BLAME ABOUNDS

While Wall Street beats up carriers for their latest batch of quarterly numbers, it's instructive to keep in mind how the carriers got in their current situation.

In the halcyon days of 1999 and 2000, when indefeasible rights of use weren't treated as the equivalent of the plague, carriers were encouraged by anyone with an ounce of telecom experience to jump on the bandwidth bandwagon. Capacity-swapping agreements abounded. Analysts nodded their approval.

In the go-go mindset that prevailed, the only thing that mattered was showing top-line revenue growth, meeting analysts' expectations and winning at all costs. Nevermind that profit was still on a far-off horizon for most new carriers. Accounting for all those swaps and 20-year agreements? Leave that to the bean counters upstairs. No time to justify the statements — not when there's more capacity to sell and a universe of other carriers to satisfy. The rising-tide-raises-all-ships theory was in play, and everyone benefited.

Now the hangover has set in, and it's getting worse as the SEC begins a full-scale inquiry into Global Crossing, which at one time boasted a who's-who of carrier and enterprise customers. That inquiry has the earmarks of a potential full-scale scandal and could drag down other carriers.

Whether Global Crossing or any other service provider is guilty of wrongdoing won't be determined for some time, but some in the industry already are assigning blame. In various earnings calls over the last several weeks, more than one CEO or CFO has raised the issue of Global Crossing's Chapter 11 filing, invariably proclaiming their company's innocence or lack of exposure to the “situation.”

Beyond the question of guilt or effect on others, though, one must address the blame question. There's a lot of it to go around.

CFOs, treasurers and other accounting functionaries share part of the blame if they skirt Generally Accepted Accounting Practice rules. CEOs share some blame as the heads of organizations that allow the accounting side to skirt the rules. Auditors share some blame for certifying results that were reliant on shaky accounting. And Wall Street must accept some blame for its complicity and for holding carriers to standards that encouraged a numbers game.

The win-at-all-costs attitude is not unique to telecom — it's been around for decades and will continue to permeate virtually every business sector. No amount of hand-wringing or rule-writing will alter what is one of the most basic tenets of free enterprise. Nor should it. Just don't act surprised when the ugly side effects show up.