Telecoms crash

The Telecoms crash was a stock market crash which occurred in 2001. It is sometimes confused with the Dot Com crash which happened at around the same time. Unlike the dot com crash however, the telecoms sector relied on long engineering research and development cycles, and the development companies on the telecom operators buying software maintenance contracts and upgrade paths. The dot com boom was caused by people investing money in ideas that were unrealistic.

At the beginning of 2000, mobile network operators in Europe, were offered auction of the 3G radio spectrum. A similar auction had been applied in the United States the year before and had to be re-run when the winners defaulted on their bids.Gordon Brown, the minister responsible for the auctions (the then Chancellor of the Exchequer), used the same New York based firm that set up the failed/re-run auctions to host the auctions in the UK and paid £750,000 from the public purse for them to do so.

The nature of the auctions was designed to increase competitive pressure on bidders by offering fewer licenses than the number of operators likely to bid and in some cases using sealed bid auctions. This put the telephone operators in a difficult position, because if they lost the auction they were out of the next technological phase of the business. They therefore took risks and made high bids, incurring large debt. In the UK auctions raised £22.5 billion (GBP) and around £30 billion (GBP) in Germany. Some estimate the damage caused by the auctions of telecom spectrum (previously administration fees were charged for spectrum usage --- with public service conditions such as emergency cover bundled with the usage certificates --- with the raison d'être being public service provision and that profits from the companies proving the service would be taxable) to be as high as 3 trillion dollars worldwide.

The stock market lost confidence, partly due to the concept that telecoms were similar to dot com (both were categorised as 'high technology' in the listings) and share prices tumbled. As they did so the ratio of debt to assets based on share price changed making the telephone operators effective credit rating look insecure.

...
Wikipedia