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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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broadbandboy
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broadbandboy,
User Rank: Light Beer
12/4/2012 | 10:04:14 PM
re: Did WorldCom Puff Up the Internet Too?
Skeptic, I know for a fact that some VCs were using the UUnet stats to justify funding for certain start ups.

I also know that not everybody swallowed that number. My contacts working on Cisco's GSR talked to their own customers, and said growth was more like doubling every six months. UUnet was considered an anomaly even then.

BBboy
lightdimming
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lightdimming,
User Rank: Light Beer
12/4/2012 | 10:04:14 PM
re: Did WorldCom Puff Up the Internet Too?
Pass a law requiring all the phone lines must be upgraded to handle 10Mbps or faster without raising much the price. Box-Bluster starts delivering/streaming movie on internet at a fractional cost. You will see internet traffic grows much more than Worldcom expected.
skeptic
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skeptic,
User Rank: Light Beer
12/4/2012 | 10:04:14 PM
re: Did WorldCom Puff Up the Internet Too?
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.
------------------

Many people didn't even have business plans and
whatever they are saying now, the ONLY thing
most of them cared about was M&A valuations
and stock prices in the space.

Nobody cared about how fast worldcom said the
internet was growing. Just like nobody cared
what Enron was doing as long as they said they
made their quarterly numbers.


vapa
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vapa,
User Rank: Light Beer
12/4/2012 | 10:04:14 PM
re: Did WorldCom Puff Up the Internet Too?
Maybe that's what happened to the dinosaurs?

According to the movie, Reign of Fire, they were killed by fire breathing dragons. :D
Scott Raynovich
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Scott Raynovich,
User Rank: Light Sabre
12/4/2012 | 10:04:13 PM
re: Did WorldCom Puff Up the Internet Too?
"this story was extensively discussed on these boards at least a year ago"

It's good to hear the LR boards are such a newsbreaking mechanism!
wkdpssh
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wkdpssh,
User Rank: Light Beer
12/4/2012 | 10:04:13 PM
re: Did WorldCom Puff Up the Internet Too?
I think the real killer was DWDM and its relatives that allowed bandwidth to be subdivided into smaller and smaller pieces. Even if the internet continued growing at much higher rates the technology would be there to make the bits cheaper and cheaper. Not the fault of Ciena who just did what was right for them to make money, but shows that it's dangerous to bank on the value of a fiber optic pipe when the amount of data that can be transmitted is only limited by the equipment on either end. The pipe itself is virtually unlimited in capacity. I think what happened to telecom and the fiber glut was bound to happen (I've personally been predicting it since 1998). It just happened a bit sooner because the growth was "only" 100% instead of 300% or whatever.
lob
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lob,
User Rank: Light Beer
12/4/2012 | 10:04:09 PM
re: Did WorldCom Puff Up the Internet Too?
> 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?

Boy, the math is hard!

Today's Tier-1 Internet backbones are OC-48 (10Gbps), carriers have about 100Tbps worth of fiber capacity (projecting use of fancy DWDM) in the ground. This is growth 10000 times. With 1-year traffic doubling (which still holds accouding to Odlyzko's research) this corresponds to 13.5 years of growth (10000 ~ 2^13.5).

Building infrastructure which is going to be full in less than 15 years is not stupid. Thinking that revenues will grow in line with traffic is.

The $1B questions are - what kind of equipment will be switching all that traffic, and how to haul it across tail circuits.
st0
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st0,
User Rank: Light Beer
12/4/2012 | 10:04:09 PM
re: Did WorldCom Puff Up the Internet Too?
"Maybe that's what happened to the dinosaurs?"
------------
or same as the cancer cell growth mechanism...We are going through the chemotherapy period now...

st
jepovic
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jepovic,
User Rank: Light Beer
12/4/2012 | 10:04:09 PM
re: Did WorldCom Puff Up the Internet Too?
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.
_________________________________________________

Bah. Here, at one of Europe's larger backbones, we use MRTG graphs like everyone else. When the traffic on a link exceeds some value, say 50%, you upgrade. If you need a trend, look at the one-year graph. Sure it's based on "rearview-mirror analysis", but so is all forecasts, right?

If you instead build your network according to theoretical models, like UUnet seems to have done, it can awfully complex and still completely useless. Planning based on actual measurements is really something my mom could do.

Compare with the highway system: Choose between trying to calculate the number of cars on a certain stretch by 1) Building a model based on number of cars, population growth, gas price, etc, or 2) Measuring the actual amount of cars . Only difference is that measurements are built-in in routers.
billyjoebob
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billyjoebob,
User Rank: Light Beer
12/4/2012 | 10:04:08 PM
re: Did WorldCom Puff Up the Internet Too?
This is a joke - right?? Rip out all the copper in NA to replace it so (with little price increase it bankrupt every ILEC out there) we can push a high bandwidth application to justify the overbuilding??

But this points out a long standing paradym - the "Killer Application" that will prove once and for all the value of the "Internet".

Streaming videos, video on demand, real time video conferencing have all be touted as the Killer app - trials have been done, and are continuing - but take up rate is slow.

There seems to be strong evidence that to the business community "Internet" = reduced costs over current WAN costs. No bottom line impact (make my real dollar costs go down) not percevied bottom line (over x years with x growth and x connections Y dollars are saved by reduced mangement/downtime/upgrades . . .)and no move to internet connections.

To the residential market the internet is entertainment - nothing more. Sure it's a usefull tool but most use it just to get email, surf for porn and let their kids chat online. The slowing of DSL deployements (I didn't say flattening) seem to indicate that we may be in sight of maximum market penetration.

IF (a big if I grant) that these two assumptions have some value - then realistic growth figures for Internet traffic in NA could be done. So for those who say we can't project forward to what the growth will be - I disagree - I would hazard a guess that it has been done.

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