Long before tech CEOs turned to layoffs to cover AI costs, there was WorldCom – Slashdot

Longtime Slashdot reader theodp writes:

Dangerous time. A. This company encouraged CEOs to make massive speculative capital expenditures based on wild, unverified claims about future demand, resulting in the layoffs of tens of thousands of employees to reduce resulting costs, hurting their core business. Q. What is OpenAI?Sorry, the correct answer is: “What is WorldCom?” In 2002 WorldComthe second largest long-distance company in the US, went bankrupt after going public accounting fraud that ultimately amounted to 11 billion dollars, the largest ever at that time. CEO Bernard Ebbers was subsequently sentenced to 25 years in prison.

CNBC reported that an employee of WorldCom’s Internet provider UUNet sparked a frenzy of speculative investment and infrastructure overbuilding after using Excel to create a best-case scenario model for the growth of the Internet, which suggested that in the best of all possible worlds, Internet traffic would double every 100 days, a scenario that would greatly benefit WorldCom, whose lines would carry this. Despite having no evidence to support it, WorldCom’s lie became immutable law and companies around the world made major decisions based on the belief that traffic was doubling every 100 days. “I remember for a while we were meeting that expectation by laying cable, about 2,000 miles of cable per hour,” said Michael Armstrong, CEO of AT&T. “Think of all the companies that went bankrupt and assumed that was real.”
In 2003, NBC News reports this:

Armstrong and former Sprint CEO Bill Esrey struggled for years to understand how WorldCom could beat them so handily. “We looked at WorldCom’s behavior in terms of their pricing, revenue growth, margins, in terms of their cost structure… and the price leader almost every quarter was WorldCom,” Armstrong said. Esrey added, “We couldn’t figure out how they were pricing as aggressively as they were… How could they be so efficient in their costs and expenses?” AT&T and Sprint began cutting jobs to bring their costs down to WorldCom levels. “The market was saying what a great management job WorldCom was doing and they looked at AT&T and said, ‘These guys aren’t keeping up.’ So my shareholders were hurt. We tens of thousands of employees are being laid off on an accelerated basis [in a futile effort to match WorldCom’s phantom profits] and I think the industry has been hurt,” Armstrong said. “It just devastated the entire industry,” Esrey says.