Financial Instruments and Markets: A Casebook

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RTY Telecom: Network Expansion

On March 5, 2001, Andres Garzon reviewed the pending agreement with Nortel in his office at RTY Telecom (RTY), a U.S. regional telecommunications company, and the subsidiary of European-based international telecom group RTY Global. In the industry, innovation was a company's greatest weapon against insolvency, and RTY had a history of pushing the innovation envelope; from seeking out untapped markets to aggressively marketing new technologies. This deal with Nortel would be no exception: their patented MORail system could provide RTY with as much as 64 times more capacity in their fiber-optic network, a huge boon to meeting the demand of future customers. The demand wasn't there at present, though, and no one knew what future demand would look like. Over the last six months, perceived overcapacity and a lack of demand had caused capital to dry up for telecom providers internationally. As the Chief Financial Officer it was Garzon's job to manage planning for the long run growth of RTY. Without access to needed capital, rationing available funds became critical. Also, telecom technology was developing in months instead of years, and the large scale required to implement this technology raised the decision-making stakes.

Under such turbulent conditions Garzon wanted his technology purchases to be as flexible as possible, while still being consistent with RTY's overall strategy. The MORail system provided that flexibility, allowing RTY to adopt a technology ...