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The Honolulu Advertiser
Posted on: Tuesday, March 11, 2003

HI. TECH
'Bubble mentality' was behind telecommunications investment boom in late '90s

By John Duchemin
Advertiser Staff Writer



 •  Hawai'i technology on public radio

Hear The Advertiser's John Duchemin and the latest Hawai'i technology-related news 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, Laurie Akau, Don Mangiarelli and Gordon Bruce.

TOMORROW: Think Tech features guests Chris Lee of the University of Hawai'i Film School and Donne Dawson of the state Department of Business, Economic Development and Tourism Film Office. They will discuss "Film Over Hawaii?"

This is the third in a series of articles examining the main elements of the nebulous Hawai'i "technology industry" in a critical light. Are these elements based on fact or fancy? Can a viable economic sector be created from the sub-sectors deemed most important by business leaders?

The fledgling Hawai'i telecommunications industry represents one of the firmest and most battle-tested concepts fueling "high-tech Hawai'i," but only deserves mixed reviews for its progress to date.

While the telecom sector has generated some of the most high-profile "success stories" in the state's spotty high-tech history, it also has produced some of the most glaring failures.

The sector doesn't lack in earnest ideas. Telecom backers say Hawai'i's isolation can be turned into a strategic advantage. The state already serves as a station in the center of the Pacific for satellite receivers, which bounce data signals between satellites near Asia and America. Hawai'i is also a landing point for undersea fiber-optic cables, which need to have their signal re-generated to avoid decay on the long transoceanic trip; and it's a secure site on American soil for the military's communications backbone.

But high-tech visionaries want to make the state more than just a rest stop for tired signals. They would create an industry of communications hardware engineers and software developers and entice Mainland telecoms to build computer centers and move their call center operations here, thus augmenting the pool of workers and brainpower.

Driving this line of thought are assumptions that telecommunications companies are intensely interested in moving west into Asia, with its huge potential demand for telecom products; and that Hawai'i, with its U.S. laws and well-developed infrastructure, is the perfect launching pad. It's a modern retread of the same old "crossroads of the Pacific" concept that has fueled Hawai'i commerce since the whaling days.

This is an intriguing concept that, during the telecom boom of the late 1990s, seemed on the verge of fruition. Hawai'i has become the landing point for two major trans-Pacific fiber cables with massive data capacity. The Kapolei satellite "teleport" next to Hawaiian waters now has a few dozen dishes. And the military is investing hundreds of millions of dollars into a new high-security military Intranet, with its brains on Ford Island. And in the late 1990s and early 2000s, large corporations and investors appeared — at least superficially — to deem Hawai'i a good place for telecommunications service centers, research and development and engineering.

Several data center companies formed, employing dozens of workers and serving major telecom clients. Adtech, a maker of telecommunications test equipment, grew to 300 employees and even assembled its high-priced boxes in Kaimuki — a rare example of a successful "manufacturing" operation in Hawai'i. The industry attracted more venture investments than any other sector in Hawai'i, capped by several hundred million dollars that went to Digital Island and Pihana Pacific. And call centers started popping up, giving hundreds of workers comfortable salaries.

But much of that activity now appears to have had less to do with Hawai'i than with the irrational bubble mentality that caused the telecommunications industry to spend absurd amounts of other people's money, racking up billions of dollars in debt in the late 1990s.

With the collapse of that bubble in late 2000 and early 2001, many of these alleged elements of an industry diminished or disintegrated. In the ensuing tough years, the Hawai'i telecom scene has gone through a brutal culling. Digital Island and Pihana have been bought and dramatically downsized. Many of the weaker call centers have been closed. Others have filed for bankruptcy (Summit Communications), left the state (HighSpeed Communications) or shuttered expansion plans (TyCom's mothballed data center in Wai'anae).

This sudden round of setbacks doesn't mean that Hawai'i can't do telecommunications. The hard wiring and software of a telecom industry do exist here, at least in some semblance, and telecom companies are still starting in Hawai'i despite the grim overall environment. Witness start-ups Landmark Ventures and Iris Wireless, two companies transplanted from the Mainland to work on various aspects of wireless technology.

But the telecom fall-off does demonstrate that grandiose plans alone cannot create a high-tech industry. In the volatile world of technology, it's easy for an isolated community to get ahead of itself after receiving a windfall from outside sources. It's far harder to be flexible, savvy, and patient enough to recognize a bubble for what it is.