to many of the spent hares of its sector, this tired old incumbent begins to look positively sprightly in the present atmosphere of retrenchment. Abbey NationalLloyds TSB, Abbey National, and Bank of Scotland, seem intent on inventing a whole new "virtual" way of going about bidding for each other. In an exchange of publicised letters, Lloyds TSB has so far made a bid for Abbey National and raised it, all without committing itself formally to making an offer at all. Abbey, which fears a bloodbath if taken over by Lloyds, yesterday joined the fray by saying that it had applied to the Office of Fair Trading for merger clearance with its preferred partner, Bank of Scotland.

Again, merger terms have yet to be declared or even agreed.All this has made City traditionalists extremely hot under the collar. The Takeover Panel has been lambasted for abdicating its authority, and things are said to have come to a pretty pass that such pussy footing around could be allowed to go unchecked. In truth, however, the virtual bid seems to have quite a lot to commend it. In the interests of transparency, it seems much better that investors should know Lloyds is prepared to make a bid providing it can secure Abbey's agreement, than that they should not know. The virtual bid also presumably helps keep costs and unnecessary public acrimony to a minimum.As this column has said before, Lloyds stands virtually no chance of gaining regulatory approval for an Abbey bid without the backing of the Abbey board Even with it, the case looks shaky enough. Business is about the art of the possible and the fact of the matter is that a combination of Abbey National and Bank of Scotland would be much more acceptable to the Government and competition regulators than the alternative. SecuritisationIf Guy Hands at Nomura can do it, then so can the fusty old managements who run the utility businesses that he seems so keen to get his hands on. PowerGen has became the first UK utility to mortgage some of its future revenues to pay down a chunk of its present debts.