Enron Communications

Enron Communications Inc. (ECI) was Enron’s telecommunications and broadband division from 1997 to January 2000, focused on building fiber optic network infrastructure and pioneering the concept of bandwidth trading as a commodity market. The division emerged from Enron’s 1997 acquisition of Portland General Electric and its subsidiary FirstPoint Communications, which had been developing a west coast fiber optic network. Based in Portland, Oregon, ECI grew to operate approximately 15,000 miles of fiber optic cable nationwide by 1999 and launched one of the earliest content delivery networks, capable of streaming 480p video over the internet before competitors like Akamai. In January 2000, the division was renamed Enron Broadband Services as part of Enron’s aggressive push into the broadband sector during the dot-com boom.

Origins: The Portland General Electric Acquisition

Enron Communications traced its origins to the 1997 acquisition of Portland General Electric (PGE), an Oregon electric utility. During the acquisition process, Enron discovered that PGE owned an unregulated subsidiary called FirstPoint Communications, which was working on a west coast fiber optic build in partnership with Montana Power and The Williams Companies.

Joseph Hirko, who had served as PGE’s chief financial officer, became the chief executive of FirstPoint Communications following the acquisition. Email evidence places internal discussions about FirstPoint as early as August 20, 1997, with Steven Kean referencing urgent coordination matters requiring attention from executive staff.

The early strategic planning for what would become the communications division began even before the PGE acquisition closed. Steven Kean’s calendar from April 7, 1997 documents a “Portland General Brainstorming Session” that included Kenneth Rice, Geoff Roberts, Mark Haedicke, Robert Eickenroht, Cliff Baxter, Christina Mordaunt, and Anthony Duenner. This early involvement of Ken Rice, who became co-CEO of Enron Broadband Services, demonstrates the continuity of leadership from the acquisition through the division’s evolution.

FirstPoint Communications Network Build

In 1997, FTV Communications LLC, a limited liability company formed by FirstPoint Communications Inc., constructed a 1,380-mile fiber optic network between Portland and Las Vegas. FirstPoint’s initial plan called for a 135-mile fiber optic network capable of carrying nearly 10 million telephone calls, representing the foundation upon which Enron would build its telecommunications ambitions.

The network infrastructure built during this period gave Enron a tangible asset base from which to expand its broadband strategy. Unlike the questionable technology claims that characterized Enron Broadband Services, the early fiber construction represented real infrastructure investment.

Launch and Growth of Enron Communications Inc.

In 1998, Enron formally launched Enron Communications Inc. as an expansion vehicle to move the company from its core energy business into telecommunications. The division operated as a startup structure under Portland General Electric while developing its business strategy.

Stan Hanks joined as the founding Chief Technology Officer in mid-1998, having been approached by ECI leadership to help build out the technical infrastructure. Hanks developed a strategic business plan that led Enron to authorize a $2 billion investment over three years. Under his leadership, the division deployed thousands of route miles of fiber across the United States, established several data centers, and developed content distribution network capabilities.

By 1998, Enron Communications had achieved the capability to provide 480p streaming video over the internet, and Hanks’s content distribution network went live approximately one year before the Akamai network launched. This represented genuine technical innovation that positioned ECI at the forefront of emerging content delivery technology.

The network grew rapidly during this period. By 1999, ECI operated approximately 15,000 miles of fiber optic cable nationwide as telecommunications companies, backed by eager dot-com era investors, rushed to build infrastructure for anticipated internet growth.

Business Strategy and Operations

Enron Communications pursued a multi-pronged business strategy combining infrastructure development, content delivery services, and the pioneering concept of bandwidth trading.

Fiber Optic Infrastructure

ECI’s infrastructure strategy centered on building and acquiring fiber optic capacity across the United States. The company pursued both new construction and acquisition of existing “dark fiber”—inactive fiber optic cables that could be purchased at low cost due to industry oversupply. With only approximately 5% of the 40 million miles of installed fiber actively carrying traffic, Enron expected to acquire dark fiber cheaply and lease it to internet providers under long-term contracts.

Internal communications from 2000 and 2001 document ongoing discussions about dark fiber acquisition strategies, though some executives questioned the economics of these investments. Stanley Horton raised concerns in April 2001 about spending “around $13 million thus far on dark fiber.”

Content Delivery and the ePowered Distribution Program

ECI developed content delivery capabilities that competed directly with emerging companies like Akamai Technologies and Sandpiper Networks. In October 1999, the company announced its “ePowered Distribution Program” through a press release titled “ENRON COMMUNICATIONS INC. ANNOUNCES TEN NEW ISP PARTNERS IN ‘EPOWERED DISTRIBUTION PROGRAM.’” The program aimed to extend broadband access and TV-quality media to an estimated 25 million desktops through approximately 500 points of presence throughout the country.

New ePowered partners included RCN, FlashNet, GST Telecommunications, PDQ.NET, NetRail, FirstWorld, Orconet, VillageNet, and Show Digital. These partnerships represented ECI’s strategy to build a distribution network that could deliver streaming content at scale.

November 1999 coverage noted that “While Akamai Technologies and recently acquired Sandpiper Networks have captured the majority of mind share as leaders in the emerging content distribution market, Enron Communications is making a bid to blend together its assets as a national carrier to beat back the start-ups and make some major waves in the content delivery business.”

Bandwidth Trading Vision

The most ambitious element of ECI’s strategy was the concept of creating a commodity trading market for telecommunications bandwidth. Drawing on Enron’s expertise in natural gas and electricity trading, the company sought to apply the same market-making approach to bandwidth capacity.

In November 1999, Dow Jones reported that Enron was “currently testing hardware and software in order to start trading telecommunications bandwidth capacity early next month. The installations, in New York City and Los Angeles, are key steps in a pioneering proposal that could create a market worth ‘hundreds of billions of dollars a year,’” according to Tom Gros, Enron Communications vice president.

Internal communications document the progression toward bandwidth trading launch. A January 25, 2000 email confirmed that “The six-month extension to the Risk Control Policy for Bandwidth Trading has been signed.” By February 14, 2000, the division was preparing to go live pending “final approval of price and volatility curves.”

The bandwidth trading concept attracted industry attention and validation. A February 10, 2000 internal news share noted that “Williams Communications Group Inc. has formed a bandwidth trading group in a step toward embracing standardized bandwidth trading. The company was initially opposed to the idea of bandwidth trading as a commodity under standard terms and conditions, so its change of opinion is being viewed” as industry validation of Enron’s approach.

International Expansion Ambitions

ECI pursued international expansion opportunities, including a planned push into the Indian telecommunications sector. In November 1999, news coverage reported that “ENRON Communications (ECI), an affiliate of the $31bn energy major Enron Corp, is preparing for a major push in the Indian communications sector. Enron will start off by forming a joint venture with the public sector Ircon (Indian Railway Construction Company) to enter the telecommunication business.”

These international ambitions reflected the broader confidence in the company’s business model during the height of the dot-com boom.

Key Personnel

Joseph Hirko

Joseph Hirko served as chief executive of FirstPoint Communications after the 1997 Portland General Electric acquisition, having previously served as PGE’s chief financial officer. He continued in leadership through the transition to Enron Broadband Services, serving as co-CEO alongside Ken Rice. Hirko later pleaded guilty to wire fraud in October 2008 for allowing false press releases about the broadband network’s capabilities in 2000. He was sentenced to 16 months in federal prison and made $53.0 million from selling Enron stock at inflated levels during his tenure.

Kenneth Rice

Kenneth Rice was involved in the Portland General acquisition strategy from its earliest stages, as documented by the April 1997 brainstorming session. He later served as co-CEO of Enron Broadband Services, splitting responsibilities with Joe Hirko. Email evidence shows Rice in leadership communications throughout 2000, including references to “Ken Rice/Enron Communications” and “Rice Executive Staff Mtg.” Rice pleaded guilty to making misleading statements during a January 20, 2000 analyst meeting where he and others touted the capabilities of the broadband network. He was sentenced to two years and three months in prison and made $40.3 million from selling Enron stock at inflated levels.

Stan Hanks

Stan Hanks served as the founding Chief Technology Officer of Enron Communications, having been approached by the company in mid-1998. He developed the strategic business plan that led to Enron’s $2 billion investment authorization and oversaw the deployment of fiber infrastructure and content distribution capabilities. Hanks left the company before the collapse when he grew suspicious of the company’s strategy and leadership. After Enron’s bankruptcy, he was approached to help acquire the assets of Enron Broadband, as he had literally built most of the technical infrastructure.

Other Key Personnel

Email evidence identifies additional personnel who played significant roles in ECI operations. Tom Gros served as vice president and was publicly quoted on bandwidth trading initiatives. Scott Bolton served as a frequent internal communicator sharing news and updates about the business. Scott Pleus was involved in bandwidth trading operations and risk control. Peter Ghavami managed technology development efforts on bandwidth trading from the 44th floor of Enron’s Houston headquarters. Jean Mrha was involved in approving bandwidth trading price and volatility curves.

Technical Collaboration

ECI engaged in technical collaboration with other Enron divisions as it developed its infrastructure. March 2000 email correspondence documents technical collaboration between Enron Research and “EBS Engineering and Operations Group,” led by John Griebling, with involvement from Vince Kaminski’s research team. This cross-divisional coordination reflected Enron’s effort to apply its risk management and quantitative expertise to the emerging broadband business.

Transition to Enron Broadband Services

In January 2000, Enron Communications Inc. was renamed Enron Broadband Services (EBS), coinciding with Enron’s strategic pivot toward the broadband and telecommunications sector at the height of the dot-com boom.

Email evidence documents the transition timing precisely. On January 13, 2000, Scott Bolton sent an email referencing “Re: New ECI Company.” On January 21, 2000, Scott Pleus distributed an email titled “Enron Communications Changes Name to Enron Broadband Services (EBS).” By February 20, 2000, Steven Kean was receiving visitors identified as being from “Enron Broadband Services (EBS), formerly Enron Communications Inc.”

The renaming coincided with heightened market expectations. A January 12, 2000 analyst upgrade from Schroder & Co. raised Enron’s price target from $60 to $75, noting that “as the bandwidth trading market unfolds over the next 12 months, we anticipate that an additional $15 of value will be created for shareholders.”

The full story of what followed under the Enron Broadband Services name—including the Blockbuster partnership fraud, Project Braveheart accounting scheme, and criminal prosecutions—is documented in the Enron Broadband Services article.

Technical Claims and Subsequent Questions

While ECI achieved genuine technical accomplishments under Stan Hanks’s leadership, the division’s later evolution under Enron Broadband Services was marked by problematic claims about network capabilities. According to legal proceedings, Rice, Hirko, and others “caused Enron to issue false and misleading press releases about the capabilities, value, revenue and business performance of EBS, including many that falsely claimed that Enron possessed an advanced, software-driven intelligent communications network.”

Hanks later reflected that “perception was prioritized over actualized technology” and that “it was not possible to deliver on some of the technical promises” the company made to investors and partners.

Legacy

Enron Communications represents both the genuine technological ambition and the eventual dysfunction that characterized Enron’s expansion beyond its energy trading core. The division built real infrastructure, developed working technology ahead of competitors, and pioneered a concept—bandwidth trading—that had logical foundations in Enron’s commodity trading expertise.

The network that ECI constructed and the content delivery capabilities it developed represented legitimate business assets. The fiber optic infrastructure continued to have value even after Enron’s collapse, with Stan Hanks later being approached to help acquire EBS assets from bankruptcy.

However, the transition to Enron Broadband Services marked a shift from building genuine capabilities to making inflated claims about technology and booking fraudulent profits from failed partnerships. The story of Enron Communications thus illustrates the broader Enron trajectory: legitimate business innovation that eventually gave way to accounting manipulation and securities fraud.

See Also

• Enron Broadband Services — The successor division formed in January 2000
• Joseph Hirko — CEO of FirstPoint Communications and co-CEO of EBS
• Kenneth Rice — Co-CEO of Enron Broadband Services
• Portland General Electric — Parent company of FirstPoint Communications before Enron acquisition

References

This article draws on email evidence from the Enron corpus spanning 1997-2001, including communications from Steven Kean, Scott Bolton, Scott Pleus, and other ECI personnel. Secondary sources include:

• Department of Justice press releases on the Hirko and Rice prosecutions (2003-2008)
• Securities and Exchange Commission litigation releases
• “8 Lessons From the Founding CTO of Enron Broadband” (Inc.com)
• “The unmaking of Enron Broadband” (DatacenterDynamics)
• F. Scott Yeager’s Enron EBS history documentation
• Contemporaneous coverage from Dow Jones, Interactive Week, and Economic Times (1999-2000)