Tuesday, October 28, 2003

"Words Matter" -- To the Tune of $200 Billion

No, I'm not talking about a lame class-action lawsuit or an outrageous punitive damages award. $200 billion refers to the "$150 billion spent building unnecessary telecoms networks in America and another $50 billion in other parts of the world," according to a statement by Andrew Odlyzko, quoted in a recent Economist survey (subscription required). Mr. Odlyyzko wrote many papers debunking the myth of explosive Internet growth. My favorite professor at the JFK School of Government, Phil Zelikow, counseled his students that "words matter." In this case, the words that mattered were those in a 1998 Department of Commerce report The Emerging Digital Economy (.pdf):

"Traffic on the Internet has been doubling every 100 days."

Looking at the citation for this statement we read it the source as a "December 1997 phone interview with John Osborn, JD Power and Associates." Most people blame WorldCom, including former CEO Bernie Ebbers. The Economist wrote about this last year. Mr. Odlyzko tracks down the origins of this "statistic" in his 2003 paper "Internet Traffic Growth: Sources and Implications" (.pdf).

This report and its "100 days" quote was cited in speech after speech by Commerce officials. The telecom industry and especially equipment makes believed the party would never end, so they kept laying cable and building equipment to meet demand that didn't exist.

What was really happening? The Economist writes:

"In the four years from the beginning of 1998, says Andrew Odlyzko, a telecoms guru at the University of Minnesota, the amount of fibre in the ground increased fivefold. Meanwhile, advances in the technology of feeding signals into fibres at one end and extracting them at the other increased the transmission capacity of each strand of fibre 100-fold, so total transmission capacity increased 500-fold. But over the same period demand for transmission capacity merely quadrupled, a rise that could easily be accommodated by existing networks."

The result? According to the Economist:

"Exactly how much money has gone down the telecoms drain is hard to quantify, but many estimates hover around the $1 trillion mark."

Words matter, Professor Zelikow! Maybe they matter to the tune of $1 trillion?