Operator No. 9: July 9, 2001

When will the economic downturn in high-tech end? That's what participants in a recent business-to-business commerce conference in San Francisco were asked.

Fireworks Fizzle

When will the economic downturn in high-tech end? Thats what participants in a recent business-to-business commerce conference in San Francisco were asked. Attendees speculated that the turnaround might come as soon as the third quarter. But the experts on stage werent so optimistic. "The consensus appears to be that the date has moved out into 2002," said Charles Phillips, managing director of the enterprise software practice at Morgan Stanley Dean Witter & Co. "Were starting to see some evidence of stabilization in the fourth quarter, and some improvement in the first quarter of 2002." Harvey Seegers, CEO of GE Global eXchange Services, thinks that it may drag into the second quarter of next year. "Im planning that the economic condition will last another 12 months," Seegers said. "I hope Im pleasantly surprised." Me too.

Taxing Talks

State administrators spent two days in Raleigh, N.C., late last month, gabbing merrily about the intricacies of tax policy and the ways they could cobble together a national sales tax system, thereby giving them dibs on e-commerce sales taxes. But the issue is political dynamite back in the state legislatures and local jurisdictions, where the pols are less enthusiastic about handing over taxing authority. During the public comment section of the meeting, Betty Griggs, a tax administrator for Birmingham, Ala., told a story to convey the swelling opposition among locals: "Once upon a time," she began, there was a "family of happy little states" that did their own thing when it came to sales taxes. Then Uncle Sam stepped in, and things got messy. Griggs made a point of not ending the story with ". . . and they all lived happily ever after."

Power of the Press

Rule No. 1 when assuming power in Washington, D.C.: Dont tick off the press. The Senates new Democratic leaders may have missed that lesson. They caused a small firestorm among inside-the-Beltway scribes with a recent proposal to give space inside the Capitol that is set aside for reporters who work for magazines and other periodicals to the secretary of the Senate. Vermont Sen. James Jeffords departure from the Republican Party to the Independent Party has set off a reshuffling of office space. A spokeswoman for new Senate Majority Leader Tom Daschle, D-S.D., pointed to Assistant Senate Minority Leader Don Nickles, R-Okla., saying his refusal to take office space occupied by his predecessor, Sen. Harry Reid, D-Nev. has caused a "domino effect." The spokeswoman said that this forced the Senate Committee on Rules and Administration to seek space now held by the periodical press gallery and the news photographers gallery. She insisted that the press will not suffer a net loss in space. In a letter to Daschle and Senate Rules Committee Chairman Christopher Dodd, D-Conn., the Washington bureau chiefs for major news organizations — including The Associated Press, The New York Times and The Wall Street Journal — wrote: "Reserved space for the media dates back more than a century. This long history of cooperation between the Senate and the press is at risk with these changes." Dont mess with the press.


With start-up funding drying up, so is Seedstage.com. The Austin, Texas, consulting firm sprang up during the Internet heyday two years ago and dispensed advice to young companies. Now, the shortage of private equity for early-stage companies means less business for Seedstage. So, the company plans to wind down operations in August. FYI: Webmergers.com says that 53 Internet companies shut down in June, bringing to 555 the tally of Internet businesses that have closed shop since January 2000. Nearly 60 percent of all shutdowns took place in the first half of this year. Wheres the fertilizer when you really need it?

An Eye-Opener

Netpliance promised consumers that its products would let them make the Internet a "very convenient part of your life, for as little as $199." Alas, the Federal Trade Commission is not amused. Last week, the FTC announced that Netpliance agreed to pay a $100,000 fine to settle charges that the agency said included "deceptive advertising, unfair billing, misrepresenting federal laws and violating a series of other federal laws that the FTC enforces." The company went public in March 2000, raising $144 million to sell Net appliances and charge a monthly fee for Web access. The company sold thousands of I-openers but didnt make a profit. So Netpliance quit providing customer support and transferred all of its service and Web obligations to EarthLink. Netpliance says it will begin working on technology for "enabling premium broadband services." As for those who bought the I-opener, CEO John McHale told the Austin American-Statesman: "There was absolutely no abandonment at all." Tell it to the FTC.

Protective Orders

As if it werent enough that Level 3 Communications was accused of age and race discrimination in U.S. District Court last month, Judge Clarence A. Brimmer slapped a restraining order on executives at the long-haul carrier when he learned that company attorneys had told the smoking-gun witness that Level 3 CEO James Q. Crowe would be reviewing trial transcripts. The order, which corporate attorneys tried their damnedest to have rescinded, forbade the execs from retaliating against any witness and threatened them with six months in Denver County Jail. "I dont know that the restraining order is necessary, but I do know [the witness] says Crowe was going to read the transcripts," Brimmer said after Level 3 attorneys filed a motion to overturn the order, two days before the trial ended and 10 days before 25 percent of the companys workers were shown the door. "I dont want people to feel that they have to hold back anything. I want them to be able to testify freely, without fear of recrimination or retaliation." A jury awarded the 54-year-old complainant $10.3 million in punitive and compensatory damages in the age-discrimination case, the largest amount ever awarded in Colorado. Brimmer reduced the award to $600,000 in back-pay damages and $300,000 for compensatory and punitive damages. Level 3 says that it will appeal.

Spectrum Recalled

The last week of June was a rough one for the Federal Communications Commission. Two courts ruled against the regulatory bodys decisions to cancel wireless licenses once won by NextWave Telecom and MetroPCS. In the NextWave case, the FCC had already reauctioned the licenses to Verizon Wireless and companies backed by AT&T Wireless and Cingular Wireless. Now, the FCC is in a pickle because those operators are clamoring for more spectrum to introduce new services, but the FCC doesnt have any more spectrum to give. The FCC also promised the federal government the $17 billion that those operators bid during the reauction, and its unlikely that the FCC can deliver that cash — since the court ruled against the reauctions. NextWave, meanwhile, swears that its going to actually build a network, instead of selling the licenses to other needy operators.

Dont Get Mad — Get Nasty

Not everyone is handling the end of his or her employment gracefully. Security experts at Baltimore Technologies say that as more and more employees are handed pink slips in this slowing Net economy, many are fighting back with a lethal dose of network intrusions: tainting corporate records, stealing data, sending nasty e-mails to fellow employees and all the other bad stuff your mother told you not to do. Seems there are some things severance packages cant buy — a graceful exit may be one of them.