Friday, 16 May 2003 8:30 am
In my last column, published here on March 19, 2003, I announced that I would suspend this column until the war with Iraq is over. My rational was simple: the war would monopolize everyone's attention, so there would be few readers. Since that time I have been patiently waiting for President Bush to announce the end of the war, which, of course, he has so far failed to do. Not that anyone has noticed (other than myself) - everyone is acting as if the war is officially over, despite the lack of any formal declaration to that effect. 

This situation has given rise to a number of people recently asking me when my column will resume. Mort Collins (one of the fathers of modern venture capital) even accused me teasingly in public of using the war as an excuse: that in reality I had run out of good new topics for my daily column.

Mort is correct about the lack of good new topics. Upon reviewing all of the topics I have covered in this column since its inception last November (see the index or archive), I found that surprisingly little has changed. Deflation, which was so controversial when I and others talked about it last year, is now a topic deigned appropriate for public comment by no less than the Federal Reserve Chairman Alan Greenspan. The "good enough computing" threat that I warned about in multiple columns is becoming only more real according to the most recent surveys of CIOs. The deadlock in the venture capital industry that I first wrote about last November continues unabated, and if anything, is becoming worse: in the first quarter of this year, there were fewer IPOs than any quarter since the 1970's!  Even the geopolitical and terrorism risks to the economy that I wrote about before the war have failed to decline, as was graphically demonstrated by the bombings this week in Saudi Arabia and the continued threats emanating from North Korea.  So, until today, I did not see anything valuable that I could add to the topics already covered - not enough had changed to justify writing an update or reassessment. 

Yesterday something significant enough happened to warrant a new column. A key topic that I have written more about than any other is the current set of problems of the telecommunications industry.  The telecommunications industry is of course a significant and critical part of the high tech industry, but one apparently bent on its own self-annihilation. Its enormous bandwidth over-capacity combined with its huge debt and seemingly eternal price wars have made things bad enough, but the potential emergence of WorldCom/MCI from bankruptcy without debt appeared to me to be suicidal for the industry and potentially the whole economy. At the time of my last report on this subject, nobody was willing or able to stop the continued travel down this road to certain bankruptcy of the entire US telecommunications infrastructure.  Bankruptcy of the industry would threaten the US economy not only because of its impact on the telecommunications infrastructure, but also because the threat to the enormous debt float held by many financial institutions and pension plans. As I described in my 2001 book, it looked like we were on our way to a re-enactment of the 19'th century railroad panics and accompanying depressions, but this time with our telecommunications infrastructure.

What changed yesterday? William Barr, the former US attorney general and now Verizon's chief counsel, petitioned the SEC to force MCI (née WorldCom) into liquidation, rather than allowing it to emerge from bankruptcy. His argument was that MCI is a "criminal enterprise" that is "attempting to use the bankruptcy process to launder stolen goods". At the same time, in a coordinated action, several states opened criminal investigations of their own against MCI.

A significant part of Barr's argument is that the WorldCom debt holders are not the only damaged parties of WorldCom's fraudulent accounting and reporting practices: so are the competitors who could not profitably compete with a company concealing its losses. While emergence from bankruptcy appears to be in the best interests of the debt holders, it would "actually complete the crime and perfect the crime, putting [WorldCom/MCI] in a better position than when the crime was detected."

I am not a lawyer by any stretch, so I will not opine on whether this petition will stand up with the SEC and the courts. But as someone who has been intimately involved with the telecommunication industry for over 25 years, I can tell you that Barr's argument makes a lot of sense. Moreover, his solution (liquidation) could change the course of inevitable bankruptcy of all participants and start the industry back down a road to health. Considering the role that telecommunications plays in high tech and the economy as a whole, this is a very promising move. Verizon, William Barr, and the four state attorneys general involved deserve congratulations. I wish them well, for the good of us all. Finally, a ray of sunshine!

Regarding future columns, I will not promise at this point to go back to a daily column. Instead, I will be event-driven: when a new development justifies a new column, I will write one and post it here. If you would like to be notified via email when there is a new column, enter your email address below and click on "submit", and you will receive an email notification whenever a new column is posted.