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to the effect of； 〃Look； you bozos； of course they're a bubble； but you're all missing
the point。 This bubble is attracting so much new capital to this Internet industry；
it is going to drive innovation faster and faster。〃 Gates compared the Internet to
the gold rush； the idea being that more money was made selling Levi's； picks； shovels；
and hotel rooms to the gold diggers than from digging up gold from the earth。 Gates
was right： Booms and bubbles may be economically dangerous； they may end up with many
people losing money and a lot of companies
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going bankrupt。 But they also often do drive innovation faster and faster； and the
sheer overcapacity that they spur…whether it is in railroad lines or automobiles…can
create its own unintended positive consequences。
That is what happened with the Internet stock boom。 It sparked a huge overinvestment
in fiber…optic cable companies； which then laid massive amounts of fiber…optic cable
on land and under the oceans； which dramatically drove down the cost of making a phone
call or transmitting data anywhere in the world。
The first commercial installation of a fiber…optic system was in 1977； after which
fiber slowly began to replace copper telephone wires； because it could carry data
and digitized voices much farther and faster in larger quantities。 According to
Howstuffworks。com； fiber optics are made up of strands of optically pure glass each
〃as thin as a human hair；〃 which are arranged in bundles； called 〃optical cables；〃
to carry digitized packets of information over long distances。 Because these optical
fibers are so much thinner than copper wires； more fibers can be bundled into a given
diameter of cable than can copper wires； which means that much more data or many more
voices can be sent over the same cable at a lower cost。 The most important benefit
of fiber； though； derives from the dramatically higher bandwidth of the signals it
can transport over long distances。 Copper wires can carry very high frequencies too；
but only for a few feet before the signal starts to degrade in strength due to certain
parasitic effects。 Optical fibers； by contrast； can carry very high…frequency optical
pulses on the same individual fiber without substantial signal degradation for many；
many miles。
The way fiber…optic cables work； explains one of the manufacturers； ARC Electronics；
on its Web site； is by converting data or voices into light pulses and then
transmitting them down fiber lines； instead of using electronic pulses to transmit
information down copper lines。 At one end of the fiber…optic system is a transmitter。
The transmitter accepts coded electronic pulse information…words or data…coming from
copper wire out of your home telephone or office computer。 The transmitter then
processes and translates those digitized； electronically coded words or data into
equivalently coded light pulses。 A light…emitting diode （LED）
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or an injection…laser diode （ILD） can be used to generate the light pulses； which
are then funneled down the fiber…optic cable。 The cable functions as a kind of light
guide； guiding the light pulses introduced at one end of the cable through to the
other end； where a light…sensitive receiver converts the pulses back into the
electronic digital Is and Os of the original signal； so they can then show up on your
computer screen as e…mail or in your cell phone as a voice。 Fiber…optic cable is also
ideal for secure communications； because it is very difficult to tap。
It was actually the coincidence of the dot…com boom and the Telecommunications Act
of 1996 that launched the fiber…optic bubble。 The act allowed local and long…distance
companies to get into each other's businesses； and enabled all sorts of new local
exchange carriers to compete head…to…head with the Baby Bells and AT&T in providing
both phone services and infrastructure。 As these new phone companies came online；
offering their own local； long…distance； international； data； and Internet services；
each soughtto have its own infrastructure。 And why not？The Internet boom led everyone
to assume that the demand for bandwidth to carry all that Internet traffic would double
every three months…indefinitely。 For about two years that was true。 But then the law
of large numbers started to kick in； and the pace of doubling slowed。 Unfortunately；
the telecom companies weren't paying close attention to the developing mismatch
between demand and reality。 The market was in the grip of an Internet fever； and
companies just kept building more and more capacity。 And the stock market boom meant
money was free！ It was a party！ So every one of these incredibly optimistic scenarios
from every one of these new telecom companies got funded。 In a period of about five
or six years； these telecom companies invested about 1 trillion in wiring the world。
And virtually no one questioned the demand projections。
Few companies got crazier than Global Crossing； one of the companies hired by all
these new telecoms to lay fiber…optic cable for them around the world。 Global Crossing
was founded in 1997 by Gary Winnick and went public the next year。 Robert Annunziata；
who lasted only a year as CEO； had a contract that the Corporate Library's Nell Minow
once
picked as the worst （from the point of view of shareholders） in the United States。
Among other things； it included Annunziata's mother's first…class airfare to visit
him once a month。 It also included a signing bonus of 2 million shares of stock at
10 a share below market。
Henry Schacht； a veteran industrialist now with E。 M。 Warburg； Pincus & Co。； was
brought in by Lucent； the successor of Western Electric； to help manage it through
this crazy period。 He recalled the atmosphere： 〃The telecom deregulation of 1996 was
hugely important。 It allowed competitive local exchange carriers to build their own
capacities and sell in competition with each other and with the Baby Bells。 These
new telecoms went to companies like Global Crossing and had them install fiber
networks for them so they could compete at the transport level with AT&T and MCI；
particularly on overseas traffic 。 。 。 Everyone thought this was a new world； and
it would never stop。 ＇You had＇ competitive firms using free capital； and everyone
thought the pie would expand infinitely。 So ＇each company said；＇ 'I will put my fiber
down before you do； and I will get a bigger share than you。' It was supposed to be
just a vertical growth line； straight up； and we each thought we would get our share；
so everybodybuilt to the max projections and assumed that they would get their share。〃
It turned out that while business…to…business and e…commerce developed as projected；
and a lot of Web sites that no one anticipated exploded…like eBay； Amazon； and
Google…they still devoured only a fraction of the capacity that was being made
available。 So when the dotcom bust came along； there was just way too much fiber…optic
cable out there。 Long…distance phone rates went from 2 a minute to 100。 And the
transmission of data was virtually free。 〃The telecom industry has invested