March 2002

Don't believe the hype

If the recent demise of broadband company Enron tells us anything about the global communications industry, it is to take nothing at face value or - more specifically - beware of big smiles, perfect teeth and sharp suits. But more worrying for the industry, however, is the conspiratorial environment that enabled this company to simultaneously defraud investors while strutting the broadband stage like a peacock in full plumage.

Moreover, while the majority of attention has so far focused on Enron, other communications companies have also aroused the suspicion of investigating authorities. The obvious question is: 'how deep and wide has the rot set in?'
Make no mistake about what has happened: Enron's management, its auditors, bankers and lawyers conspired to manipulate the company's share price for mutual financial gain. The significance of this sordid tale of corporate corruption cannot be overstated.

Why? Because representatives of various bastions of respectability - on whose reputations markets are built and developed - have been exposed as little more than fraudsters. Investors have been left wondering which advisors they can trust.

For Europe's converging communications industry - already suffering from an unprecedented flight of capital - this is not what it needed. To reap the commercial rewards afforded by broadband technologies and services, companies need to make huge up-front investments. Unfortunately, the Enron scandal has made their task a lot more difficult.

Why should investors believe them? Rather than provide a gold seal of approval, the endorsement of corporate Goliaths will at best provide little intrinsic value and at worst damage the interests of associated parties. Investors will now want much more.

And while such misdemeanours would be less damaging if they could be regarded as isolated incidents, it is less than a year since the burst of the dot.com bubble led angry shareholders to launch lawsuits against some merchant bankers for allegedly ramping companies in which they had interests.

This latest scandal at the heart of the business community has done little to assuage the fears of an already sceptical public. Of course, the prevailing 'controls' that allow banks to offer their services to the same companies about which they give investment advice does little to help. Someone will be shouting 'conflict of interest' soon. Whatever next.