Jeffrey Skilling, Enron
Jeffrey Skilling, the former CEO of Enron, isn't like the other members on our list. He came from the energy industry, which has since the early 1990s been offering wholesale and in many cases retail telecom services to businesses and carriers.
Skilling (Image source: Fox News)
However, Skilling's involvement in Enron's failed attempt to be a telecom provider via its Enron Broadband Services (EBS) makes him a perfect candidate for our list.
Similar to other utility companies in the mid-to-late 1990s and early 2000s that made an entry into the telecom services market, EBS had high hopes for its telecom venture.
Well before the days of Netflix (Nasdaq: NFLX) and OTT video, one of the most publicized moves that EBS made was its 20-year partnership with video rental provider Blockbuster to sell on-demand movies over its broadband network by the end of the year 2000. To carry out this vision, Enron established network agreements with a number of prominent telcos and CLECs at the time, including SBC Communications--now AT&T (NYSE: T), Verizon Wireless (NYSE: VZ), Qwest Communications--now CenturyLink (NYSE: CTL), and Covad Communications (now MegaPath), in addition to Canadian incumbent Telus (Toronto: T.TO) and ReFlex networks.
As reported by Forbes, the idea of delivering video on demand over DSL networks, something that will still new at the time, had benefits for both Enron and Blockbuster. By leveraging the video rental provider's large customer base, the idea was that Enron would become a prominent content delivery provider in both the United States and Europe. Meanwhile, Blockbuster would not suffer revenue losses because it would not run out of the latest movie releases like it did at its regular retail stores.
"This is the center of the fairway for our broadband services," said David Cox, managing director of Enron Broadband Services, in a Forbes article.
But it wasn't long before cracks in the EBS armor started to show. Only three months after the agreement was signed, Blockbuster and Enron decided to terminate it citing various issues. Enron said that Blockbuster could not provide the "quantity and quality of movies" to support the on-demand service, while Blockbuster claimed that they had various technology and security concerns with Enron.
Regardless of the failed partnership with Blockbuster and mounting skepticism from financial analysts, Enron estimated that EBS that the deal would create $110 million in profits. This was based on what is known as "mark to market" accounting which is defined as "anticipated future profits from any deal [are] accounted for by estimating their present value rather than historical cost."
While Enron's stock rose 25 percent when the company announced the formation of EBS, the broadband vision came crashing down in December 2001 when Enron filed for bankruptcy after years of hiding losses and finding ways to inflate the financial performance of the company.
Then, in February 2004, Skilling and other Enron staff members, including Chairman Kenneth Lay, were indicted on various counts of fraud.
According to the indictment, Skilling and other Enron executives at an analysts' conference in January 2000 claimed that EBS was nearly fully functional, when in fact it "remained only unproved concepts and laboratory demonstrations that Skilling was advised would take years to complete and might never be realized."
Skilling was later convicted 19 of 28 counts of securities fraud and wire fraud and was to 24 years and 4 months in prison.