1.Why did the strategic plans adopted by companies like Level 3, Global Crossing, and 360 Networks fail? 2.The managers who ran these companies were smart, successful individuals, as were many of the investors who put money into these businesses. How could so many smart people have been so wrong? 3.What specific decision-making biases do you think were at work in this industry during the late 1990s and early 2000s?
1.Why did the strategic plans adopted by companies like Level 3, Global Crossing, and 360 Networks fail? 2.The managers who ran these companies were smart, successful individuals, as were many of the investors who put money into these businesses. How could so many smart people have been so wrong? 3.What specific decision-making biases do you think were at work in this industry during the late 1990s and early 2000s?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
1.Why did the strategic plans adopted by companies like Level 3, Global Crossing, and 360 Networks fail?
2.The managers who ran these companies were smart, successful individuals, as were many of the investors who put money into these businesses. How could so many smart people have been so wrong?
3.What specific decision-making biases do you think were at work in this industry during the late 1990s and early 2000s?
4.What could the managers running these companies have done differently that might have led to a different outcome?
5.Do you think the firm is living up to its mission, vision, values, and goals? What evidence do you have to support your conclusion?
6.Can you find any evidence that managers at the organization might have made any significant strategic errors over the last decade? If they have, what role did poor planning, a lack of planning, or decision-making traps play in these errors?
Transcribed Image Text:MNAB 3323
CASE ANALYSIS 1: BOOM AND BUST IN TELECOMMUNICATIONS
In 1997 Michael O'Dell, the chief scientist at WorldCom, which owned the largest network of "Internet backbone" fiber
optic cable in the world, stated that data traffic over the Internet was doubling every hundred days. This implied a
growth rate of over 1,000 percent a year. O'Dell went on to say that there was not enough fiber optic capacity to go
around, and that "demand will far outstrip supply for the foreseeable future."
Electrified by this potential opportunity, a number of companies rushed into the business. These firms included Level
3 Communications, 360 Networks, Global Crossing, Qwest Communications, WorldCom, Williams Communications
Group. Genuity Inc., and XO Communications. In all cases the strategic plans were remarkably similar: Raise lots of
capital, build massive fiber optic networks that straddled the nation (or even the globe), cut prices, and get ready for
the rush of business. Managers at these companies believed that surging demand would soon catch up with capacity,
resulting in a profit bonanza for those that had the foresight to build out their networks. It was a gold rush, and the
first into the field would stake the best claims.
However, there were dissenting voices. As early as October 1998 an Internet researcher at AT&T Labs named Andrew
Odlyzko published a paper that debunked the assumption that demand for Internet traffic was growing at 1,000
percent a year. Odlyzko's careful analysis concluded that growth was much slower-only 100 percent a year! Although
still large, that growth rate was not nearly large enough to fill the massive flood of fiber optic capacity that was
entering the market.
Moreover, OdlyzkO noted that new technologies were increasing the amount of data that could be sent down existing
fibers, reducing the need for new fiber. But with investment money flooding into the market, few paid any attention
to him. World- Com was still using the 1,000 percent figure as late as September 2000. As it turned out, Odlyzko was
right. Capacity rapidly outstripped demand, and by late 2002 less than 3 percent of the fiber that had been laid in the
ground was actually being used! While prices slumped, the surge in volume that managers had bet on did not
materialize. Unable to service the debt they had taken on to build out their networks, company after company tumbled
into bankruptcy–including WorldCom, 360 Networks, XO Communications, and Global Crossing. Level 3 and Qwest
survived, but their stock prices had fallen by 90 percent, and both companies were saddled with massive debts.
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