Long Before Tech CEOs Turned To Layoffs To Cover AI Expenses, There Was WorldCom (nbcnews.com) 47
Long-time Slashdot reader theodp writes:
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, "What is WorldCom?" In 2002, WorldCom, the second largest long-distance company in the U.S., entered Chapter 11 bankruptcy after disclosing 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, 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 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.
Sorry, the correct response is, "What is WorldCom?" In 2002, WorldCom, the second largest long-distance company in the U.S., entered Chapter 11 bankruptcy after disclosing 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, 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 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.
OpenAI hasn't laid off tens of thousands workers (Score:2)
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.
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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.
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People get fired for no good reason.
Indeed. This seems to be a reflex drilled into economics graduates. It makes no sense. People are your main capital when you do technology, everything else is secondary, even your customer base. But they try to get rid of people.
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Friedmanian "economists". For whom the entire purpose of a company is ROI.
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When was the last time you bought something expensive and wanted to just give the seller extra money?
The labor market is and always has been that way. Whenever idealists try to forcibly change that, something somewhere has to break, and as history has shown, always does.
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Wrong answer. Business is supposed to supply goods and/or services at a reasonable price, and you get ROI from that.
NOT from firing people, and having a chatbot badly replace them. Or for planned obsolescence. Or for outsourcing exclusively to prevent unions. Not from PAYING DECENT WAGES to the people doing the actual work of the company.
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It can be both. The cover can be just because they believe AI will be that disruptive in the future. They are balancing the books to make stupid large investments in overpriced GPUs and power stations.
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Notice all the "AI" shouting going on lately? (Score:4, Interesting)
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 those other people down.
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Sounds quite plausible to me. What we are basically seeing is that LLM type AI can perform on the level of an unstable amateur with too much time. Yes, some things are within reach of that, for example writing a crappy C compiler. But that is not at all hard to do. And what I notice time and again when they try to prove how great their gadget is, they always use examples where non-expert would think these are great feats, while actual experts are unimpressed. The other thing I have learned is that there are
Re: Notice all the "AI" shouting going on lately? (Score:2, Insightful)
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And then there are people that have actually looked and found that "overselling" is far too weak a term. There is a lot of mindless enthusiasm though. And there is aggressive denial, of which you just gave a nice example.
Re: Notice all the "AI" shouting going on lately? (Score:2)
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Re: Notice all the "AI" shouting going on lately? (Score:2)
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I looked end of last year. Your dismissal as all this being a year old or older data just means you are dishonest.
Re: Notice all the "AI" shouting going on lately? (Score:2)
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Should it be ignored? No. Should it be trusted? Not at all.
Add that it is apparently very easy to make LLM-type AI spit out attacker controlled answers (at least when it does web-searches in addition) and you have a recipe for disaster.
Re: Notice all the "AI" shouting going on lately? (Score:2)
It's funny because it reminds me of WorldCom.
I see masaove infrastructure being built that won't be sustained. I predict a lot of bankruptcy and huge data centers purchased at pennies on the dollar coming (like what happened to WorldCom). And I suspect with that cheap infusion of infrastructure we'll start to really see the benefits of AI in a couple years.
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Well yes have you seen the bubble correction? There definitely has been a narrative adjustment in the past couple of months. Most AI companies stocks are down, there's literally $trillions on the table in terms of perception here. Even the likes of NVIDIA's CEO is starting to massively walk back the hype train while others have staked their corporate survival on keeping it going.
This is precisely what the internet looked like right before the tech bubble went pop. Some people started correcting down, and wi
Yup It's bitcoin evolved (Score:2)
Bitcoin's value is built on hype. LLM's value is bult on hype. And even better LLM can be used to generate it's own hype. A fait accompli
I could admire it's grifter cleverness, if it wasn't such a waste of resource and the source of a lot of unemployment misery and mistrust.
I'll give you good odds we'll see Altman do the Capitalist walk of shame out the of the building, orange jumpsuit, hand cuffs. Sam Bankman-Fried
Mk2. Though I suspect Altman's going to enjoy the prison showers a lot more.
Recent piece by Ed Zitron on this very topic (Score:5, Informative)
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.
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Sam Altman is the one who made all the ludicrous claims and expectations. Nvidia is mostly just the beneficiary. Although, obviously Jensen Huang has joined the cheerleading since.
A Graphics and Compute card company (Score:2)
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The key to any gold rush is to be the guy selling pick axes.
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Guess what (Score:1)
Fraudsters conning stupid people is not a new thing.
When something appears to be too good to be true (Score:3, Interesting)
Re:When something appears to be too good to be tru (Score:4, Insightful)
"One thing we learn from history is that our leaders rarely learn from history."
- historian Barbara Tuchman
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With business, there's always the fear that 'the other guy' has figured out something you have not.
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And what happened to Ebbers? (Score:3)
Their "justice" is not like ours. Of course he was only charged because he ripped off rich people, if he had looted a widows and orphans fund while working at Goldman Sachs he probably would have gotten a bonus. From Wikipedia.org.
https://en.wikipedia.org/wiki/... [wikipedia.org]
On July 13, 2005, federal judge Barbara S. Jones, of the United States District Court for the Southern District of New York, sentenced Ebbers to 25 years in a federal prison in Louisiana. Ebbers was allowed to remain free for another year while his appeal was being considered. His conviction was upheld in the U.S. Court of Appeals for the Second Circuit in July 2006.[33] On September 6, 2006, the presiding judge ordered him to report to jail on September 26 to start serving his 25-year sentence. Ebbers reported to Oakdale Federal Correctional Institution in Oakdale, Louisiana, on September 26, 2006, driving himself to the prison in his Mercedes-Benz vehicle.[34][35] Ebbers served in the low-security portion of the complex, which typically houses non-violent offenders and is built like a school dormitory. He was granted early release after serving 13 years in December 2019, due to health problems.
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Yep, glad you asked. Her latest gambit, dovetailing with the alleged administration, is to stretch out her Habeas Corpus petition for as long as possible. She's doing this by claiming she has no money for lawyers. However, in another case in which she is involved, she's being represented by one of the most expensive law firms in the country out of Colorado. Either she has the money socked away or is being propped by "friends".
Why would she stretch out her petition? The administration can use this as an excu
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I got a mailout from the R party here a
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And Ebbers died about a month later; the health problems were serious.
Those of us who built the UUNET he destroyed were not sad.
I was there. (Score:3)
My first gig out of college was as a contractor at MCI WorldCom. The head shop I worked for managed to get my contract paid in full at the start, so I was immune from the layoffs. Management would walk around the cubicle farm with security, and just point randomly at employees. That one. And that one. And that one. Security would escort them out of the building. They didn't even get to clean out their desks. It was horrible. This was in Cedar Rapids, IA, and you either worked for WorldCom or Rockwell Collins, or you moved away.