Globalist Analysis

Rest in Peace — or RIP Up the Streets?

What physical scars has the telecommunications boom of the 1990s left on U.S. streets?

Fiber Optic Cable—Ripping up roads?

Takeaways


The telecom boom of the 1990s is definitely over. As U.S. investors are tallying painful losses in their stock portfolios, the specter of the 'new economy' leaves in its wake a very 'old economy' problem.

Witness the state of disrepair of many roads and sidewalks, which telecom companies had dug up all over U.S. cities to put in their fiber optic networks.

Evidently, the telecom boom in the United States was the gold rush of the 1990s. It was even better than the original gold rush in San Francisco in 1849 and the one in Alaska 50 years later. Back then, you had to run countless dangers and endure all kinds of privations for the ultimately illusory dream of striking it rich.

In contrast, the telecom boom of the 1990s seemingly removed the element of uncertainty — and you didn't have to get dirty doing the digging. All you had to do was put money into the stock market.

Actually, as in the previous gold rushes, for all the high-tech pep talk, there was quite a bit of old-fashioned digging anyway. And not at some remote location, but right in the middle of America's cities and towns.

That digging was financed by the funds Americans invested in telecom shares directly — or entrusted to pension fund managers.

Flush with money, the telecom companies and their subcontractors ripped up America's roads to lay hundreds of miles of high-capacity fiber optic cable.

Their aim was to create a state-of-the-art network transmitting voice, data, Internet, movies — what have you.

And, for quite a long while, as their investment portfolios were getting progressively fatter, ordinary Americans didn't complain too much about the real-life traffic jams caused by all the digging. It was a gold rush, after all — and somebody had to get at least a little bit dirty in the search for gold.

Just as investors displayed a herd instinct, buying into any telecom company that sold its shares in the stock market, and for a time driving up share prices, telecom companies also fell over each other investing into transmission capacity.

Much of that capacity now stands idle, which means that there will be more trouble in the telecom industry in months and years ahead.

Those who are holding depreciated stocks of broadband providers such as Qwest, or even of network equipment providers like Lucent, Nortel and Cisco might have to wait a while longer for a revival.

It may even get worse. As these companies try to pay down their massive debts and wriggle their way out of bankruptcy, some might even be tempted to resort to accounting shenanigans — if they haven’t already done so.

Other financial irregularities, similar to those found at WorldCom or Global Crossing, are likely to surface. This would inflict further pain on investors.

Well, perhaps the promise of a new information era, when happiness is delivered over fiber optic cables lines to every U.S. household, has not materialized.

But something good has come out of the telecom boom, right? At least, there has been huge competition in the telecom industry.

And competition is good for consumers, since it leads to quality improvements and lower costs. Or so the mantra goes.

Unfortunately wrong again. Competition is starting to peter out as more and more independent telecom service providers — and some established ones as well — go bust. This might help reduce some of the overcapacity — but will do little for either consumer or investors.

Companies such as WorldCom are certainly in no position to improve their service. In fact, even before the latest debacle, its flagship carrier, MCI, was raising rates to low-volume customers.

The brave new world of enhanced telecom service seems to have died along with the boom. As in the bad old days before telecom deregulation, many residential and business customers in the United States are starting to see deterioration in the quality of their telecom service — even as their rates go up.

And, to add further insult to injury, Americans commuting to work still have to navigate a patchwork of potholes and waste time in traffic jams — an unpleasant daily reminder of the great telecom debacle of the 1990s.

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