In the past two years, 100 million miles of optical fiber — enough to reach the sun — were laid around the world as companies spent $35 billion to build Internet-inspired communications networks.
But after a string of corporate bankruptcies, fears are spreading that it will be many years before these grandiose systems are used fully.
There is a glut of capacity on high-speed, long-haul pipelines for carrying information, but a shortage of the high-speed, local-access connections needed for consumers and businesses to access the Web.
Meanwhile, investment in the communications industry, especially in the construction of fiber-optic networks, has sharply declined, leaving companies with fiber that may never be commercially available. Only 5 percent of fiber in the ground is active.
The industry bubble has had an impact on the rest of the economy, too. Billions of dollars invested in telecommunications companies now appear to have been wasted. The drying up of capital investment is one reason that the economy has slowed sharply, and some economists argue that while the Federal Reserve's efforts to lower interest rates will stimulate some parts of the economy, it may be years before growth returns to the areas that were so hot only a year ago.
The buildup of networks was expected to usher in a prosperous era, with soaring supplies of bandwidth. Financiers conducted a feverish race to provide the post-Cold War economy with communications capacity, much the same way financiers backed railroads seeking to increase transportation after the American Civil War.
Then concern began to build about market valuations. At about the same time, technology ventures began to have trouble securing financing. The share prices of many communications companies plunged.
The swelling supply of fiber-optic capacity led to a decline in bandwidth prices. Prices for bandwidth, which is increasingly traded like barrels of oil or pork bellies, could fall 60 percent this year, on top of similar declines last year, according to estimates by Morgan Stanley Dean Witter.
The IDT Corp., an international phone company based in New Jersey, says a 10-year contract for a phone line that can carry nearly 600 conversations has fallen to $1.8 million from $12 million in 1999. Competition has led to even steeper declines for lines that can carry four times as much traffic.
Carriers say that any glut is temporary, and measurements of supply should include only lit, not dark, fiber. Moreover, Internet use and the demand for bandwidth continue to climb.
While carriers bet on a recovery in bandwidth prices, problems have arisen in other parts of the communications industry.