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

misrepresented EES['s] earnings. This is common knowledge among all the EES
employees, and is actually joked about. But it should be taken seriously.
G. Enron Broadband ("EBS")
39. Another purported growth area of Enron's business was its broadband services
business, which consisted of building out an 18,000-mile fiber optic network which Enron was
constructing and engaging in trading access to Enron's and others' fiber optic cable capability, i.e.,
"Broadband Intermediation." Enron presented both parts of its broadband business as poised to
achieve and later as actually achieving huge success, reporting that its fiber optic network was being
and had been successfully constructed, was state of the art and provided unparalleled quality of
service, and that its broadband trading business was succeeding and achieving much higher trading
volume and revenues than expected – i.e., "exponential growth."
40. Another example of the purported success of Enron's broadband content business was
its joint venture with Blockbuster Entertainment, announced with great fanfare in 7/00. Enron
presented this 20-year agreement as having a billion dollar value, that it was a first-of-its-kind
agreement whereby consumers would obtain video-on-demand content to be provided by
Blockbuster in their home as if they were watching the movie on their own VCR, and that this
incredible advance in technology was made possible due to the high quality of Enron's fiber optic
network. Abusing mark-to-market accounting, with the help of CIBC, which purportedly invested
in the deal while secretly getting a no-loss guarantee from Enron, Enron recognized an astonishing
$110+ million profit on this deal in the 4thQ 99 and 1stQ 00, even though the project was nothing
more than a failed pilot project – failing in its test markets because Enron did not have the
technology to deliver the product as represented – which was unable to go forward because
Blockbuster had not yet obtained and could not obtain the legal right to deliver movies from movie
studios in a digital format, the only format which could be utilized for VOD.
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