Wireless Infidelity: Spanish WiFi operator declared bankrupt after prolonged fraud
I can’t be the only telecoms veteran experiencing feelings of deja vu upon hearing the news of Gowex, the Spanish WiFi provider which announced itself insolvent on Sunday.
Gowex, which has apparently been active in WiFi hotspots in London, Madrid , New York and Dublin, (but not as active as everyone thought) was listed on Spain’s secondary stock exchange (the equivalent of Nasdaq) and its share value had reached US$2.6 billion ealrier this year.
Today, however, Gowex is worth literally nothing and is waiting for the administrators to come in.
At the bottom of this story are those old familiar “financial irregularities”. Essentially Gowex’s accounts were a fantasy
It’s got a familiar story arc: start-up gets funding for a bold new business model attached to an exciting new(ish) networking technology. Engaging CEO seems to be doing everything right as prestige contracts are secured and the Gowex marketing/PR department flosses up the company performance. Awards pour in.
How do they do it? Innovation of course.
But not technical innovation. No, no, Innovation of the financial sort, the sort that sees you spending 25 years ‘inside’ looking at your cowboy boots in the case of my favourite bad boy from the turn of the millenium, Bernie (Couldn’t happen to a nicer bloke) Ebbers of WorldCom.
I can just about understand people being blindsided by the very reasonable-looking Jenaro García, Gowex CEO and founder, but to this day I’ve not been able to understand how Ebbers got away with all the accounting irregulaties for so long . The man looked and spoke like someone you wouldn’t trust with a blunt knife.
The WorldCom scandal was a very much bigger deal - $100 billion in losses to shareholders - than Gowex appears likely to become, but there are similarities: it’s almost as if García went to visit Bernie in chokey and took notes.
There’s the bare-faced lying for a start. Right up until Sunday when he suddenly decided to throw in the towel, García was in combative mood and as recently as Friday had been vowing to fight on.
Garcia was in the motor trade, importing cars from Germany was apparently part of a colourful career. Ebbers built up his stake in the long distance telephony business in the US.
Then there appears to have been the equivalent of bandwidth swaps or something similar happening inside the fantasy world that was Gowex’s accounts. Capacity swaps were a favourite across the board (not just WorldCom) 15 years ago as network companies used them to show that large transactions were taking place, inflating the value of their businesses. In reality there was very little real commercial activity taking place at all.
The investment firm Gotham City Research LLC, which blew time on Gowex, reckons that as little as 10 per cent of the accounted activity was ‘real’.
It’s not clear yet when or if the scandal will have knock-on affects to the rest of the burgeoning WiFi industry. At least, unlike in 2002, Gowex seems to be acting alone. The other WiFi specialists, such as Boingo, are sporting respectable losses
On Saturday, Garcia tweeted how sorry he was. The mystery is why he thought he could get away with it. But then, that’s always the mystery.