[comm] 100417 ONCE-BRIGHT FUTURE OF OPTICAL FIBER DIMS 06.22.01

[Ruth Milner]

FYI. Big supply + low demand = companies willing to make a deal?

Ruth.
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>From hpcwire at tgc.com Fri Jun 22 12:51 MDT 2001
Date: Fri, 22 Jun 2001 11:51:09 -0700 (PDT)
From: HPCwire <hpcwire at tgc.com>
To: rmilner at zia.aoc.NRAO.EDU
Subject: 100417 ONCE-BRIGHT FUTURE OF OPTICAL FIBER DIMS                              06.22.01

ONCE-BRIGHT FUTURE OF OPTICAL FIBER DIMS                              06.22.01
COMMERCIAL NEWS                                                        HPCwire
==============================================================================

Simon Romero For The NY Time: 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.

Last 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.

Similar clouds may be gathering over the telecommunications industry. So far
this year, companies have defaulted on $13.9 billion of telecommunications
bonds, resulting in investor losses of $12.8 billion, according to Fitch IBCA
Duff & Phelps, a debt-rating company. For all of last year, investor losses
amounted to $5.2 billion on such bonds. Companies as large and influential as
GE Capital, the financial arm of General Electric, are said to be exposed to
substantial losses by their roles in the financing of telecom and related
companies. And investors in the companies' stocks have seen their value
plunge.

In the 1980's companies began laying fiber optic cable, sometimes alongside
rail lines. But the value of the long-haul networks, or backbone, over which
Internet data could travel soared in 1996 when WorldCom acquired MFS
Communications, a fiber optic network, for $14 billion.

Newcomers were also emboldened by the Telecommunications Act of 1996, which
helped to deregulate the communications industry. The stage was set for a
company called Global Crossing.

The brainchild of Gary Winnick, a banker and former successful Wall Street
sales executive under the tutelage of Michael R. Milken, Global Crossing was
formed in Beverly Hills in 1997 with the goal of building a fiber optic
network linking the Americas with Asia and Europe.

After Mr. Winnick, without much strenuous effort, secured $750 million and
laid a fiber optic cable across the Atlantic Ocean, Global Crossing went
public.

The company's shares soon hit a high of $73.375, valuing Global Crossing at
nearly $30 billion. That was many times what its network had cost, and
encouraged similar ventures, like 360networks and Level 3 Communications.
(Global Crossing shares closed at $8.66 on Friday.)

Financiers feverishly raced to provide the post-cold war economy with
communications capacity, much the same way financiers backed railroads seeking
to increase transportation after the Civil War.

New competitors joined the fray. Cincinnati Bell, a local phone company,
acquired a fiber optic network operator and was reborn as Broad wing. The
Williams Companies, a Tulsa, Okla.-based gas-pipeline operator, formed
Williams Communications, which built a national fiber optic network partly by
laying fiber along its parent company's pipelines.

"Build it and they will come," became the mantra of billionaire fiber barons.
Venture capitalists began financing companies with plans to deliver data
quickly to computer users in other ways, like using satellites and even
high-altitude aircraft.

The optimism peaked last July when JDS Uniphase, a little-known Canadian maker
of laser filters used to light fiber, announced a plan to acquire SDL, a
little-known competitor, for stock then worth $41 billion and now valued less
than $6 billion. It was the biggest merger in the history of the technology
industry.

Then concern began to build about market valuations. At about the same time,
technology ventures began to have trouble securing financing. The share prices
of many communications companies plunged.

The swelling supply of fiber led to a decline in prices of bandwidth, which is
increasingly traded like barrels of oil or pork bellies. Prices could fall 60
percent this year, on top of similar declines last year, according to
estimates by Morgan Stanley Dean Witter.

The IDT Corporation, an international phone company based in New Jersey, says
a 10-year contract for a phone line that can carry nearly 600 conversations
has fallen to $1.8 million, from $12 million in 1999. Competition has led to
even steeper declines for lines that can carry four times as much traffic.
Carriers say that any glut is temporary, and that measurements of supply
should not include dark fiber. Moreover, Internet use and the demand for
bandwidth continue to climb.

While carriers bet on a recovery in bandwidth prices, problems have arisen in
other parts of the communications industry.

One-time titans in communications equipment, like Lucent Technologies and
Nortel, have reported giant losses as sales have declined. Some of the credit
extended by these companies to clients to buy equipment is at risk of default,
making it riskier for banks to lend money to even the biggest equipment
companies. More than 100,000 jobs have been eliminated from the communications
industry since last year.

NorthPoint Communications, a provider of fast Internet access, shut down in
March, leaving more than 100,000 customers scrambling to find new service.
Several similar but smaller high-speed Internet companies have also closed.
Others are teetering.

The ranks of bankrupt telecommunications companies include Winstar, whose
corporate trophy, a 200- foot blimp that still flies above New York, seems
little more than an eerie relic of the late 20th-century telecommunications
boom. Winstar paid for the blimp last year when the outlook for the
telecommunications industry was still bright.

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    [ ] 529) Linux NetworX                   [ ] 929) Essential
    [ ] 528) API NetWorks                    [ ] 921) SGI
    [ ] 526) GENROCO                         [ ] 934) Hewlett-Packard
    [ ] 527) Intel                           [ ] 949) Visual Numerics
    [ ] 948) Cray Inc.                       [ ] 930) NEC
    [ ] 909) Fujitsu                         [ ] 902) IBM Corp.
    [ ] 937) Compaq                          [ ] 932) Portland Group


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