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Who's to blame for the telecom meltdown?
One really smart guy points the finger.
May 3, 2002: 7:16 PM EDT
By Adam Lashinsky, CNN/Contributing Columnist

PALO ALTO, Calif. (CNN/Money) - I tried to take a balanced look at WorldCom here the other day. The financial situation looks bleak, especially if you assume WorldCom's assets aren't all they're cracked up to be.

On the other hand, its new CEO, John Sidgmore, is a well respected guy, a calm and mature hand on the steering wheel of a careening vehicle. (See what I had to say about WorldCom in my Wednesday column.)

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The numbers have worsened a bit in the span of a couple days. Shareholders bid down the common stock of WorldCom (WCOM: Research, Estimates) an additional 19 percent since Wednesday, ending the week at $1.79, compared to a 52-week high (a year ago) of $19.19. That makes for a decline of 45 percent in the week since former CEO Bernie Ebbers stepped down.

As for Sidgmore, here's yet more balance -- a respected voice that challenges my interpretation of the new guy as unscathed by the mess. The voice is a good one because it belongs to Andrew Odlyzko, a longtime scientist with AT&T Labs who is considered among the first to call the telecom boom a bust waiting to happen.

Like a lot of folks, Odlyzko has left AT&T. He's now with the University of Minnesota's Digital Technology Center. The researcher actually is bullish on telecommunications, noting that traffic over the Internet will of course continue to grow. The problem for carriers like WorldCom is that as the technology improves, the costs decrease. "Demand is still growing," says Odlyzko. "Traffic is still growing. The problem is technology, which is improving, so it's hard to get new revenues."

As for the recent history of telecom, Odlyzko blames the industry's leaders, people like Sidgmore and Ebbers. "What promoted this bubble (and led to its subsequent collapse) was the myth of astronomical growth rates for data traffic, usually described as 'Internet traffic is doubling every three or four months.' Yet this was a myth, based on a brief period in 1995 and 1996 when such growth rates did prevail, and on incessant repetition by people who found it convenient, and who refused to look at contrary information."

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Odlyzko notes that Internet traffic was indeed exploding in those years, especially at UUNet, the company Sidgmore headed and that WorldCom eventually bought. The growth slowed, but folks like Sidgmore kept talking about it.

Of course, what matters now is what Sidgmore has to say about the future of WorldCom. It should be noted that nobody is suggesting WorldCom is on the brink of liquidation, or even bankruptcy. It does face a tough climate in that its balance sheet is in rougher shape than some of its rivals who've already declared bankruptcy and are in the process of restructuring their debt.

Final word on HP -- for now...

We pause for the briefest self-congratulatory moment to remind loyal readers that way back at the beginning of the year, when the world thought Walter Hewlett would derail the Hewlett Packard acquisition of Compaq and that Carly Fiorina would be out of a job, one magazine suggested otherwise.

"The battle for the hearts and minds of HP shareholders isn't over; it's just beginning," yours truly wrote in the Jan. 7 issue of Fortune (read it here). Never underestimate the power of a mighty corporation using all the resources available to it to fight for what it believes. HP shareholders can only hope the company's management does as good a job of selling printers, computers and servers as it did in beating back the opposition.

Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at

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