Telecoms crash

The Telecoms crash, also known as the Telecommunications Bubble was a stock market crash that occurred in 2001, after the bursting of the dot-com bubble.

The telecommunications industry had experienced significant growth and investment during the 1990s, fueled by the expansion of the internet and the introduction of wireless technology. Companies such as WorldCom, Global Crossing, and Lucent Technologies had achieved enormous market valuations based on expectations of continued growth and profitability.[1] By the late 1990s, the industry had become overvalued and highly leveraged. Many companies had taken on substantial debt to finance their expansion, and investors had poured billions of dollars into the sector based on unrealistic expectations of growth and profitability.[2][3]

The crash had an impact on the global economy, and resulted in a sharp decline in the value of telecommunications related stocks and bonds, leading to significant financial losses for investors, widespread job losses and decline in consumer spending, and eventually leading to the collapse of many companies.

It was called "the biggest and fastest rise and fall in business history".[4]

Causes

Partially a result of greed and excessive optimism, especially about the growth of data traffic fueled by the rise of the Internet, in the five years after the Telecommunications Act of 1996 went into effect, telecommunications companies invested more than $500 billion, mostly financed with debt, into laying fiber optic cable, adding new switches, and building wireless networks.[5] In many areas, such as the Dulles Technology Corridor in Virginia, governments funded technology infrastructure and created favorable business and tax law to encourage companies to expand.[6] The growth in capacity vastly outstripped the growth in demand.[5] Spectrum auctions for 3G in the United Kingdom in April 2000, led by Chancellor of the Exchequer Gordon Brown, raised £22.5 billion.[7] In Germany, in August 2000, the auctions raised £30 billion.[8][9]

Subsequent spectrum auctions

Subsequent government auctions of the 3G radio spectrum, in Australia and New Zealand were met with low bids, and strong suspicion of collusion between operators of bidding low and secretly defining network sharing agreements.

Hong Kong's 2013 approach was to share in the profit from a spectrum allocation rather than issue a potentially damaging upfront payment for licences. Britain's 2013 UK spectrum auction for 4G fell £1 billion short of the stated target of £3.5 billion.[19] The pension liabilities also added to the financial troubles of telecom companies and the 2013 auctions in the United Kingdom produced disappointing results.[20]