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 everybody built 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 itself right out of a business,” Mike McCue, chief operations officer of Tellme Networks, a voice-activated Internet service, told CNET News.com in June 2001. “They've laid so much fiber in the ground that they've basically commoditized themselves. They are going to get into massive price wars with everyone and it's going to be a disaster.”
It was a disaster for many of the companies and their investors (Global Crossing filed for bankruptcy in January 2002, with $12.4 billion in debt), but it turned out to be a great boon for consumers. Just as the national highway system that was built in the 1950s flattened the United States, broke down regional differences, and made it so much easier for companies to relocate in lower-wage regions, like the South, because it had become so much easier to move people and goods long distances, so the laying of global fiber highways flattened the developed world. It helped to break down global regionalism, create a more seamless global commercial network, and made it simple and almost free to move digitized labor-service jobs and knowledge work-to lower-cost countries.
(It should be noted, though, that those fiber highways in America tended to stop at the last mile-before connecting to households. While a huge amount of long-distance fiber cable was laid to connect India and America, virtually none of these new U.S. telecom companies laid any substantial new local loop infrastructure, due to a failure of the 1996 telecom deregulation act to permit real competition in the local loop between the cable companies and the telephone companies. Where the local broadband did get installed was in office buildings, which were already pretty well served by the old companies. So this pushed prices down for businesses-and for Indians who wanted to get online from Bangalore to do business with those businesses-but it didn't create the sort of competition that could bring cheap broadband capability to the American masses in their homes. That has started happening only more recently.)