Enron Corp. - University of California | Office of The President

(h) The purported prospects for, and actual success of, Enron's EBS division was
grossly overstated. First, Enron's broadband network – the so-called Enron Intelligent Network or
EIN – was plagued by serious and persistent technical difficulties, which prevented it from providing
the type of high-speed and high-quality transmission that was indispensable to any hope of
commercial success. Second, Enron was encountering significant difficulties in completing the
build-out of its broadband network and, as a result, did not have currently, and would not have at any
reasonable time in the foreseeable future, a functioning broadband network. For instance, the EIN
– the core of the Enron Broadband Operating System ("BOS") – was doomed to failure due to
numerous intractable problems:
• For EIN to work, Enron had to build 20 pooling points internationally and 30 in the
U.S. Measuring data flow at the pooling points required something known as
inter-agent messaging and InterAgent – the software that was to make the intelligent
network operational – became the core of EIN. But InterAgent had to "speak" to
hardware from various different manufacturers, such as Cisco and Sun, which it
could not do. Since InterAgent failed, EIN would fail as well.
• To create InterAgent, Enron had acquired a company called Modulus. From the
outset there was no way Modulus could create a viable InterAgent program because
it was simply too small (three employees) to undertake a project of such magnitude.
By spring 99, the development of the EIN had "deteriorated into chaos." The
problems in building the EIN did not improve during 99. By 10/99, EBS was "in
crisis mode," and Rice, CEO of EBS, realized that EIN was a disastrous failure.
• In fact, "EBS did not have a single real customer in 1999."
• While Enron extolled the number of orders and users it had for its network, the truth
was that "the sales staff could not sell what the engineers could not build, and the
engineers could not build what the sales staff had promised." Consequently, a
"blend-and-extend" trick was introduced. EBS sales representatives were told to sell
anything now – get customers to place any order no matter how small (and move
delivery into next year) – and, in return, Enron would place a larger order to buy
something from the customer. For instance, Real Networks gave Enron a $100,000
order, but Enron gave a $7 million purchase order to Real Networks for software.
• Enron trumpeted high-profile customers, including Inktomi, Microsoft and Real
Networks, as proof that EBS was a genuine broadband provider. But these small
$100,000 deals represented favors by Microsoft and Real Networks to Enron in
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