Barely a year ago, it was a relative unknown: a private, Vancouver-based company called Worldwide Fiber Inc. It sounded, to the uninitiated, like a relic of British Columbia’s old economy— a pulp and paper mill, maybe, or a chain of health-food stores. Such misconceptions evaporated in late 1999 when Greg Maffei, Microsoft Corp.’s chief financial officer, defected from the global software giant to take a headlinegrabbing equity stake in and the top job as CEO of—what was it again?—Worldwide Fiber. It turned out the company built fibre-optic cable networks, but financial analysts were left to puzzle over its attraction to Maffei, then a 39-year-old Wunderkind managing Microsoft’s $50billion cash and investment portfolio. A friend joked to Maffei: “I’m so glad you’re going to cure the world’s dietary problems.” The friend wasn’t far off. In a wild year of growth, Maffei and company have risked billions to put the world on an optical fibre-rich diet to feed the expo-
360networks is betting billions that demand for high-speed cable networks will just keep exploding
nential growth in telephone and, especially, Internet use.
Maffei hit the ground running with an audacious—too audacious, some analysts say—$9-billion plan to wrap the globe in high-capacity communications cable. By midApril, the company, renamed 360networks Inc., had raised more than $3 billion in bank loans, bond sales and an initial public share offering. It was a considerable feat in an increasingly toxic market for tech stocks. Eyebrows were raised in British Columbia by Maffei’s refusal to uproot his wife and two young children from their Seattle home. Instead, he maintains a Seattle office, making the short hop by commercial jet to Vancouver headquarters as needed. More eye-popping was a signing bonus that would shame even the highest-priced sports hero. Maffei negotiated a $ 114-million loan to buy an eight-per-cent stake in 360networks at bargain prices. His high-tech horse trade turned him into a paper billionaire, if he can hold 360network’s stock value at or above the initial offering price of $20.66. It also made billionaires of Dave and Cliff Lede, who control Vancouverbased constmction company Ledcor Industries Ltd., parent company ofWorldwide Fiber. The ultra-private Lede broth-
ers remain the largest shareholders in 360networks. In Maffei, the Ledes have an established deal-maker and a credible public front man. “We have a good relationship,” says Maffei. “I think they’re happy with our progress to date.”
Maffei has gathered a stellar list of investors and advisers, including global media mogul Rupert Murdoch, Michael Dell, CEO of Dell Computer Corp., and Terry Matthews, a pioneering founder of such Canadian high-tech successes as Mitel Corp. and Newbridge Networks Corp. By mid-2002, the 360network will link more than 100 major cities with more than 140,000 km of cable, some running under city streets, buried beside rail lines or strung along the ocean floor. American competitors Global Crossing Ltd. and Level3 Communications Inc. are also adding to their information pipelines, leading some analysts to warn of a looming glut in bandwidth—the capacity of these cables to carry telephone and computer-generated data. How much junk e-mail does the world need? The breakneck pace of expansion is “a little bit of a land grab,” says Maffei. “People feel they need to stake their positions.”
In the case of 360networks, the land grab is waged simulta-
neously in North and South America, in Europe, and under the Adantic and Pacific oceans. “I think we have more ships out than Cunard,” says Scott Lyons, vice-president of submarine systems. “At last count, we had 14 ships at sea.” Nearing completion or under construction are Adantic cables linking Halifax and Europe, the first fibre-optic cable linking North and South America, and an undersea network hopscotching to Japan, Hong Kong, South Korea and other Asian centres. Ships are surveying the $2.4billion Pacific crossing, a cable that had been in Worldwide Fiber’s plans in 1997. True to form, Maffei bumped it to an urgent priority, and increased its capacity by 60 times. “In this business, you either go fast or you die,” says James Black, a Toronto-based equity research analyst who tracks the industry for TD Newcrest. He credits Maffei with attracting enough cash and strategic partnerships to complete 360’s ambitious
plans. While its share value has slumped to slighdy below its initial price, Black blames the depressed tech sector. “Actually, since it went public, it has outperformed its competitors in the stock market. It’s hung in there just fine.”
In Maffei’s view, the inevitable plunge in communications charges as so many optical networks light up isn’t a disaster but an opportunity to increase volumes. Even he can’t predict all the uses for the network he is building. “We can surmise some of the ones that are going to be obvious,” he says, listing videoconferencing and the exchange of fat data files of movies, music and photography. “But there will be a host of things we don’t know yet that will change the way we live and work.” His optimism is backed by a recent study for Nortel Networks Corp., a supplier for 360networks with an equally high stake in revving up the Internet. The study, by telecom analysts RHK Inc. of San Francisco, predicts a 300-fold increase in bandwidth demand within 10 years.
Still, cable communications has a long history of risk as well as reward. A spectacular series of failures preceded the successful landing in 1866 of the first operational trans-Atlantic copper telegraph cable from Valentia Island, Ireland, to Heart’s Content, Nfld. Although it operated in Morse code at a stately eight words per minute, the concept of near-instantaneous communication profoundly altered human affairs. By 1874, the rate had climbed to 10 words per minute, and the chase for bandwidth was on. For a sense of today’s pace, think of the dots and dashes of Morse code as roughly equivalent to single “bits” of modern digital information. The hair-thin glass fibres of 360network’s Pacific cable have a capacity of 4.8 billion bits a second—enough to carry 60 million phone calls, or five million digital photographs a second.
Such digital firepower is shifting the sluggish B.C. economy from dependence on another form of fibre, its forests. By some estimates, high tech will surpass the economic contribution of forestry within four years. The top 100 tech companies headquartered in the province had almost $4 billion in revenues in 1999, according to a ranking by British Columbia’s Technology Network. Of those, 360networks rocketed from nowhere to the top of the list, with $540 million in revenues that year (and fully $532 million in the first nine months of2000, up 50 per cent against the ’99 period). “We are the beneficiary of an enormous pool of Canadian talent,” says Maffei. Although the company hires locally for its global operations, about 500 of its 1,400 employees are Canadian.
Yet responsibility for 360’s global gamble rests with its franchise player, the high-priced talent from Seattle. It’s up to the shareholders to decide if he’s worth it, says Maffei, who’s on the hook for a huge loan for his stake of the company. “Hopefully, we’re all going to prosper together. And if we don’t,” he says, as if the notion was preposterous, “I’ll certainly be one of the ones who feel it.” E3
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