It may have been too much growth too fast, or the dot-com bubble effect. But when the telecommunications market started getting crowded with new voices from all over the world, it became clear to those wise enough to see that there would be enormous consolidation in the future. Many companies, these analysts said, would go broke, while others would be bought out at a fraction of what was put into their infrastructure.

In the US alone in 1999, there were over 3000 telecommunications companies. But no one saw MCI/WorldCom eliminated as major players. The merger of these two companies brought together one of the largest long-distance carriers in the world and an up and coming long-haul data transporter.

But due to poor management and a really idiotic decision to commit fraud in accounting procedures, WorldCom is kaput now. MCI is still around, trading at much higher share prices, but they took some damage to their image as well.

What happened to cause WorldCom to fall? Due to intense market competition, rates for voice communication crashed. They’re better now, leaving a realistic margin for profit, but they are still much lower than they were. WorldCom over borrowed, and then tried to hide their debt. They chose to invest heavily in infrastructure, believing that by overpowering the market with their strength they could wipe out most of their competition. And they were far too overconfident that they could recoup their losses

It’s hard to predict this sort of thing. After all, WorldCom used a world-class auditing firm, they seemed stable, and their CEO seemed like a decent enough guy who was really good at building a company. What you might watch for is very rapid growth that may not be commensurate with the amount of stock held by investors (when compared to similar companies), and a CEO that seems overconfident even when asked the hard questions. But you might take a real bath anyway. Ultimately, diversification is your best defense against everything.