I vividly remember attending the Cisco analyst conference in the fall of 1999, soon after I moved to the US, and being confronted by a rosy picture of ever increasing demand for telecoms equipment because of the dramatic growth in Internet traffic. I was moved to ask the question of whether in fact we were in a bubble, and if Cisco’s revenue trajectory would therefore end up resembling its logo. Perhaps unsurprisingly, I was never invited back to that particular event.
This evening I took the time to read Andrew Odlyzko’s seminal paper on Internet traffic growth in the 1990s. This paper explores the myth that Internet traffic was doubling every 100 days, which was a key contributor to the telecoms bubble of the late 1990s, and the subsequent loss of hundreds of billions of dollars of investors’ money. One of the highlights mentioned in Odlyzko’s paper was former FCC Chairman Reed Hundt writing in his book You Say You Want a Revolution that “[i]n 1999, data traffic was doubling every 90 days ….”. In reality, Internet traffic was growing rapidly, nearly doubling every year, but the growth rate from a short period of initial growth in 1995-96 had been erroneously equated to a long term growth rate. It was of course in everyone’s interests to promote this myth – it pumped up valuations, allowed startups to raise billions of dollars, and enabled politicians and others (such as Cisco) to claim credit for developing “the new economy”.
Thus it is particularly striking that we now see the current FCC Chairman using a flawed study to promote the “transformative moment we must seize” because “we are likely to see a 35X increase in mobile broadband traffic over the next 5 years” (based ironically to a significant extent on Cisco forecasts). We also see startups such as LightSquared and Clearwire raising (or at least trying to raise) billions of dollars on the back of their spectrum assets to build out new networks and realize the “extraordinary opportunity of communications technology” that the FCC Chairman envisages.
Of course it is true that mobile broadband demand is growing rapidly, just as Internet demand was growing rapidly in the late 1990s. However, perhaps we should pause and ask whether we are in danger of repeating some of the mistakes of a decade ago? When cellular operators, spectrum owners, equipment suppliers and regulators all have a vested interest in talking up the spectrum crisis, there has to be a danger of disappointment. I’ve already commented that spectrum might not be such a good investment and that the Clearwire auction looks to be going badly. There are even rumors that Clearwire is preparing for a round of significant layoffs. As a result I have to wonder whether we will look back at this moment in six months or a year, and conclude that yesterday’s FCC spectrum summit marked the point at which the spectrum bubble began to unwind.