Global Crossing linked 200 cities with fiber — then went bankrupt owing $12.5B

Global Crossing was the boldest bet of the telecom boom. Founded in 1997, it set out to build a private global fiber-optic network, and within a few years it had laid cable linking more than 200 major cities in 27 countries, including a great deal of fiber under the North Atlantic. At the height of the dot-com frenzy its shares soared, and it looked like the company that would own the internet's plumbing.

The business was built on an assumption: that demand for bandwidth would keep exploding. It did not. When the dot-com bubble burst, the big customers who were supposed to fill the network disappeared, and the industry was left with far more fiber than there was traffic to carry. As one analyst put it, everyone had overestimated the demand — there was a lot of supply chasing too little revenue, and prices were falling.

Global Crossing was never profitable. On 28 January 2002 it filed for bankruptcy with about $12.5 billion of debt — at the time the largest telecom bankruptcy in US history. Regulators later looked into whether the company had artificially inflated its revenues, and the SEC and FBI opened investigations; the lesson, as Wharton's analysis put it, was that accounting which tries to cover up bad business only sinks the company faster.

Global Crossing is the textbook case of building ahead of demand on borrowed money. The network was real and impressive; the customers were not. When a business is built on the assumption that the market will grow into its capacity, and the market doesn't, the debt has no revenue to meet it — however good the asset looks on paper.