Railroad lines and fiber-optics

Louis Proyect lnp3 at panix.com
Mon Jun 18 14:03:12 MDT 2001


June 18, 2001 

Once-Bright Future of Optical Fiber Dims

By SIMON ROMERO

In the last two years, 100 million miles of optical fiber — more than
enough to reach the sun — were laid around the world as companies spent $35
billion to build Internet-inspired communications networks. But after a
string of corporate bankruptcies, fears are spreading that it will be many
years before these grandiose systems are ever fully used.

There is a glut of capacity of high- speed, long-haul information
pipelines, but a shortage of the high- speed, local-access connections that
consumers and businesses need to gain access to the Web. It is as if
superhighways stand nearly empty while traffic backs up at the Holland and
Lincoln tunnels.

Few people have fast Internet connections, and prices are rising for those
who do. Computer users with common dial-up Internet connections find their
Web browsers stalled, and people trying to make regular phone calls
complain increasingly of busy signals.

Meanwhile, investment in the communications industry, especially in fiber
optic networks, has sharply declined, leaving companies with fiber that may
never be "lit," as commercially available wire is called. Only 5 percent of
fiber in the ground is on, and lighting fiber can cost large corporate
clients about $500 million and 15 months, according to Salomon Smith Barney.

"There may be a significant amount of dark fiber in the ground, but it
takes a lot more money to light fiber than to lay it and even more to
deliver it to the end user," Howard E. Janzen, head of Williams
Communications, said in a recent interview. "The challenges will force the
flakes to drop out."

The industry bubble has had an impact on the rest of the economy, too.
Billions invested in telecommunications companies now appear to have been
wasted. The drying up of capital investment is one reason that the economy
has slowed sharply, and some economists argue that while the Federal
Reserve's efforts to lower interest rates will stimulate some parts of the
economy, it may be years before growth returns to the areas that were so
hot only a year ago.

The pain is spreading to many companies, their investors, their creditors
and their workers.

On Friday, Nortel Networks of Canada said it would lose an astonishing $19
billion this quarter because its phone equipment sales were falling. And
360networks, also of Canada, failed to make an interest payment on Friday,
raising concern that the developer of a huge fiber optic network could seek
bankruptcy protection or default on its debt.

The buildup of networks was expected to usher in a prosperous era of vast
new commercial applications for the Internet, fed by soaring supplies of
bandwidth, the range of frequencies used to transmit communications signals.

Some entrepreneurs were so optimistic that they suggested sending
high-altitude aircraft to circle above big cities, beaming signals down to
consumers. Today, only about 10 percent of American homes have high- speed
access to the Internet, through conventional cable networks and digital
subscriber lines.

In Europe, anxieties run high for different reasons. Companies spent large
sums there to acquire licenses to provide advanced wireless services.
Deutsche Telekom, British Telecom and other companies are now seeking to
renegotiate their agreements to pay $125 billion for these licenses. To
reduce overwhelming debts, some companies are trying to sell assets and
agreeing to share some network costs.

Back in the United States, the stakes are perhaps highest for the companies
that built transcontinental and transoceanic fiber optic networks capable
of carrying huge amounts of voice and data traffic.

The problems are similar to those in the railroad industry after the Civil
War, when an economic boom fueled speculation by financiers.

"In the railroad age, speculators built rail lines but often left it up to
the locals in town to build the roads to each station," said Brian Kinard,
a venture capitalist in San Francisco who focuses on communications
companies. "Today, it's the responsibility of the capital markets to fund
construction of all parts of the network. And suddenly, it's not clear
whether investors will continue to do so."

By the early 1870's an abundance of cheap financing, rather than business
fundamentals, led to a doubling of railroad mileage from the previous
decade. Then, in 1873, the collapse of the Northern Pacific Railroad ruined
its principal owner, the Philadelphia banking firm Jay Cooke & Company,
leading to a market crash.

In the following years, two-fifths of railroad bonds went into default, and
railroad miles built fell by 80 percent. It was not until the end of the
1870's that investment began to resurface. Still, railroads, the leading
technology of their day, were never again seen in the same light.

Full: http://www.nytimes.com/2001/06/18/technology/18MELT.html


Louis Proyect
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