Then this week came news that many of these firms have been engaged in deals to swap capacity merely to inflate their reported revenues.
The practice, in which telecommunication companies swap capacity on each other's networks and record the deals as revenue even when no cash changes hands, has come under scrutiny in Washington, where the Securities and Exchange Commission is investigating how Global Crossing accounted for $100 million of such deals with Qwest Communications International.
KPNQwest, a pan-European network, has admitted that as much as 15% of its revenues comes from swapping capacity.
Some of those practices, like swapping capacity with other carriers, are now at the heart of the S.E.C.'s inquiry into Qwest's accounting.
With the glut painfully apparent, prices for capacity plunged and carriers resorted to swapping capacity on their networks in an effort to convince investors that revenue was climbing despite downward pressure on prices.
However, the SEC is investigating whether the company also engaged in swapping capacity with other operators in an attempt to boost revenues.Qwest Communications, another telco, was known to be an aggressive user of such so-called "hollow-swaps".
By the autumn of 2000, for example, the lawsuit said Global Crossing was regularly swapping capacity on its network with other telecommunications companies, transactions that had little purpose beyond increasing the company's revenue at the end of each quarter.
Both companies are thought to have swapped capacity on fiber optic networks with their American counterparts to convince investors that their finances were healthy, a practice that preceded the current crisis in the telecommunications industry.
However, the SEC is investigating whether the company also engaged in swapping capacity with other operators in an attempt to boost revenues.WorldCom is another big telecoms group, but its problems dwarfed those at Global Crossing.
Representative James C. Greenwood, a Pennsylvania Republican who oversaw a second Congressional investigation of Global, said that some of the company's accounting practices, such as swapping capacity and booking it as revenue, did cross the line, but that it was difficult to build a criminal case on bookkeeping arcana.
In the race to secure investors' money, and to maintain confidence, some companies seem to have been tempted to go down this route.Related items Grasping the nettleNov 21st 2001The temptation for companies is to book revenues from swapping capacity upfront, but to label the cost of acquiring it as capital expenditure which is written down over several years.
