Telecom Meltdown Facts

• Between 1997 and 2001 firms invested over $90b in high speed optical fiber– By 2001 only 2.6% of fiber capacity was actually in use.

• Telecom equipment spending in 2000 was $110 b, up 30% over previous year. – In ’01 it was lower than it had been in ’99.

• In 2001, 77 telecom companies sought bankruptcy protection.– vs. 20 in 2000– Includes WorldCom, Global Crossing (1st and 4th largest

bankruptcies in US history).• From 2000-2002, $2 trillion in market value extinguished.• An STM-1, a phone line that can carry 576 conversations at once –

between the US and Britain costs $1.8m in 2001, $12m in 1999.

Why?

• Cyclical industry inherited the economy-wide slowdown.• ILECs defended their positions successfully, perhaps

illegitimately.• Excessive entry encouraged by UNE-P.• Dramatic decline in long distance revenues for IXCs.• Growth in demand did not keep up with dramatic growth in

capacity.– Internet usage not doubling every 100 days.

• Innovations such as dense wave digitial multiplexing dramatically increased the capacity of new fiber, increasing excess capacity.

• Speculative bubble burst• Pattern of corporate fraud centered on this industry.• More ILEC-friendly FCC in 2000.