HI. TECH
A dose of realism might have lessened the impact of telecom fallout

By John Duchemin
Advertiser Columnist

Hawai'i technology on Hawai'i Public Radio • Hear The Advertiser's John Duchemin on the latest Hawai'i technology news. (RealPlayer required.) He can also be heard every Wednesday on Think Tech Hawai'i, 5 to 6 p.m. on Hawai'i Public Radio KIPO FM 89.3 with hosts Jay Fidell and Gordon Bruce.

Hawai'i government and business leaders had been intent on stimulating telecom, attracted by its companies' astonishing growth and seemingly unlimited potential.

But as the volatile industry turned sour, Hawai'i has seen its top firms fall victim to closure, bankruptcy, funding cuts or downsizing. Each contraction has cut into the vital mass of skilled workers, capital and other assets at the core of the Hawai'i technology industry.

Last week saw telecom test equipment maker Spirent Communications lay off 40 workers in Honolulu, meaning the 180-employee local division has cut about 40 percent of its workforce since mid-2001. Also last week, Internet data center company Pihana Pacific announced its plan to close its Honolulu headquarters by December, meaning 55 employees face layoffs or transfers.

These two companies are hardly alone in their struggles. In recent months:

• Multinational conglomerate Tyco canceled plans to land a fiber-optics cable in Wai'anae — despite spending $75 million to complete a state-of-the-art communications center next to Maili Elementary School.
• Honolulu's Summit Communications, a provider of phone and Internet services with several dozen employees, filed for bankruptcy.
• Digital Island, a Hawai'i-founded company whose stock soared in late 1999, was bought by Cable & Wireless after sustaining huge losses due to weak demand for its high-speed communications network. The company's Honolulu operations have been scaled back.
• Mid-Pacific Broadband Inc., a Seattle-based data center company founded by Hawai'i investors, failed in its plans to raise $125 million for a 100,000-square-foot data center in Kapolei.

Each of these companies, at one point or another, had been considered a sure thing, a positive development for Hawai'i, though warning signs hinted otherwise.

The government spent months in 2000 and 2001 trying to entice Spirent to build a headquarters on prime Kaka'ako waterfront land — even though the telecom industry was already showing signs of weakness. Pihana executives were toasted at a Washington Place banquet in spring 2001, even as many of the company's competitors had begun to close or go bankrupt. Mid-Pacific Broadband's creation and plans for Hawai'i were announced by Gov. Ben Cayetano in a late-2000 press conference, despite the company's lack of solid funding and the already apparent drying up of venture investing markets.

It's hard, however, to blame Hawai'i leaders for embracing an industry that ultimately proved shaky. International industry researchers, New York investing firms, and Silicon Valley venture capitalists were all doing the same thing.

The massive growth of telecom spending, investment, employment, research and venture financing was based on an erroneous collective assumption that economies, stock prices and consumer spending would keep growing. The surge in activity seemed so ubiquitous, even in Hawai'i, that it masked its own weaknesses.

Only through the filter of a three-year bear market, Enron, and 9/11 does the collapse of these ventures seems foreordained.

But next time around, when another red-hot industry seems too good to be true, Hawai'i will probably be far more cautious and introspective in its approach. If telecom has taught the tech community anything, it's to do plenty of homework before endorsing, financing, recruiting or otherwise supporting a company. By inserting some realism into its enthusiasm for technology, Hawai'i will ultimately be stronger.

Reach John Duchemin by e-mail at jduchemin@honoluluadvertiser.com or by phone at 525-8062.