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Broadbandits: Inside the $750 Billion Telecom Heist Hardcover – May 15, 2003
Once the foundation of the Dow and NASDAQ, the telecom industry has eaten up more capital than any other industry in recent history and has nothing to show for it. Today, it is by far the worst culprit in the spate of financial dirty dealings that have been splashed across the business pages, and yet the rewards reaped by top executives at many of these failed or failing companies have been inversely proportionate to their decline. Broadbandits takes readers behind the scenes to get the story they won't get in the media. Investigative reporter Om Malik follows the money trail and deciphers the actions and motivations of a generation of new economy "barbarians" that brought down this once lucrative industry. This intriguing book offers an inside look into the telecom bubble, with tales and anecdotes about mavericks who turned simple light and glass fibers into veins of gold, financiers who got greedy and fleeced unsuspecting millions, clueless venture capitalists who thought they'd tapped into the mother lode, hapless entrepreneurs who believed that they were changing the world, and self-proclaimed pundits who were cheering it all on from the sidelines. Broadbandits is a compelling account of the downfall of telecom giants such as WorldCom and Global Crossing, and will show readers how many telecom upstarts and veterans alike became victims of what one chief executive aptly described as "high-yield heroin."
Om Malik (New York, NY) is a Senior Writer for Red Herring who focuses on the telecommunications sector. Prior to joining Red Herring in July 2000, he was senior editor at Forbes.com. His work has also been published in newspapers and magazines such as The Wall Street Journal, Business 2.0, Brandweek, and Crain's New York Business. For a very brief while, he was a venture capitalist.
- Print length352 pages
- LanguageEnglish
- PublisherWiley
- Publication dateMay 15, 2003
- Dimensions4.72 x 1.18 x 11.02 inches
- ISBN-100471434051
- ISBN-13978-0471434054
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Review
"...This book offers a scathing analysis and a riveting read?a very readable book...it?s a must read" (The Inquirer, 19 June 2003)
Lenette Crumpler, a former employee of Frontier Communications, lost $86,000 of her 401(k) money. Paula Smith worked most of her life at US West and then lost her life's savings of $400,000 after Qwest took over US West.
How and why did these employees find themselves in such an outrageous situation? To find the answer, Om Malik burrowed deep inside the so-called broadband bubble -- the colossal build-out of communications networks that accompanied the technology and investment boom of the late 1990s.
He unearthed copious evidence of what he dubs, "broadband bandits" — businessmen who took full advantage of the telecom bubble to line their own pockets even as their companies collapsed.
The result was "Broadbandits," a book that tells the whole sordid story of the dishonest men who profited from the broadband boom. The author, a senior writer at Business 2.0 magazine, provides a clear, sober account of what he calls' 'the robber barons of the information age" —and how they pulled off one of the biggest heists of all time.
Some $750 billion vanished when the telecom bubble burst, Malik writes. More than 100 companies went bankrupt and an equal number shut down, leaving up to 600,000 telecom industry workers without paychecks.
"The biggest bubble in the history of the modern world was not the dot-com bubble but the telecom bubble," the author writes.
Some of the industry insiders Malik cites as culprits are Global Crossing's Gary Winnick, WorldCom's Bernie Ebbers, Qwest Communications' Joe Nacchio, Salomon Smith Barney telecom analyst Jack Grubman, Enron Broadband Services' Ken Rice, and Lucent's Richard McGinn.
To understand the unscrupulous insiders who got rich on an industry built on light and fiber, one must first understand the broadband bubble. Malik writes that about 80.2 million miles of optical fiber was installed in the United States from 1996 through 2001. That means about three-fourths of the installed base of 105 million miles was put in place in just six years.
What's even more stunning is that the vast majority of this cable is not even used today amid the colossal fiber glut that has emerged from years of overbuilding. As Malik points out, "the world is crisscrossed with fiber that is unlikely to be used for decades."
The whole complicated situation began with the Telecommunications Act of 1996. The act was meant to increase competition in the once closed-off telephone industry and to help create new companies. The capital markets caught wind of this new technology revolution and basically threw money at anything or anyone connected with this new open telecom market. Along with deregulation of the telecom market, demand for bandwidth skyrocketed.
These conditions set the stage for the broadband bubble. Malik writes that' 'the broadband bubble and the dot-com bubble resulted from overblown expectations and irrational exuberance."
This book is the story of the unsavory businessmen who benefited as companies collapsed and rank-and-file employees saw their life savings and retirement funds dissipate.
The saddest part of the whole story is that these men basically got away with their greedy corporate maneuverings while many of their loyal employees had their lives turned upside down by the downfall of the companies they worked for.
The financial shenanigans of the telecom executives and insiders have become the stuff of legends.
For instance, Gary Winnick of Global Crossing took in $735 million while the company was blowing through $15 billion in investor money, eventually ending up as the fourth-largest bankruptcy case in U.S. history.
Then there's stock analyst Jack Grubman, who had buy recommendations on 20 telecommunications companies. Twelve are now bankrupt and the others are on the brink. Grubman himself pocketed $100 million and has been barred from the securities industry.
The exploits of the companies are no less staggering. Sometimes it seemed as if common sense had completely blown out the window. For example, Lucent acquired 21 companies between September 1997 and July 2000, spending a staggering $43 billion. CEO McGinn was fired in October 2001. His severance package was $12.5 million and his total take' 'for reducing Lucent to shambles" was about $38 million, Malik writes.
The author clearly exposes the mismanagement and wrongdoings of these individuals and companies. He relentlessly pursued them in his research and interviews, peeling back the layers of misconduct to reveal the shocking greed and dishonesty so prevalent as the broadband bubble grew bigger and bigger.
The bubble finally burst, creating a huge mess for all but the executives who took care of themselves.
The book is fascinating and well-written. Lay people will appreciate the way Malik cogently analyzes the tumult in telecom.
This book enables even those who have never read a stock market report in their life to understand exactly what happened and why the broadband bubble—and its demise—were so stupendous. (San Jose Mercury News, July 20, 2003)
"...a compelling account of the downfall of the telecom giants..." (Dunstable Gazette, 6 August 2003)
From the Inside Flap
Broadbandit (noun):One who padded his coffers by $50 million or more riding the bandwidth bubble.
Before the ink was even dry on the Telecommunications Act of 1996, a telecom bubble larger than that of its dot-com sister was quickly beginning to form. With the deregulation of the telecom industry finally complete, the race was on; and what ensued was nothing less than a financial hit and run, which left the telecommunications industry in shambles and investors brokebut made the broadbandits who led this charge rich beyond their wildest dreams.
Broadbandits: Inside the $750 Billion Telecom Heist goes behind the scenes to uncover the actions and motivations of a handful of men and a few dozen companies who worshipped at the altar of corporate greedand for the most part got away with it! Through interviews with numerous industry insiders and real-world stories, investigative reporter Om Malik follows the money trail to reveal the events that all but destroyed an industry and decimated thousands of portfolios in the process.
Broadbandits offers a candid look at how fiber barons such as Bernie Ebbers of WorldCom, Gary Winnick of Global Crossing, and Joe Nacchio of Qwest turned simple light and glass fibers into veins of gold that allowed them to build enormous personal fortunes, even as their companies were going down in flames. Youll be there to watch as eager venture capitalists and unknowing investors try to buy their piece of the American Dreamonly to get burned by once high-flying companies such as Excite@Home, Winstar, McLeodUSA, Nortel, and Sycamore.
Broadbandits puts you face-to-face with the shameless individuals who used the hype and hysteria of the telecom revolution to pump up telecom stocks and line their own pocketseven when there was little evidence to substantiate their claims. Youll learn how the former pied piper of the telecom industry, analyst Jack Grubman, played both sides of the fence to make millions, while pundit George Gilders pie-in-the-sky predictions transformed him into a cult hero, until everything came crashing down on him.
The broadband bubble was the result of over-blown expectations and irrational exuberance. Broadbandits provides an inside look at the financial schemes and misguided power plays that made victims out of everyone and brought an industry to its knees.
From the Back Cover
"Om Maliks spread of blame for the Internet bubble shows theres plenty to go around. For my part, I am sorry and promise almost never to do it again. Malik holds a special place in hell for Salomon stock promoter Jack Grubman. But then Wall Street should have weeded him out way back when they caught him lying about going to MIT."
Bob Metcalfe, MIT graduate, Ethernet inventor, 3Com founder, InfoWorld pundit, and Polaris partner
"Broadbandits weaves together a story of greed, money, power, and crime to reveal to the millions of people who lost their investments in telecom stock where, and to whom, their hard-earned dollars went."
Charles Dubow, Executive Editor, Forbes.com
"Om Malik has the courage to write that instead of reporting EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) the CEOs he calls broadbandits reported their own style of EBITDA (Earnings Before Irregularities, Tampering, and Dubious Accounting). His pen is as wicked as Mark Twains."
Blaise Zerega, Managing Editor, Wired magazine
"Rare, for a book in its field, Broadbandits is an attractive, stodge-free read. Accessible, even mischievous, it should prove instructive not merely to geeks, (disgruntled) venture capitalists, and bankrupt telecom tycoons, but also to that species most neglected of allthe lay reader."
Tunku Varadarajan, Editorial Features Editor, The Wall Street Journal
"Broadbandits is a fast-paced tale of the key players responsible for inflating the telecom bubble. Many were fools, many others rogues, some managed to escape with riches, some were ruined. With an unforgettable cast, Broadbandits is a sobering account of monumental financial waste and the derailment of hundreds of thousands of lives."
Andrew Odlyzko, Director, Digital Technology Center and Assistant Vice President for Research, University of Minnesota
About the Author
Product details
- Publisher : Wiley; 1st edition (May 15, 2003)
- Language : English
- Hardcover : 352 pages
- ISBN-10 : 0471434051
- ISBN-13 : 978-0471434054
- Item Weight : 1.25 pounds
- Dimensions : 4.72 x 1.18 x 11.02 inches
- Best Sellers Rank: #970,820 in Books (See Top 100 in Books)
- #1,086 in Telecommunications & Sensors
- #1,219 in Internet & Telecommunications
- #4,860 in Industries (Books)
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His timing on publishing this book could not be better, given the backdrop of ongoing investigations and legal action against many of the companies or principals he writes about. I find it ironic that a number of these "visionaries" and "promoters" who were paid like kings because they were supposedly so invaluable to their companies or firms, now use as a defense that they really didn't know what was going on in their companies. It is amazing people like Bernie Ebbers who made literally hundreds, if not thousands, of presentations to knowledgeable investors, who ask insightful questions, could now make this claim. Also, where are the other research analysts on Wall Street. It is one thing for Grubman to be an active co-conspirator, but where was the independent research that should have debunked these charlatans before they got started. The easiest myth to debunk of all is the myth that the Internet was growing 100% every four months over a sustainable period and press releases that claimed dial port consumption was increaseing 10% per month. Any reasonably asstute person could do the calculations on this and realize that there are not enough people or information to sustain this growth rate for more than a fleeting moment. In a matter of a couple of years everyone in the US would have had to have been signed onto an individual dial port twenty-four hours a day. Om Malik makes it clear how phony these arguments are and how dishonest and disingenuous they are. Future generations will look back on this much as we look back at the Tulip Bubble in Holland and wonder how did anybody ever believe any of this. This is a great first book for Om Malik.
Broadbandits profiles most of the key individuals and companies who helped inflate (and in many cases profit from) the telecom bubble, at a steady one company per chapter pace. Being in the telecom industry myself (still), I can state that Malik accurately captured the major stories I already knew, so I assume the rest of the book is generally factual. Although Malik focuses most of his anger on company bigwigs, he also admits that a bubble the size of this one could not have been created without active, willing participation from all sectors of the community: greedy disconnected CEOs, conflicted Wall Street and industry analysts, small investors who wanted to double their money overnight, and a unique confluence of regulatory and technological changes and advances.
Broadbandits could have been better. Malik's principle sources are business press articles, and he has a fascination with documenting dollar figures, so he doesn't probe as deeply as he could into the reasons behind the actions he reports. The book was written hurriedly (to keep it topical), and there are more than a few data errors. Malik correctly cites Ravi Suria's seminal report on the debt and finances of telecom firms, which proved how the emperor of telecom stocks had no clothes (I remember almost crying for joy when I originally read Suria's report), but he missed Jeremy Siegel's equally important bubble bursting op-ed piece in the Wall Street Journal proving that Cisco and other high P/E stocks were way overvalued and that we were experiencing another "Nifty Fifty" tech mania episode. Finally, to return to my Dickens reference, the book would be even more dramatic if it recounted more anecdotal stories and statistics of the small investors and employees who lost their money, retirement savings and jobs, to provide contrast to the well-documented stories of folks who cleared many millions during the boom. However, I do admit that with the title of Broadbandits, the focus is on the bigwigs who inflated and profited from the bubble.
One more minor quibble: two of the people who praise Broadbandits on the back cover are thanked by Malik in his Acknowledgements. Conflicts of interest are everywhere! And just what did Malik do during his brief stint as a venture capitalist?
From Malik's book it sounds like Gilder didn't either, and -- it seems to me -- that as the wreck was approaching he was screaming "full steam ahead." It's too bad really, because in the end some of Gilder's predictions about wasting bandwidth may well turn out to be prescient. But as that famous quote from Keynes said, "In the long run we're all dead."
What the industry really needs as a replacement to Gilder is someone more like an Old Testament prophet -- that is someone who can at the same time chastise and point specifically to the right path. (Gilder was more of a psalmist -- singing praises to the Lord and making us all feel good about ourselves.)
I think our new prophet is also going to have to talk a lot less about raw growth and a lot more about where value is actually to be found.
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