Partially a result of greed and excessive optimism, especially about the growth of data traffic fueled by the rise of the Internet, in the five years after the
Telecommunications Act of 1996 went into effect, telecommunications companies invested more than $500 billion, mostly financed with debt, into laying fiber optic cable, adding new switches, and building wireless networks. In many areas, such as the
Dulles Technology Corridor in Virginia, governments funded technology infrastructure and created favorable business and tax law to encourage companies to expand. The growth in capacity vastly outstripped the growth in demand. In Germany, in August 2000, the auctions raised £30 billion. A
3G spectrum auction in the United States in 1999 had to be re-run when the winners defaulted on their bids of $4 billion. The re-auction netted 10% of the original sales prices. When financing became hard to find as the
dot-com bubble burst, the high
debt ratios of these companies led to
bankruptcy. The industry owed a trillion dollars "much of which will never be repaid and will have to be written off by investors" according to a testimony by
Federal Communications Commission Chairman
Michael Powell to the
Senate Commerce Committee on July 30, 2002. Bond investors recovered just over 20% of their investments. However, several telecom executives sold stock before the crash including
Philip Anschutz, who reaped $1.9 billion,
Joseph Nacchio, who reaped $248 million, and
Gary Winnick, who sold $748 million worth of shares.
Contrary view Paul Klemperer,
Oxford University economics professor and adviser to the UK government in its 3G auction, has disputed whether the crash should be blamed on the auction rather than broader economic problems. While agreeing that the licence bidders may have been mistaken in bidding as high as they did, and that the money was a transfer from shareholders to the governments, he argued that the one off and up front
sunk costs of the auction should have had no effect when considering the profitability of future investment and should not have significantly affected the future behaviour of the telecoms companies. He also notes that in the United Kingdom it was
NTL Incorporated (which failed in its bid) which ended up in the most trouble financially, and questions whether the $100 billion cost of the auctions could explain the $700 billion drop in two years which was seen in the market capitalisation of the telecoms companies. The spectrum auctions were designed to extract the maximum for the government offering a lower number of licenses than potential bidders (just as the re-run auctions in the USA had). his had the effect of halting the money supply from the telco vendors, which in turn destroyed not only the R&D efforts, but ultimately damaged the telcom development companies as well. 20,000 workers in the UK lost jobs as a result of a government cash injection. ==Subsequent spectrum auctions==