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Fiber barons offer early warning on globalization

No wonder people everywhere are nervous about the liberalization of trade and investment across international borders that goes under the banner of 'economic globalization.'

In the United States alone last year, we saw a handful of incredibly wealthy, well-connected, powerful men engineer a near-meltdown of the most advanced economy in the world, this in a well-educated nation of nearly 300 million people.

They didn't intend it that way, but wisdom failed them as it often must fail us all. At the end of the day, the question must be whether an economic system that concentrates such wealth in so few and such powerful hands is ready for export to the entire planet.

The near-meltdown began in the telecommunications industry. But the best place to begin telling about it is Montana and its electricity woes. Much of our information is drawn from ongoing Wall Street Journal reports. The whole state of Montana is paying more for electric power because of one man's business decisions, made possible by deregulation of the state's electricity system ? which the same man also made possible.

Everyone may lose, yet the statistically lower income level of the many Native households in Montana means a higher percentage of Native household income will be lost to electricity rate increases. And thousands of Montanans find their pension funds threatened because of stock losses related to the sell-off of electricity assets.

The state stands warned of electricity rate increases that could run from 50 percent to threefold that next year, when deregulation hits full stride. This would follow the steep increases recorded there in only the past year. Prices jumped from the mid-$20 range for a megawatt hour to more than $600 a megawatt hour in a single week. Employers who couldn't make the electric bill shut down operations and laid off employees, more than 1,000 of them at last count.

All this was necessary for one reason and one reason only ? the chairman and chief executive officer of the state's largest electrical utility decided to get into telecommunications. Without consulting shareholders, he and the board of directors lobbied the state Legislature for electricity deregulation, which made it legal for them to sell off electricity generating, transmission and distribution assets and plowed the take into a coast-to-coast fiber optic network for which there was no demand.

They provided no dividend from the take to shareholders, who have altogether lost $3 billion by one estimate. The one-time power company, now being reconfigured as Touch America, has amassed $1.6 billion in assets, including $350 million in cash, and plans to stay in business with those proceeds while demand for its fiber optic cable catches up with its in-ground capacity. But as of last notice, only 5 to 10 percent of the company's close to 26,000 miles of underground fiber optic cable was in use.

But guess what? That is only the latest act, hopefully the last one, in a four-year telecom tragedy of getting and spending. In that time, United States telecommunications corporations ? telecoms as they are called ? have wired the country with 39 million underground miles of fiber optic cable, enough to girdle the globe more than 1,500 times over, at a cost of $90 billion. But only 2.6 percent of that capacity is in use. The telecoms have gone through $650 billion in debt, only to go bankrupt at a faster clip than the 'dot-coms' before them. But because telecommunications is a much larger economic sector than the Internet-based dot-coms ever were, the impact on the national economy has been much greater.

Economists can argue as to whether a more organized oil cartel in the Middle East two years ago caused the initial softening in the U.S. economy last year, but there is no question that our own homegrown telecom disaster took over where oil price spikes left off. The total cost of telecom's fall is estimated at $2 trillion, with investor losses alone approaching $150 billion. From the close of the first financial quarter in 2000 through the close of the second quarter in 2001, the telecom sector accounted for 90 percent of net losses in stock wealth.

Three reasons stand out. One, technology had advanced to the point where fiber optic could inspire almost reachable visions of wealth and power. Two, an incredible 'buzz' ? one is tempted to call it unprecedented, even for these so-buzzy times ? began to surround telecom. Bill Gates, the world's wealthiest person, gave a talk to select associates of Warren Buffet, the world's next-wealthiest person, who famously restrained his telecom investments but kept the offices of his Berkshire Hathaway Inc. in Kiewit Plaza, headquarters of one of the world's wealthiest businesses, Peter Kiewit & Sons, a construction company in Omaha, Neb. And three, several millionaires and billionaires associated with Kiewit, Berkshire Hathaway and the railway and mining industry decided to make their marks, no doubt envisioning fiber optic cable as the next jackpot and their names as the captains of industry in a New Age economy. The mix of all this proved irresistible to investors.

Billions upon billions of lost investor dollars later, the would-be captains of a new economy are still wealthy, still impenetrably confident, and still ? like their disciple in Montana ? perched on the piles of money they hope will tide them over as demand catches up with capacity and the actual use rate of 39 million miles of fiber optic cable rises some ? from 2.6 percent.

In Indian country, we hear all the time about how our geographic location makes us a bad investment for this and that. But we daresay that amid 39 million miles of fiber optic cable, 97.4 percent of available capacity and all that lost investment, there should have been room for even Indian country to get connected.

There is a disconnect somewhere, all right. But the message comes through loud and clear that wisdom is not failing us as we resist the export of such economic models.