Monmouth County and the Dark Ages in Telecom

Published in the Two River Times, August 2002


“Are you now, or have you ever been, a billionaire?”  That was the question displayed on the large screen in front of the audience.  I picked up the electronic voting appliance at my seat and pushed an emphatic “no.”  If there had been a “you’ve got to be kidding” button on the unit, I would have pushed that instead.

I looked around the room.  There were about 300 executives from the telecom industry, the computer industry, and the venture capital community.  There were a few people who I suspected were billionaires, but I was shocked when the tabulation of votes appeared on the screen.  About a third of the audience had answered “yes” to being or having been a billionaire.  Surely they were jesting, I thought.  Maybe they were, but as I looked at the faces around me I saw no trace of levity -- these were serious, no-nonsense executives.  This was May 21, 1998, and this was Silicon Valley, USA.  Nothing could go wrong in the telecom industry.  Anyone, it seemed, could be a billionaire.

Later that day John Sidgmore, president of WorldCom, told the audience that his company was expanding its Internet backbone network by 1000% per year.  “Not ten times over a year,” he said, “but ten times every year.”  He went on to talk about the “phenomenal growth” and the “huge onslaught” of new applications.  We listened avidly, because WorldCom ran the UUNet network that carried the bulk of all Internet traffic in the world.  If anyone knew what was happening in the Internet, it was WorldCom.

As host for the session I questioned Sidgmore on stage.  You can’t be growing that fast, I argued.  Ten times growth every year would mean that in three years the network would grow a thousand-fold, making the existing network of 1998 a mere drop of water in the ocean of the new network.  But Sidgmore affirmed the growth rate, and agreed that the network would have to be rebuilt many times over.  In such an inflation of telecom traffic, there was opportunity for all.  Now that I think about it in retrospect, the tragedy was that we believed him.

That day in 1998 seemed at the time an ordinary day.  I would like to say now that I felt wonderment in being part of such a dynamic industry, but that wasn’t true.  We had come to expect incredible expansion in telecom.  The future was limitless, and Monmouth County was playing a central role in this transformation of the world.  Scientists and engineers at Lucent Bell Labs in Holmdel, at AT&T Research in Red Bank, and Telcordia in Red Bank were designing new transmission systems that would carry a thousand times more information over an optical fiber.  Another local company, Tellium, which was a spin-off from Telcordia, was designing switches that would route those optical signals.  Globespan in Red Bank was making modems that would be used for broadband connection to the Internet.  Other local companies and spin-offs were involved too.  All the talk was of ventures and old friends who suddenly had become rich.

The next summer I wrote a column for an engineering magazine about sitting on the beach in Oceanport and seeing the banners behind the airplanes flying up and down the coast advertising local jobs for engineers instead of beer or suntan lotion.  We couldn’t get enough engineers and scientists into Monmouth County.

But that was then.  This summer the airplane banners are back to advertising beer and suntan lotion, and the people watching them on the beach are out-of-work engineers.  The same John Sidgmore who hyped the Internet traffic is now CEO of WorldCom, but for the price of a postage stamp you can buy three shares of his stock.  Lucent stock, which had peaked over 60 dollars a share is selling for a dollar and a half.  The telecom industry has lost several trillion dollars of market cap, and is currently saddled with over a trillion dollars of debt.  A half million people who worked in telecom in the United States have been laid off, and many of these layoffs have been in Monmouth County.

I have always been proud of the intellectual assets that the telecom industry has brought to our area.  People who have lived and worked here have won Nobel Prizes; have made inventions, and written papers and books that are known and respected throughout the world.  Our little area has been famous in the history of communications.  Marconi sent the first radio signals broadcast in the United States from Atlantic Highlands at the Twin Lights site in 1899.  The beginning of radio astronomy occurred in Holmdel in 1933.  The first signals from a satellite were received on the hill across from the PNC Arts Center in 1960.  The first detection of the radiation from the big bang that created the universe was made there in 1965.

Now after a century of such accomplishments, the disaster in telecom has swept through our community like the recent thunderstorm, leaving uprooted careers like the tree limbs lining our streets today.  The local telecom research labs have been downsized by about 50%, and the remaining researchers are feeling endangered.  Many, if not most, of the best researchers that I know have been laid off, have retired early, or have left for university positions.  Those who are still employed worry.  For example, after nine quarters of successive losses, how long can Lucent afford to support world-class research?

Our community has been damaged in ways that are not easily visible.  A lot of bright families have been leaving our area.  People have lost their jobs, their savings, and their dreams.  The rush hour traffic at the Raritan Tolls isn’t so bad these days, but we’ve paid a terrible price to get cars off the road.

Now I often get asked: why did this telecom disaster happen, and when will it end?  The short answers are that why doesn’t really matter anymore, and that there’s no immediate end in sight.  Like the perfect storm, there were a lot of reasons that contributed simultaneously to the telecom collapse.  Perhaps the single biggest reason was over-hype.  I go back to that day in 1998 with WorldCom proclaiming 1000% growth.  Who wouldn’t want to buy a chunk of that?  We all did.  Analysts like Jack Grubman exhorted people to buy the inflated stock and journalists waxed poetically about the future of telecom, like George Gilder who, writing in Forbes, spoke of the wonders of the new “telecosm” built of sand and glass (the basic materials for semiconductors and optical fiber).

New companies were formed to build all the network capacity that would be needed for the overwhelming traffic – Qwest, Level3, Global Crossings – companies who saw their jobs as “digging up America.”  A dozen new national backbones were built, and because of the tremendous progress in optical technology, each of these backbones was capable of handling enormous traffic on its own.  Nevertheless, money poured in, buoyed by all the hype.  So many of us contributed.  So many of us are guilty.

Internet traffic continues to grow today, approximately doubling every year.  That is the same rate at which it has grown for many years.  That is probably the rate at which it was actually growing in 1998 when WorldCom bragged about its 1000% growth.  Now a growth that doubles traffic every year is really quite respectable.  It only pales in comparison with the hype of a fictional factor of ten.  But now that we already have bet on that hype, it will take a few years for the traffic to grow to fill the installed capacity.  I’m sure that will happen, but it will just take time.

There are other serious problems in the telecom industry.  It is faced with crushing debt, bankruptcies and their legacies, customers defecting to wireless and cable, and a broken business model in which the only type of traffic that makes money – wireline voice – is declining.  There are even more problems, but enough is enough for this little essay!

Sometimes I think about the past, and say to myself, “If I only knew then what I know now.”  I think about sitting in that darkened room in Silicon Valley in 1998, holding my electronic voting appliance and pressing the button confessing that I wasn’t a billionaire.  In my new knowledge of the future I imagine looking around at those executives gathered in that room.  There’s one who will be cast out in shame, I think, and another who will lose a fortune, and still more who will be out of jobs in only a few years.  I stand at my seat and call out to them.  “Don’t you realize what is happening?” I ask.  “This whole business is going to crash.”

Even in my fantasy I am rejected.  No one would have believed me then.  Even today when I meet old friends from this business, the conversation invariably begins with, “Can you believe what has happened?”  And we shake our heads.  No, we can’t believe it.  No one can.

Monmouth County still has a lot of telecom people.  Even in the midst of the current telecom dark ages I remain optimistic for the long-term growth of the industry.  It is exciting to be a part of an industry and a technology that has created the Internet and the World Wide Web.  Engineers and scientists here are working on new networking technologies and on wireless techniques that will offer much greater capacities and services.  We will rise again, and hopefully for our area, it will be soon.