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The myth of 100-day doubling

From _The Economist_ print edition (July 18, 2002):

The power of WorldCom's puff

Exaggerated figures for Internet traffic inflated the telecoms bubble

IT WAS an essential ingredient of dotcom business plans and conference slide-shows: Internet traffic, went the industry's favourite statistic, doubles every 100 days. The claim assumed unimpeachable status when it appeared in a report published by America's Department of Commerce in April 1998. Unfortunately for the telecoms firms that rushed to build networks to carry the reported surge in traffic, it wasn't true.

So where did the claim come from? According to Andrew Odlyzko, a former researcher at AT&T who is now at the University of Minnesota, the short answer is WorldCom. Every time that Mr Odlyzko tried to trace the claim to its source, he says, he was always “pointed at folks from WorldCom”, typically Bernie Ebbers, its recently departed chief executive, or John Sidgmore, his replacement. The claim in the Department of Commerce's report, for example, is attributed to UUNET, WorldCom's Internet subsidiary. As the world's largest carrier of Internet traffic, UUNET was assumed to know the numbers.

To be fair, says Mr Odlyzko, Internet traffic did grow this quickly in 1995 and 1996, when the Internet first went mainstream. But since then, he estimates, annual growth has settled down at around 70-150%, a far cry from the 700-1,500% trumpeted by WorldCom. The myth of 100-day doubling, however, refused to die. In a press release from 1997 WorldCom referred to traffic “almost doubling every quarter”. At a conference in 1998, Mr Sidgmore's presentation included graphs that referred to 1,000% annual growth. In fact, he was referring to the growth of network capacity, not network traffic. But it was widely assumed that traffic was growing just as fast. WorldCom executives made similar claims in interviews published in 2000.

Rival telecoms companies believed the myth and cited UUNET's figures, even if their own traffic figures disagreed. That just meant their salesmen were not selling capacity fast enough. Mr Odlyzko recalls meetings at AT&T where his claims that growth was actually far slower were dismissed. Instead, he was told, “we just have to try harder to match those growth rates and catch up with WorldCom.” Companies such as Global Crossing and Qwest soon resorted to “hollow swaps” and other dubious tricks to boost sales and traffic figures. Meanwhile, shares in Internet companies soared, and the telecoms industry engaged in an orgy of network construction in preparation for a deluge that never came. WorldCom executives, says Mr Odlyzko, are thus “more responsible for inflating the Internet bubble than anyone.”

Sarah Tonin
Wednesday, July 24, 2002

When the capital development of a country becomes a byproduct of the activities of a casino, the job is likely to be ill done.

J M Keynes
Thursday, July 25, 2002

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