Long Before Tech CEOs Turned To Layoffs To Cover AI Expenses, There Was WorldCom (nbcnews.com)
- Reference: 0180843498
- News link: https://tech.slashdot.org/story/26/02/22/2019241/long-before-tech-ceos-turned-to-layoffs-to-cover-ai-expenses-there-was-worldcom
- Source link: https://www.nbcnews.com/id/wbna3072795
> Jeopardy time. A. This company spurred CEOs to make huge speculative capital expenditures based on wild unverified claims of future demand, resulting in the layoffs of tens of thousands of workers to reduce the resulting expenses, harming their core businesses. Q. What is OpenAI?
>
> Sorry, the correct response is, [2]"What is WorldCom?" In 2002, [3]WorldCom , the second largest long-distance company in the U.S., entered Chapter 11 bankruptcy after disclosing [4]accounting fraud that eventually totaled $11 billion, the biggest ever at the time. CEO Bernard Ebbers was subsequently sentenced to 25 years in prison.
>
> CNBC reported that an employee of WorldCom's Internet service provider UUNet set off a frenzy of speculative investment and infrastructure overbuild after he used Excel to create a best-case scenario model for the Internet's growth that suggested in the best of all possible worlds, Internet traffic would double every 100 days, a scenario that would greatly benefit WorldCom, whose lines would carry it. Despite no evidence to support it, WorldCom's lie became an immutable law and businesses around the world made important decisions based on the belief that traffic was doubling every 100 days. "For some period of time I can recall that we were backfilling that expectation with laying cables, something like 2,200 miles of cable an hour," AT&T CEO Michael Armstrong said. "Think of all the companies that went out of business that assumed that that was real."
In 2003, [5]NBC News reported :
> Armstrong and former Sprint CEO Bill Esrey struggled for years to understand how WorldCom could beat them so handily. "We would look at the conduct of WorldCom in terms of their pricing, revenue growth, margins, in terms of their cost structure... and the price leader almost every quarter was WorldCom," Armstrong said. Added Esrey, "We couldn't figure out how they were pricing as aggressively as they were.... How could they be so efficient in their costs and expenses?" AT&T and Sprint began cutting jobs to push down their costs to WorldCom's level. "The market said what a marvelous management job WorldCom was doing and they would look over to AT&T and say, 'these guys aren't keeping up.' So, my shareholders were hurt. We [6]laid off tens of thousands of employees in an accelerated fashion [in a futile effort to match WorldCom's phantom profits] and I think the industry was hurt," Armstrong says. "It just wrecked the whole industry," says Esrey.
[1] https://www.slashdot.org/~theodp
[2] https://www.nbcnews.com/id/wbna3072795
[3] https://en.wikipedia.org/wiki/WorldCom_scandal
[4] https://slashdot.org/story/02/06/26/005225/worldcom-cfo-accused-of-36-billion-fraud
[5] https://www.nbcnews.com/id/wbna3072795
[6] https://www.nytimes.com/2005/01/18/business/worldcoms-audacious-failure-and-its-toll-on-an-industry.html?unlocked_article_code=1.MlA.vCZF.GPrPlB5P__8x&smid=url-share
Notice all the "AI" shouting going on lately? (Score:2)
We've been seeing a lot of AI stories here on Slashdot for some time, but lately the percentage seems to be ramping up even higher.
What seems to be happening is... some people (as with this article) are looking at the situation and saying "hey, wait a minute... there are some significant problems with the prevailing narrative". And it seems like, in response, the people who are heavily invested (financially or otherwise) in the "AI owns the future" narrative have decided the best response is to try to shout
Recent piece by Ed Zitron on this very topic (Score:2)
It's from December 2025, and t's here: [1]NVIDIA Isn't Enron - So What Is It? [wheresyoured.at]
Ed covers the history of Worldcom, along with Lucent and Enron and others, It's an interesting look at massive failures -- and fraud -- and may give some idea where things are headed in the AI/LLM space.
[1] https://www.wheresyoured.at/nvidia-isnt-enron-so-what-is-it/
Guess what (Score:2)
Fraudsters conning stupid people is not a new thing.
OpenAI hasn't laid off tens of thousands workers (Score:1)
You probably meant Microsoft, Amazon, Oracle, Google that are laying off employees and are making huge speculative investments.
However, they were already sitting on mountains of cash and so can afford to burn it.
I know the narrative is that AI capital investment is bad but this is a bit of a stretch.
Re: (Score:3)
Yes, you are summarising how the article is written. It was the big incumbent telcos that did all the layoffs, not the new player. It's a great example of what happens when tulip-mania strikes an industry. People get fired for no good reason.