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Tech Industry

Boneheads at the gate

CNET News.com's Charles Cooper writes that the lengthening list of follies committed by bumbling broadband providers has dealt another blow to an IT industry desperate for anything resembling a spark.

Just when you thought this summer of tech discontent couldn't get any worse, it goes from terrible to horrible.

Add WorldCom's nearly $4 billion accounting "error" disclosed late Tuesday to the list of boneheaded moves committed by some of the best and brightest in the high-technology business, a list that now includes the likes of former highfliers at Global Crossing, Critical Path, Qwest Communications International, Adelphia Communications and AT&T.

Some of the execs making this hit parade are guilty of exceptionally poor judgment. Others are guilty of deception. Though the details in each case vary, there is a common connection: All were somehow involved in Internet broadband.

None of this is going to be very good for consumers hoping for inexpensive Internet connections, let alone the small investors who lost a bundle buying these stocks. Nor is it good news for the IT industry. One factor among many, to be sure, but a sensible expansion of broadband might have been just the ticket to help get things going again. Put that one on ice, folks; few people of sane mind are willing to risk major capital investments these days.

Unlike the heyday of the late 1990s, when venture capitalists and banks fed the Internet boom, the crash forever punctured the illusion that there's going to be unlimited demand for bandwidth and communications services.

The rhetoric now sounds hollow, but it wasn't that long ago when these companies were going to construct the global high-speed infrastructure that would whisk the United States and the rest of the world into the 21st century. The torch had been passed to a new generation of companies that emerged in the aftermath of communications deregulation, and they were hot on a mission.

Put that one on ice, folks; few people of sane mind are willing to risk major capital investments these days.
Seemingly overnight, an entire industry sprang up. Start-ups soon became household names, and the faces of a new generation of tech moguls became pop heroes. During the salad days, these companies escaped close scrutiny. But with so much excess capacity getting built, how in the world did they ever expect to make money?

In a word, expand. The winners would be those companies that grew the fastest and enjoyed concomitant economies of scale. But that also fed an enormous appetite for investment capital. CEOs were naturally under constant pressure to prop up their companies' stock price to maintain access to capital.

In this superheated atmosphere--just wait until Congress starts investigating--it's easy to search out scapegoats.
It was a vicious circle: Grow by hook or by crook to make sure the stock price remains high and do whatever's necessary to maintain the stock price to keep growing. How many top managers succumbed to the temptation to cook the corporate books is anyone's guess, but I'd be shocked--shocked--if WorldCom is the last rotten apple in the barrel.

In this superheated atmosphere--just wait until Congress starts investigating--it's easy to search out scapegoats. But if you want to understand why the Internet communications revolution is still in a state of suspended animation, consider what happens when cupidity and stupidity overrule common sense.

It's an epitaph for our times.