[IP] Journalists and the telco crisis

[Dave Farber <dave@farber.net>]

------ Forwarded Message
From: David Akin <dakin@ctv.ca>
Date: Wed, 13 Nov 2002 16:39:04 -0500
To: "'dave@farber.net'" <dave@farber.net>
Subject: Journalists and the telco crisis

Hey Dave--

In Canadian journalism circles, and I suspect in American ones, there has
been a debate about what responsibility business reporters ought to bear for
not being aggressive enough in disclosing the telecom crisis before it
happened. In Canada, business reporters are being blamed for 'hyping' Nortel
Networks, JDS Uniphase, and others.

At a recent panel of some top Canadian journalism executives and academics,
one observer noted that even though the Globe and Mail's business section
employs 50 reporters, the Globe failed to foresee the collapse of Nortel. I
was one of those reporters covering Nortel, although at the time of its rise
and fall, I was working for one of the Globe's competitors, The National
Post. Here's some thoughts I've circulated elsewhere on the culpability of
journalists in all this:

First of all, it wasn't just Nortel. A whole industry collapsed -- hundreds
of companies went poof and dozens filed for bankruptcy. Was Nortel worse or
better than its peers? That's been the meta-story for reporters for the last
two years but the mainstream view (not of reporters, but of people who are
putting their money where their mouth is) is that Nortel is at worst, no
worse than its peers, and probably a little bit better.

So what malfeasance were we supposed to ferret out at Nortel before the
telecom collapse? 

FWIW, we were asking questions that were specific to Nortel prior to its
collapse, notably about the billions of goodwill it was carrying on its
books and the insane amounts of money it was paying for startups with no
revenue. We noted that this goodwill and these overvaluations would one day
come back to haunt shareholders and, sure enough, they did.
When we reported on these things we were subsequently flamed by Nortel
investors who wanted to hear no such criticism of their favoured company
from us quislings in the press.

The crash that crushed Nortel and its peers, though,  happened because all
of the customers of Nortel, Lucent, Nokia, Alcatel, and so on stopped buying
any more Internet gear. It seems that too much fibre-optic cable and
long-haul Internet networks had been built and no one needed to build any
more. That's the problem that still plagues these companies and that we
still write about.

Some shareholders have filed a lawsuit saying Nortel was negligent in not
predicting this crash but so far, no reporter -- and many are still working
on this -- have unearthed evidence we can print that Nortel should have seen
this coming. 

So let's be clear here: At Enron and Worldcom, it is alleged, criminal acts
of fraud were committed. Blaming business journalists for not seeing a
criminal act before it happened would be like blaming reporters in the
Middle East for not detecting the terrorist attacks of Sept. 11.  Nortel is
not accused of any criminal acts or securities violations, so it's hardly in
the same category as Enron and Worldcom. (In fact, Nortel, you could
reasonably argue is a VICTIM of the frauds perpetrated by Worldom
executives.)

I should note that the Wall Street Journal has, in fact, broken many stories
about Enron and Worldcom and it was ABC News that first broke the story of
shredded documents at Enron. So, in fact, many  business reporters are doing
all they can to find out about corporate malfeasance and continue to do so.

Still, you may  disagree with me that I and my colleagues reporting on
Nortel and others could have done more. If so: pray tell, what we should
have done? There are no Access to Information laws that force companies to
disclose documents to us; unlike bureaucrats who are free to leak political
memos, company employees are actually breaking securities laws if they leak
information to us; and we can never know how much stock or shares a company
insider sold until that insider reports them to the appropriate regulator,
often days after the stock sale. (And then we report on these assiduously, I
might add, when it comes to companies of interest.) Moreover, with regards
to Nortel and its peers in the telecom world, many of us, including Nortel,
were relying on reports from the world's largest Internet backbone provider
that Internet traffic was doubling every few months. And who was the world's
largest Internet backbone provider? None other than Worldcom's UUNet unit.
And it turns out that that fact was one more lie, one more criminal fraud,
they were foisting on the rest of the world.

David Akin
-----------------
CTV News 
The Globe and Mail
-----------------
Office: 416.313.2503
Mobile: 416.528.3819
-----------------
Complete Contact Information at
http://www.davidakin.com


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