Energy guys run out of bandwidth gas

While writing Broadbandits: Inside the $750 Billion Telecom Heist, I came across an interesting little tidbit, which ended up in the chapter titled, The Attack of the Clones. The perceived success of Enron in the bandwidth business prompted a whole lot of old line companies like gas-pipe operators and utilities to jump into the bandwidth business.

The now defunct Enron became a harbinger of boost-stock-by-playing bandwidth trend. El Paso Energy, Williams, and Dynergy were some of the big players who jumped into the bandwidth market place. At one point nearly 50 energy companies, which had some-sort of telecom divisions, according to Edison ELectric Institute, an energy funded trade group. These included a lot of municipal utilities as well. In total these companies spent over $10 billion building networks, which rarely made money.

Most and if not all have pulled back from the telecom business, the most recent one being Dominion Resources which recently took a $750 million write down for its telecom assets. The company is going to take another $75 million hit next quarter as it winds down its telecom business that was started way back in 1997.

Last month, Duke Energy, another company that made an ill-fated foray into the telecom-bandwidth business announced that it would fire 2000 people. The company is also suffering from what I called bandwidth buffet hangover. Reliant, Dynergy, Enron and several others ran for exits as this market collapsed. Even some of the smaller players are getting out of the bandwidth business, and trying desperately to recoup some of their investments.

One such example is Progress Telecom, a division of Progress Energy, a respected Carolinas-based energy company that has merged with EPIK Communications. It is an attempt to build a strong backbone provider for the South Eastern United States. EPIK itself was a division of Florida East Coast Industries, a utility company. The combined company, Progress Telecom has sales of around $70 million could turn out to be one of the survivors in the long run.

But for now most energy companies are happy if you never mention the word broadband again in their presence.