How the World Got Wired · Three Ships and a Fire Sale

Part Two: The Milkman Who Built a Telephone Empire

Bernard Ebbers was born in Edmonton, Canada, in 1941. As a young man he moved south to Mississippi to play college basketball. After college, he worked, for a while, as a milkman — delivering bottles of milk to people’s houses early in the morning. He also coached basketball at a junior high school. He drove a truck for a Holiday Inn. He worked at a clothing factory.

In 1983, he was one of the founders of a small long-distance telephone company in Mississippi. The company changed its name several times. Eventually it became known as WorldCom.

Through the 1980s and 1990s, Ebbers grew WorldCom by buying other telephone companies. Lots of them. He bought sixty or seventy companies in fifteen years. He paid for them, mostly, with WorldCom stock — which kept going up because the company kept getting bigger because the stock kept going up. In 1998, WorldCom made the biggest acquisition in its history: it bought MCI, a much older long-distance phone company that had once been considered the most exciting telecommunications company in America. The combined company was, briefly, the second-largest long-distance phone company in the United States, behind only AT&T.

Ebbers became famous. He bought a 500,000-acre cattle ranch. He bought enormous yachts. He wore cowboy boots and a hat — a persona that played well in newspaper profiles. The story that the Wall Street Journal and Forbes magazine kept telling about him was that he was a regular guy, a former milkman from Mississippi, who had built one of the most important companies in America.

There was, however, a small problem with WorldCom by 1999. It was no longer growing very fast. The phone business was getting more competitive. The internet bubble was making everyone race to build new networks, and prices were crashing — the same crash that was killing Global Crossing was killing WorldCom too. Profits were falling.

So WorldCom’s executives, led by its chief financial officer Scott Sullivan, started lying.

They lied in a particular way. They started counting ordinary operating expenses — the day-to-day cost of running the business — as if they were long-term investments. This was an accounting trick. It made the company’s reported profits look much higher than they really were. Each quarter, they did it again. The fake numbers got bigger. Eventually, the gap between what WorldCom said it was earning and what it was actually earning was eleven billion dollars.

This was, and remains, one of the largest accounting frauds in American history.

In June of 2002, the fraud was discovered. WorldCom announced it. The stock collapsed. The next month, on July 21, 2002, the company filed for bankruptcy. At that moment, it was the largest bankruptcy in the history of the United States — bigger than the Enron scandal of the previous year, bigger than anything that had come before.

I want to pause here and tell you about a particular statistic.

For most of the late 1990s, a phrase repeated everywhere — in Congressional testimony, in business magazines, in the speeches of cable-laying CEOs — was that internet traffic was doubling every 100 days. This is the statistic that justified building all those redundant fiber cables. It was the number that convinced banks to lend hundreds of billions of dollars to companies like Global Crossing. It was the engine of the entire fiber bubble.

The statistic was, mostly, an invention of WorldCom’s marketing department. Internet traffic was growing fast in those years, but more like doubling once a year — not every hundred days. The “every hundred days” number was off by roughly a factor of ten. Almost nobody questioned it at the time, because almost everyone profited from believing it. The cable companies wanted to build more cables. The investment banks wanted to lend more money. WorldCom wanted to look more important. Nobody, in the years it mattered, did the basic math to check.

That fake statistic — repeated by enough people, for long enough, that it became reality in everyone’s heads — is one of the reasons the bubble got so big. And one of the reasons the crash, when it came, was so violent.

Bernie Ebbers was tried in federal court in 2005. He was convicted on nine counts of conspiracy, securities fraud, and other crimes. He was sentenced to twenty-five years in prison. Scott Sullivan, who testified against him, got five years.

Ebbers entered prison in 2006. He served thirteen years. In December of 2019, the federal government released him early because he was old and dying. He died at his home in Mississippi a few months later, in February of 2020.

The assets of WorldCom — the long-distance phone network, the giant fiber-optic backbone, the MCI brand — were bought out of bankruptcy by Verizon in 2005. Verizon paid $7.6 billion for them. Remember: the combined company had been valued, at its peak, at more than $180 billion. Verizon got it for about four cents on every dollar of peak value.

The fiber network Verizon got from WorldCom is still, today, one of the most important pieces of long-distance internet infrastructure in the United States. When you send an email from one part of America to another, there is a good chance some piece of it travels on what used to be WorldCom’s wires, owned now by a company that paid pennies for them.

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