Buffett's Bombshell

I've joked that the telecom industry is experiencing a "Jacques Cousteau market" - it keeps searching for deeper and deeper bottoms to explore. Every time it appears things might stabilize, a fresh disaster emerges to push the recovery back towards the horizon. That may have changed Monday. Warren Buffett thinks he's seen the ocean floor.

Buffett's decision to invest $500 million in Level 3 is shaping up as a watershed moment in the telecom industry's effort to recover. Sure, it's a single investment in one company. But it's hard to overstate its impact on sentiment.

With his reputation as a value investor, Warren Buffett is widely viewed as a bellwether of business value, and his investments are closely watched as leading indicators of future performance. As such, his Level 3 investment is likely to create ripples that could benefit other providers.

The business media and investing public revere Buffett as the "Oracle of Omaha." Within hours of Monday's announcement, articles proclaiming that telecom had "hit bottom" appeared on Forbes.com, CNN/Money and even The Street.com (from Jim Cramer, no less, who has been among the shrillest critics of telecom).

A change has been in the air for weeks, as I noted last week, with companies such as Inflow, IXEurope, Savvis and Terremark finding funding. Monday's Level 3 deal builds on that foundation. The recurrence of the boom-bust cycle serves as a reminder that money follows other money. Buffett's bombshell may prove to be the "tipping point" that opens funding lifelines to more companies.