By John Duchemin
Advertiser Columnist

British telecommunications company Cable & Wireless announced last week it was shutting down its U.S. operations, thus providing a fitting occasion to contemplate the rise and demise of Digital Island.

Digital Island was once Hawai'i's brightest high-tech success story. Founded by Punahou graduate Ron Higgins, the Internet service and infrastructure company raised tens of millions of dollars in local and national venture money, moved to San Francisco, went public and saw its stock rocket in December 1999 at the height of the Internet bubble. Along the way, it made millions for Higgins and many of his investors, including Bank of Hawaii and the state government, and offered steady work to dozens of high-tech workers.

Digital Island was Hawai'i's very own contribution to the dot.com insanity. Yes, the initial investors made money, but the company never did. As Digital Island built a network of service centers from Honolulu to Europe, the company posted enormous quarterly losses on tiny revenues. The market for its super-high-speed, super-expensive services never materialized.

So what's the connection with Cable & Wireless? Simply that C&W, in August 2001, scooped up Digital Island after the madness stopped, buying the company's shares for $3.40 each, about one-fiftieth of their peak price just months earlier.

Cable & Wireless merged Digital Island with Exodus, another Internet infrastructure company that spectacularly failed after running up a huge tab. The British buyer itself became engulfed in debt and last year began trimming its holdings.

The Honolulu office was quietly closed last summer, costing the jobs of about 60 programmers, engineers and other tech workers.

Digital Island is interesting because it rose so fast and fell even faster. But its brief life is noteworthy for other reasons. In building Digital Island, Higgins, along with the company's other co-founders and local investors, proved that in the right investing climate, and with the right idea, Hawai'i can produce a legitimate high-tech company.

As the current crop of start-up ventures attempts to raise money, develop products and find customers in a much more dismal investing climate, they can take heed of Digital Island's abysmal ending — but also take heart from its initial successes.

In this column last week, I misread a Hawai'i Technology Trade Association letter as having the opposite meaning of what was intended.

In its letter to members, the HTTA said it would offer "our hand out to the administration and the Legislature to fully vet and directly discuss our differences and concerns, rather than doing so in the media.

"Members, if you have received incentives under Act 221, continue to do the right thing — spend the money in Hawai'i. ... Develop our industry to be a viable, long term contributor to our community.

"However, if you are planning an overly aggressive tax strategy or transactions that do not have economic substance, you do so at your own peril. We do not support you."

I missed the subject change in the second paragraph and incorrectly interpreted the third paragraph as a warning to Gov. Linda Lingle, instead of to HTTA members.

I apologize for the error.

Reach John Duchemin at 525-8062 or email at jduchemin@honoluluadvertiser.com.