May 09, 2005
Enron Broadband: The technology fell short

The prosecution is still presenting its case in the Enron Broadband trial. Their last witness for the week was a techie who testified that EBS was going to have to rely on other companies' networks to deliver what it was promising.

John Bloomer, a computer expert hired in 1999, said the idea was approved about two weeks before a Jan. 20, 2000, stock analyst conference where prosecutors maintain Enron Broadband Services executives lied about the capabilities of their network.

"We were looking at a year-plus before we would be able to carry media transport on our network," Bloomer explained Friday under questioning from U.S. Attorney Ben Campbell.

Enron's network, at the time, could not direct "traffic" or track customers because it did not have the necessary software, Bloomer said in his second day of testimony.

The idea was to use a vendor's network to capitalize on a lucrative market for transmitting video for news organizations between Chicago, Denver, New York and Washington, D.C.

Deep-pocketed network television organizations frequently feed videotape along these routes and pay premium prices to do so. Enron, he said, would sell the service, while a vendor would be the sole network operator.

The Enron Task Force maintains such a plan was never mentioned at the January 2000 conference and executives told stock analysts they had their own network with a proprietary network control software.

The defense argues that the EBS vision was a work in progress and that no one misrepresented it. They say the network was being deployed in phases.

I'll come back to that last point in a minute. Bloomer's earlier testimony was that EBS was in disarray when he arrived.

[Bloomer] said he left GE to go to Enron Broadband Services in 1999 "to turn it into an honest to goodness business."

Responding to prosecutor Ben Campbell, he said his first job at the unit was to locate the problems. He found poor morale, holes in the underlying infrastructure and products that were not ready to be marketed.

He said what was called "Enron's Intelligent Network" actually lacked intelligence, or the ability to control the hardware, and that he experienced internal resistance when he set up teams to address the problems.

Bloomer told jurors in U.S. District Judge Vanessa Gilmore's court that he was attracted to Enron's technology business and "believed with Enron's support and capital, this kind of thing could generally change the industry."

But Bloomer said when he got there in October 1999, there was disarray.

Bloomer, who wound up leaving Enron in 2000, titled one section of his report "How did we get to this broken state." He said it was going to take an infusion of people, cash and focus to get EBS on the right track.

Remember that the stock conference at which the EBS executives are charged with making false statements occurred in January of 2000, so a state of disarray in October of 1999 is a big deal.

Getting back to the defense strategy for a moment, if the plan is to convince the jury that EBS was fundamentally able to do what it was touted to be able to do, and that what the executives all said was maybe a bit of puffery but not fraudulent, then I would guess that the little videotape snafu won't be a big part of their case. If what Rex Shelby was saying was basically true, then it doesn't really matter all that much if he was in the tape the prosecution presented or added later on. I don't know how strong the defense thinks its claims are, but since they couldn't have known about this gaffe beforehand, they must have some faith in them. If so, changing their emphasis may just serve to confuse the jury. I'm sure they'll refer to the tape, mostly as a way of tarnishing the image of the prosecution, but I'll be surprised if they suddenly make it their smoking gun.

Now of course, I'm not a lawyer, I'm not in the courtroom, and I'm basing this on my one experience as a criminal juror - it was a DUI case, in which the defense attorney threw out a lot of claims about the police and the prosecution, none of which were ever fully developed as a recognizable rebuttal to the charges and none of which made any headway on knocking down the piece of evidence that led to us convicting his client (a videotape at the station house in which he still looked drunk, a good hour and a half after having been pulled over). All I'm saying is that the defense needs to keep its eye on the ball. From my perspective at home on the couch, if they make a big deal out of the tape, they probably don't think they were going to win with their original plan.

Posted by Charles Kuffner on May 09, 2005 to Enronarama | TrackBack

Man, reading this makes me so glad I moved on from telecom instead of remaining mired in it.

Posted by: Patrick on May 9, 2005 2:06 PM