From: Emlyn O'regan (oregan.emlyn@healthsolve.com.au)
Date: Thu Sep 26 2002 - 22:54:45 MDT
This article has got me to wondering about the singularity. The late 90s
seem to have included a run-away technological boom, which blew out because
supporting factors weren't there. In this case, these guys say that demand
simply wasn't there to soak up the excess bandwidth created by exponential
growth in telecommunications infrastructure capabilities.
Why didn't demand increase to match supply? I'm sure most of us could think
of ten ways, off the top of our heads, to use massively excess bandwidth if
asked. Some of them would probably make a lot of money. So where did this
problem, the kind of problem that might stall a singularity, originate?
Emlyn
-----Original Message-----
From: Premise Checker [mailto:checker@mail.sheergeniussoftware.com]
Sent: Friday, 27 September 2002 2:23
Subject: [>Htech] WSJ: Technology Races Far Ahead of Demand and the
Workplace
Technology Races Far Ahead of Demand and the Workplace
WSJ, 2.9.26
By DENNIS K. BERMAN
Staff Reporter of THE WALL STREET JOURNAL
Who should be blamed for the giant telecom wipeout? It's easy to throw darts
at the telegenic dealmakers who headed the fallen industry. But these days,
even behind-the-scenes scientists such as William Brinkman are feeling pangs
of responsibility. "Maybe we should have been less smart," rues Dr.
Brinkman, a distinguished researcher who spent 35 years at Bell
Laboratories.
Dr. Brinkman and hundreds of other telecom researchers are now beginning to
understand the economic force they unleashed on the industry during the mid
and late 1990s. Perhaps never before has the efficiency of an industry's
technology gotten so far ahead of demand, creating a glut of capacity that
will take years to work off -- and crippling dozens of companies in the
process.
Scientists perfected once-exotic methods for cheaply sending vast amounts of
voice and data, such as Internet traffic, over fiber-optic lines. These
advances far exceeded the pace of telephone-industry innovation in the 100
years before it. Prior to 1995, telecom carriers could send the equivalent
of 25,000 one-page e-mails per second over one fiber-optic line. Today, they
can send 25 million such e-mails over the same fiber strand, a 1,000-fold
increase. Yet the cost of making that upgrade rose by just a few times over
the 1995 price, and in some instances actually declined.
The gap between the capacity of long-distance phone networks and demand is
now so great that even if all the Internet traffic among the top 20 U.S.
cities were routed through Chicago, only one-quarter of that city's
available capacity would be used, estimates research house Telegeography,
Inc.
More than 60 telecom carriers have filed for bankruptcy in the last two
years, in part due to price wars created by this overcapacity. And makers of
telecom gear have undergone massive downsizings as sales cratered and
earnings evaporated.
Of course, the telecom mess wasn't caused entirely by technical advances --
wildly optimistic business plans, biased analysts and questionable
accounting also played a big role. Yet consider the main 1990s improvement
in phone equipment: Before 1995, it was possible to transmit only one color
of data-carrying light through the glass lines that are the foundation of
almost all medium- and long-distance phone networks.
But new technology called dense-wave division multiplexing, or DWDM,
essentially split that pulsing light beam into a spectrum of colors, thereby
multiplying the available wavelengths, and capacity, by up to 320 times
(though most systems today only use eight to 32 wavelengths).
Just one outcome of the advances: In the nine months it took Flag Telecom
Holdings Ltd. to design a fiber-optic cable system across the Atlantic
Ocean, the now-bankrupt carrier was able to double the amount of capacity
over its original plan -- at little additional cost.
This isn't the first time technology got ahead of a marketplace's ability to
absorb the advances. Computer microprocessors in recent years have possessed
more processing power than was generally needed, causing marketing problems
for their makers. Advances in agriculture have helped farmers improve yields
so much that they have almost no pricing power.
Yet the technology overhang in telecom is unique in several ways. "It's rare
that a technology is so far ahead of demand," says Dr. David Payne of
England's Southampton University, who is often regarded as the grandfather
of the capacity-multiplying technology. Second is the sheer amount of money
that had been staked on its benefits. Investors have poured some $757
billion into telecom stocks and bonds since 1996, says Thomson Financial,
much of it on the bet that technology would create profitable, low-cost
competitors to established phone carriers.
When new phone carriers piled into the market in the late 1990s, they
clamored for the hottest technology to differentiate themselves. In August
1999, for instance, Global Crossing Ltd. touted a technology upgrade that
was completed 18 months ahead of schedule. Global Crossing and others
proceeded to offer customers low-cost deals for vast amounts of capacity.
When demand failed to pick up as expected in 2000 and 2001, the financial
structures of these companies crumbled.
"There was a fever," recalls Michael Birck, chairman of equipment-maker
Tellabs Inc. "People were advertising how much they could pack into a single
fiber, and it went up to unbelievable numbers."
The financial fallout has put telecom researchers in a difficult corner.
They are deeply proud of their progress, and bristle at the idea that they
should hold back innovation until the business catches up. But they also
recognize that their work -- in the hands of eager businesspeople -- has
helped bring the industry to its standstill.
Andy Evans, chief technology officer at FLAG Telecom, shifts much of the
blame to the equipment makers. They provided billions of dollars of
so-called vendor financing to the carriers. That supported the purchase of
the most advanced systems, which helped fatten revenues during the bubble,
Mr. Evans says. Now, equipment makers such as JDS Uniphase Corp., Nortel
Networks Ltd. and Lucent Technologies Inc. have had to make massive cutbacks
to stay alive.
Southampton's Dr. Payne keeps the faith that the industry will recover,
albeit after deep consolidation. He reasons that eventually all the capacity
he helped create will be filled by new, bandwidth-hogging uses. For now,
though, he can't forget how one leading industrialist, whom he declines to
name, admonished him at an industry conference a few years ago. "He said,
'You guys have to stop inventing things,' and he was deadly serious."
Write to Dennis K. Berman at dennis.berman@wsj.com5
URL for this article:
http://online.wsj.com/article/0,,SB1032983027342754473.djm,00.html
Hyperlinks in this Article:
(1) http://online.wsj.com/article/0,,SB1030573775295815315,00.html
(2) http://online.wsj.com/article/0,,SB1029102020679872395,00.html
(3) http://online.wsj.com/article/0,,SB1020546243636907880,00.html
(4) http://online.wsj.com/article/0,,SB996011629447166413,00.html
(5) mailto:dennis.berman@wsj.com
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