IP: more on The Telecom Crash of 2002

[Dave Farber <dave () farber net>]

------ Forwarded Message
From: "Joseph C. Pistritto" <jcp () jcphome com>
Date: Sun, 30 Jun 2002 12:00:36 -0700
To: farber () cis upenn edu
Cc: "Dana Blankenhorn" <danablankenhorn () mindspring com>
Subject: Re: IP: The Telecom Crash of 2002

The most telling comment here is the comment about bankruptcy allowing new
players to take over bandwidth debt-free, dropping prices.

We've seen this pattern before.  In Iridium for instance.   Further, we see
it in the equipment markets, where companies can buy equipment on the
secondary market for 20% of list price.  This is hurting all the equipment
companies as well. (especially Sun, which is very vulnerable to
this.)   Cisco is probably hurting as well because of it.

Its an interesting vicious circle:
1)  - people install something, (bandwidth, satellites, Sun machines,
etc.)  and don't have enough revenue to support the cost of it.
2)  - they go into debt, sometimes spectacularly
3)  - they go bankrupt servicing the debt, which gets written off.
4)  - other people buy the assets debt-free, and can now cut prices
5)  - driving all other providers to go into *more* debt. (if they can), or
go bankrupt (if they can't).
6)  - making more of them go bankrupt. - iterate to step (3).

This can't stop until everyone's gone through bankruptcy, to get back on a
"level" playing field.

As a programmer at heart, I have to believe there's a bug here.

Its clear that the worst iterations of this are where the item involved can
only be used to provide *one kind* of service.  If it's Sun machines,
companies could buy them to put in their internal networks, they don't have
to only build e-<something> web sites with them.  But with Telecom
bandwidth, you're stuck.  Fiber only moves bits.  Voice bits or Data bits,
but still bits.   Which is why this bug is much worse for the Telecom
people than for other kinds of equipment makers, which have multiple
non-competitive uses.

Best regards,
   -jcp-

------ End of Forwarded Message

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