Fibre’s dark side

360networks was going to connect the world with an 89,000-mile fibre-optic network. To connect North America to Europe, the company planned to build a two-inch cable, buried about four feet below the Atlantic ocean floor, that could handle at one time 1.28 terabits per second, or 12 million phone calls per second – the equivalent of all of the Mother’s Day phone calls made in the U.S. The Vancouver-based firm was going to offer wholesale rates on secure data transmission – just the thing for growing Internet and telecommunications companies.

360networks, formerly known as Worldwide Fibre, began life in 1987 as the telecommunications division of Ledcor Industries, a private construction company founded in Leduc, Alta. Ledcor designed, engineered and built communications networks for telephone companies throughout North America. Worldwide Fibre was renamed 360networks in March 2000 to better reflect the shift to providing a broad range of high-bandwidth services on those networks.

In addition to circumventing the globe, 360networks was building metropolitan area networks in 38 markets, an ambitious and expensive proposition. But hey, it was the dot-com and telecom boom. Money was no object.

By March 2001, The company’s optical mesh fibre network spanned approximately 36,000 kilometres in the United States and Canada but the company was experiencing financial problems and seeking partnerships to help it realize its dream of global fibre domination. However, there was no big panic.

“We do not see a bandwidth glut,” 360networks Chief Executive, Greg Maffei, told the press. “We see no reduction in underlying demand.”

What a difference a few months makes.

By June 28, 2001, the company and several of its operating subsidiaries voluntarily filed for protection under the Companies’ Creditors Arrangement Act (CCAA) in the Supreme Court of British Columbia. Concurrently, the company’s principal U.S. subsidiary, 360networks (USA) Inc., and 22 of its affiliates voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In October 2001, four operating subsidiaries, part of the 360atlantic group of companies, also voluntarily filed for protection in Canada.

360networks has until July 2, 2002 to file a plan of reorganization. But the ambitious company was not the only one blindsided by the bandwidth glut, a glut that has caused companies to halt construction of fibre optical networks and to keep a great deal of existing fibre dark.

What caused the initial optimism and what went wrong?

The growth of the Internet and wireless telecom increased demand for network capacity in the last half of the nineties. At the same time, the new legal and regulatory environment allowed a flood of new companies to enter the national and international telecom market. Together, those developments triggered an unprecedented boom in telecommunications and equally unprecedented demand for new capital investment.

In the last three years, dozens of companies spent billions to create or expand telecom infrastructure. In the United States, the amount of fibre installed grew 35 per cent in 1999 and 30 per cent in 2000, but that understates the real growth, because new technology dramatically increased each strand’s capacity, says Ian Angus, of Angus TeleManagement Group Inc. in Ajax, Ont.

“There is in fact a huge demand for new network capacity, no doubt about that. But there is no magic way to match supply to demand, except to keep building until no one buys any more. Every telecom company responded to rising demand by increasing supply. This was perfectly rational for individual companies, but for the industry as a whole it was a guaranteed road to misinvestment, overproduction, and price wars,” he wrote in April 2001 in a report called Telecom in Turmoil: What’s Behind the Global Shake-up?