Academic journal article Research-Technology Management

Lessons from the Fiber-Optic Meltdown. (One Point of View)

Academic journal article Research-Technology Management

Lessons from the Fiber-Optic Meltdown. (One Point of View)

Article excerpt

After cruising under the radar of mainstream investors for much of the 1990s, fiber-optics exploded into the nation's consciousness toward the end of the decade. Just as quickly, it fell crashing back to earth.

Throughout 2001, Internet infrastructure firms--the companies that build and operate fiber-optic communications networks--tumbled like a row of dominoes. Highly leveraged upstarts like PSINet and 360 Networks went bankrupt. The stock of Global Crossing fell below $1 and into an investment netherworld from which few concerns return. Level Three Communications is buying back bonds from worried holders at 15 cents on the dollar. Over the summer, fiber-optic supplier Nortel Networks notched a stunning $19.2 billion quarterly loss.

These Internet infrastructure companies were supposed to be the heavyweights of the New Economy. Unlike dot com retailers and content sites, they were run by veteran Fortune 500 managers. Unlike the E-Toys of the world, the network builders had real physical assets. Over the course of the decade, in fact, several dozen companies spent some $90 billion to build an astonishing 39 million miles of ultra-thin fiber-optic cable.

And therein lay the problem. Today, just 5 percent of the cable laid down by these pioneers is being used. The exuberant overbuilding caused prices to plummet rapidly and rendered existing business plans obsolete. Investors--especially those who bought at the market highs of 2000--have learned their lesson. But what lessons can technology managers draw from the fiber-optic meltdown? I propose several.

The Last Mile Is the Longest One, or Regulation Matters

Technology gurus presented the immediate need and demand for infinite bandwidth as indisputable fact. But there was comparatively little discussion about how the mammoth undertaking of wiring analog homes and businesses for a digital world would proceed quickly. Stringing up the mythic "last mile" proved to be a much more complicated proposition than constructing a global fiber-optic network. It was also far more challenging, from both a business and technological perspective.

Not surprisingly, established players accustomed to operating as monopolies or near-monopolies--namely, telephone and cable companies--were not willing to open their systems and infrastructure to rivals bent on offering the same sorts of services they aimed to offer. The Verizons and Time Warners of the world threw up all sorts of legal and technological roadblocks to upstart service providers.

To take one example, Rhythms NetConnections' introduction of DSL service, which utilized existing Baby Bell telephone wires, was plagued by all sorts of technological, regulatory and legal problems that could--and should--have been anticipated. The result: broken promises and poor service. The same held true for companies that wanted to offer Internet service via cable lines.

To be sure, regulation and legal derring-do played predominant roles in the DSL fiasco. But there were also fundamental technological problems of interconnection and service involved in the last mile that many firms failed to address. In the future, it will be imperative for research and technology managers to be more involved with legal, regulatory and lobbying organizations so that they can confront and deal with the full range of challenges sooner rather than later.

Technology, Meet Marketing; Marketing, Meet Technology

Fiber-optic technology promised to allow individuals and businesses to do all sorts of great things, like watching short films via the Internet or listening to the radio on a PC. Unfortunately, there was comparatively little consumer demand for many of the whiz-bang services. Yes, a hard core of road warriors can't live without their Blackberries. But most people don't have the thumb strength or the patience to compose long letters on a tiny keypad.

Underlying the boom in fiber-optic network construction was the firm belief that consumers would immediately latch on to all the new possibilities offered by new communication technologies. …

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