Enron Broadband Delivered Nothing But Trouble

eNews and Views: Collapsed energy giant squandered some of its lost millions in a bandwidth trading plan that amounted to nothing.

Two years ago on this very day, I spent part of my morning explaining to an enthusiastic Enron Corp. representative that there is a big difference between saying that you are in the broadband business and really being in it.

Enron Broadband Services Inc. had already sent me the customary T-shirt and CD holder along with a press release documenting the spending of $350 million on Sun Microsystems Inc. servers and other gear to expand a pay-as-you-stream network that exactly nobody had signed up to use.

Enron Broadbands plan was to trade data network capacity in the same way it bought and sold energy commodities such as natural gas. Two years ago, lots of enthusiastic Enron representatives were anxious to tell you what President and CEO Jeff Skillings was saying: that broadband trading would soon account for a third of Enrons business.

"Who are you gonna sell this stuff to?" I asked.

"The Enron Intelligent Network is based on a distributed server architecture, a pure IP strategy, Enrons global fiber and satellite distribution, and the embedded software intelligence, called the Enron Broadband Operating System, that sets it apart from other network providers," said Ms. Enron representative. "The EIN and Enrons BOS enable a whole new breed of application services, called ePowered Services, which transport rich media and live, streaming video, faster than using the public Internet."

"Mmmmmm... okay."

I should have asked if they paid Sun up front for that gear. Maybe Sun should have asked that as well. Instead, Sun CEO Scott McNealy at the time said, "Enron is a natural partner for us because together we have the technology and expertise to transform the way that next-generation applications are developed and delivered on the Internet." It might be worth a few bucks to McNealy to take that one back, but surely not $350 million.

I wish I could tell you that the imminent demise of the Texas energy dealer was obvious to me at that time. It wasnt. It still wasnt obvious to me when they spent another $200 million for optical switching gear. It was hard to get too down on Enron when Skillings was telling us all that "this will mean for corporations a new generation of mission-critical broadband applications that can be delivered to Internet customers in a secure, guaranteed quality-of-service manner."

This was Jeff Skillings, the former energy and chemical practice leader at McKinsey & Co. who basically invented Enrons lucrative method of gas trading.

Before long, Enron had spent $2 billion building this network that exactly nobody was clamoring to use. Its going to take a lot of time and testimony to determine if the poorly planned broadband build-out contributed to Enrons ultimate demise. But it is clear the company was cloaking the debt piling up during the construction of its broadband operations. And the quarterly returns from last year, which showed the broadband unit nose-diving from $24 million lost in the first quarter to $500 million lost in the fourth quarter, are also troubling.

So what? When we cover the failure of a service provider, we usually concentrate on the users they leave behind; the migration of the customers from one system to another; the attempts at continuity. For Enron Broadband, which by some accounts made fewer than two dozen actual trades in its history, there arent many users left in the lurch.

There were no customers, but there are gear vendors who sold Enron massive amounts of hardware only to find the down market now flooded with relatively new and virtually unused equipment. At a time when Cisco Systems Inc. is facing its own inventory glut problems, it cant be comforting to see their gear on the auction block at the Enron fire sale for 6 cents on the dollar. Even if all of the vendors who did business with Enron—the Ciscos and Suns and Sycamores and Avicis and Cienas of the world—did manage to get paid up front, they are still bearing the burden of Enrons amazingly ambitious and ill-fated broadband initiative.

Before I hung up the phone with Ms. Enron representative, I gave her the customary speech about giving gifts to reporters. "I cant accept anything with any real value," I told her. "It could be construed as an attempt to buy favor with the newspaper."

"The CD holders cost us less than a buck," she said. "Dont sweat it."

In the post-Enron world, a great deal of the failed companys stuff has become collectible to the folks who troll eBay— even cheap CD holders are fetching upwards of $20. I might have to send mine back, if I can find an address. Then again, the days of writing anything good about Enron Broadband Services are probably safely behind me.

E-mail eWEEK Deputy News Editor Chris Gonsalves