Posted 05/01/2001
Platform X
Who's to Blame?
As service providers have hit hard times, and brought down vendors and other suppliers with them in the process, everyone is trying to figure out where to point the finger.
So, what, or who, is to blame?
While there is a combination of things that went wrong to cause the recent CLEC crash, there was one group in particular that, perhaps, had the most impact on the rise and fall of this burgeoning industry. That would be Wall Street.
During the mid- to late-1990s, the CLECs were the darlings of Wall Street, raising hundreds of millions of dollars in IPOs on potential alone. Then only a year or so later, some were acquired by a bigger entity, making a lot of people rich in the process.
But to succeed on Wall Street, CLECs had to make grandiose promises of national network rollouts and aggressive buildout timelines, spreading themselves too thin with a business plan that hadn't been tried before, and had many technological and regulatory hurdles to cross.
Several CLEC executives to whom I've spoken have said they tried to get their company's network and services up and running--and their business plans successfully realized--in just one or two markets using only private funding and venture capital, before going to Wall Street to seek an IPO. The reason they did this is because they knew once they went public, they were going to be coerced by the investment bankers to go national as fast as they could, in order to seem like they were a viable competitive alternative to the regional Bells or large IXCs.
But for many of those pioneering CLECs, the plan proscribed by their Wall Street benefactors backfired seriously. As a result, many CLECs today can't find needed funding, and a handful of CLECs have been forced to file for bankruptcy, carrying billions of dollars of debt for the networks they built, but were unable to utilize to profitability.
Had they had time to get it right in a few select markets before pushing out on a whirlwind building spree, the financial situation of the CLEC industry today might very well be more positive than it currently is.
GAIL LAWYER
EDITOR IN CHIEF
