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Did WorldCom Puff Up the Internet Too?

Light Reading
News Analysis
Light Reading
7/18/2002
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The plot thickens. A number of experts are now charging that WorldCom Inc. (Nasdaq: WCOME) didn't just puff up its earnings with questionable accounting -- the company may have helped drive the Internet bubble itself with misleading traffic growth figures.

The new charges are important because the company's technical leaders, including John Sidgmore, the new CEO, were considered experts on the Internet and were frequently consulted on general Internet growth issues during the late 1990s. WorldCom's UUNET division runs what is considered one of the largest, if not the largest, Internet backbones in the world. Sources charge that Sidgmore and his technical team were responsible for inflating bandwidth growth numbers that supported much of the rationale behind the growth in the Internet.

Sources include several academic experts, as well as one former WorldCom employee who worked with both Sidgmore and former WorldCom Chief Scientist Michael O’Dell. The ex-WorldCom employee, speaking to Light Reading under the condition that he not be named, insisted that WorldCom executives including Sidgmore intentionally boosted internet traffic growth numbers to make the industry look more lucrative than it in reality was.

"If you do the math, all the growth they were claiming was physically impossible,” he says, referring to Sidgmore’s claims starting in 1998 that internet traffic was doubling every 3.5 months, or growing at a rate of 1,000 percent a year. “It’s been bullshit from day one... It was all about manipulating the stock market. In reality, what was growing was connectivity,” he says.

WorldCom's Internet statistics were often quoted throughout the industry, and Sidgmore has cited 1,000% annual growth in several public forums and reports. The controversy is important because Sidgmore has distanced himself from WorldCom's ex-CEO Bernie Ebbers and is casting himself as the leader that will clean WorldCom up.

Here's how it worked, according to the former WorldCom employee: WorldCom would hook up new customers with connections capable of handling, say, up to 1.5 Mbit/s of data, knowing that for most of the time the lines would only carry a fraction of this amount. WorldCom would then use the 1.5 Mbit/s figures, not the actual traffic figures, when citing Internet traffic growth statistics.

"There was massive connectivity growth, but UUNET’s business wasn’t growing as much, "says the former employee.

Several studies on Internet traffic growth, including one by Andrew Odlyzko and Kerry Coffman of AT&T Research Labs from 1998, show that Internet traffic was growing 1,000 percent a year over a short period of time between 1995 and 1996. But following that timeframe, studies show that Internet traffic growth remained fairly consistent, doubling every year -- a far cry from Sidgmore's now-famous 1,000% growth rate. A 100 percent growth rate might be a far cry from the huge numbers that WorldCom was touting, but, Coffman insists, it is still quite impressive.

"Doubling every year was still massive," Says Coffman. "People didn’t understand what growing at 10 times a year meant,” he says, talking of all the companies and investors who believed that such enormous growth could continue. “Nobody did sanity checks.”

Odlyzko questions the idea of the Internet's runaway growth as depicted by WorldCom.

"The myth of Internet traffic doubling every 100 days seemed to be based on (i) the fact that such growth rates really did hold during the two-year period 1995-1996, and (ii) WorldCom making misleading claims in subsequent years,” Odlyzko, now with the Digital Technology Center at the University of Minnesota, writes in an e-mail to Light Reading.

Other industry observers, however, say that they’re not so sure that the huge numbers were pure manipulation. “There were some fairly aggressive estimates of growth rates,” says Rick Wilder, principal scientist at Masergy Communications Inc.. “They may have been a bit exaggerated… [but] I think those numbers were factual for UUNet for a couple of years.”

Some experts say that in general, during the bubble years, measurements of Internet growth were subject to widespread abuse. Often, small snapshots of Internet growth were cited, without regard to long-term impact.

"Basically folks were using growth numbers that may have been true for a specific piece of the Internet, e.g., certain links on the NSFNET backbone, for a short period of time, and likely using them to their advantage when it would increase stock price projections (or egos),” Kimberly Claffy of the Cooperative Association for Internet Data Analysis, CAIDA, writes in an e-mail.

Of course Sidgmore and the rest of the WorldCom crew weren’t the only ones pushing the big numbers. “It is hard to hang it all on John Sidgmore,” says one analyst, asking to remain unnamed. “It was pretty widespread. It was definitely questionable, but I feel bad for Sidgmore to get stuck with all the blame. We all did it.”

The former employee, however, says that while much of the industry is guilty of wanting the numbers to be higher than they were, WorldCom was a leader in touting its Internet figures. He says this led to the company building out infrastructure it didn’t need to uphold the impression that traffic was growing as fast as it claimed it was. “They had decided to build x amount of ports each month,” he says, “whether there were customers for them or not.”

Was the Internet growth hype premeditated? It's hard to tell. It may be WorldCom executives thought the traffic was growing as fast as they claimed

One thing is for sure, the controversy points to a central problem in the industry -- that it's tough to get good Internet traffic statistics. Government-sponsored traffic numbers haven’t been released since the NSFNet was was decommissioned and Internet backbone services transitioned to the commercial sector in 1995, according to Claffy. Most carriers don’t even systematically measure their traffic, she says, and those that do use different and often dubious methodology, and are careful to keep the results close to their chest.

Neither Sidgmore nor O’Dell returned numerous calls and requests for comments.

Light Reading is planning a project that would collect actual traffic statistics from hundreds of Internet access lines to enterprise users - giving everybody a much better reading on what's actually happening to business traffic volumes on the Internet. Corporations will be given a free trial of a monitoring service in exchange for participating in the scheme (see Track Your Traffic).

— Eugénie Larson, Reporter, Light Reading
http://www.lightreading.com

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cessna
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cessna,
User Rank: Light Beer
12/4/2012 | 10:04:20 PM
re: Did WorldCom Puff Up the Internet Too?
During WCOM/MCI merger, UUNET, Compuserve, ANS and MCI provided extensive IP traffic data to the the European Commission and DOJ. That data (much to WCOM/MCI's dismay) did show the fantastic traffic growth rates for 1996-1998(Q1) period. SOB @ Harvard may be a good person to interview since he testified on behalf of MCI/WCOM.

Not sure if those records are public but check'em out.
GreatFallsNetworks
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GreatFallsNetworks,
User Rank: Light Beer
12/4/2012 | 10:04:20 PM
re: Did WorldCom Puff Up the Internet Too?
Ex worldcom employess == sour grapes
lowbandwit
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lowbandwit,
User Rank: Light Beer
12/4/2012 | 10:04:19 PM
re: Did WorldCom Puff Up the Internet Too?
Well, if they did work those numbers... how many billions got wasted by companies building out their networks to meet that demand? We've known for a long time that any one of the major carriers had enough fiber capacity to carry all the Internet traffic, but now... does this mean that we're set for the next 1,000 years or so of growth?
jggveth
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jggveth,
User Rank: Light Beer
12/4/2012 | 10:04:19 PM
re: Did WorldCom Puff Up the Internet Too?
"Global Crossing and 360networks will battle for global supremacy, but in a trillion-dollar market, there will be no loser."
- George Gilder, Forbes, 2/19/01

"Back to nature"
- inquisitive, LR, 7/18/02
skeptic
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skeptic,
User Rank: Light Beer
12/4/2012 | 10:04:18 PM
re: Did WorldCom Puff Up the Internet Too?
Here's how it worked, according to the former Worldcom employee: Worldcom would hook up new customers with connections capable of handling, say, up to 1.5 Mbit/s of data, knowing that for most of the time the lines would only carry a fraction of this amount. Worldcom would then use the 1.5 Mbit/s figures, not the actual traffic figures, when citing Internet traffic growth statistics.
======================

Which is a perfectly valid and meaningful way
of measurment in order to make certain
decisions about the network.

Your article and your thinking is terribly
confused. There are lots of different ways
to measure growth in the network. And often,
different numbers for growth/traffic are
meaningful for different sectors of the
equipment marketplace. The core isn't the
same as the edge isn't the same as access.

Worldcom has to build/operate an entire network
and just because they didn't cite traffic
growth numbers that were appropriate for vendors
of core optical equipment and routers doesn't
make those numbers invalid.








oc-3072
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oc-3072,
User Rank: Light Beer
12/4/2012 | 10:04:16 PM
re: Did WorldCom Puff Up the Internet Too?
skeptic is right. if WCOM had to provision a T1 private line, it doesn't matter whether the customer used the whole thing or left it empty... that's a pipe provisioned on the network.
broadbandboy
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broadbandboy,
User Rank: Light Beer
12/4/2012 | 10:04:16 PM
re: Did WorldCom Puff Up the Internet Too?
Hello--this story was extensively discussed on these boards at least a year ago, in response to the Larry Roberts studies of Internet traffic growth.

It is clear today that Sidgmore and O'Dell were talking about growth of the network infrastructure, and that was confused with growth of actual traffic.

I have seen ISP internal data on the growth of router ports in certain cities that did indeed show a doubling every 3-4 months during that time period.

But it is amazing to me that supposedley intelligent people would take that one data point and use it to base vc funded business plans.

The big question today is whether the growth rate is 1x, 2x, 3x, etc. An even more important question is, what will the rate of traffic growth be in 6 months, 12 months, 18 months, 24 months, etc.

The ability to predict future traffic growth and bandwidth demand with reasonable accuracy is critical for planning future network builds and anticipating router demand by service providers and vendors. Yet I don't know of any reliable method for doing so. I have talked to traffic engineers at some Tier-1 ISPs, and it sounds like a lot of rear-view mirror analysis projected into the future.

That's why so many companies got caught with their pants down when the bottom fell out.

BBboy

FinBurger
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FinBurger,
User Rank: Light Beer
12/4/2012 | 10:04:15 PM
re: Did WorldCom Puff Up the Internet Too?
Au contraire, mon frere...

Removal of bribes (options) == New-found objectivity

Not accounting for concentration in data traffic is about as wrong as you can get.

Anybody who believed those exponential traffic graphs would continue forever was a fool. The real question was, "when will it saturate?". The answer, we now know, was 18:25 EST, March 13, 2000. Too bad.

Thank God it happened when it did. Imagine if the insanity went on for a few more years. We might have reached the Telecom Event Horizon, where it would be unprofitable to do anything but work on the Internet. Food production would have ceased, and mankind would be extinct.

Maybe that's what happened to the dinosaurs?

:-)
broadbandboy
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broadbandboy,
User Rank: Light Beer
12/4/2012 | 10:04:15 PM
re: Did WorldCom Puff Up the Internet Too?
This article was posted here a year ago, but is still relevant. It explains the issue about as well as anything I have seen in print.

http://www.broadbandpub.com/br...

BBboy
BobbyMax
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BobbyMax,
User Rank: Light Beer
12/4/2012 | 10:04:15 PM
re: Did WorldCom Puff Up the Internet Too?
Many companies in the telewcom sector lie to boost their stock value. They bring the stock up and up --- and finally they are ready to excercise their stock options. Using this practice Cisco was able to split its stock several times a year. In the year 2000 the stocks were increasing without bounds. All on-line stock trade center were publishing false and misleading information almost on every stock.

Maximum number of companies went public during the year 2000. It should have alerted someone, but it never happened.

In effect, many companies became highway robbers with no ethics and morality. They are criminals who are sitting on millions of dollars where as the employees and share holders lost trillions of dollars.

Under no circumstances can Board of Directors be trusted. Almost allthe companies arew packed with the friends and relatives of CEOs.

Our system has built-in-corruption which cannot be erased unless the basic laws of corporate governance is changed. The corruption is so widespread that it is unlikely that any thing would change.
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