UNMASKING THE FIBER BARONS : They're building a fiber empire to carry voice and data around the world. Who are the fiber barons and what have they wrought thus far?
americasnetwork.com
America's Network, March 1, 2000
By Lindstrom, Annie
About this story
In the fall of 1998, AN profiled a variety of competitive carriers, large and small, that were deploying fiber in the U.S. (see "Sculpting the light," August 15, 1998; "Regional CLECs plant fiber stakes in the ground," Sept. 1, 1998; and "The fiber webmasters," Dec. 1, 1998). Much has changed for these companies. Some of them have quietly disappeared, while new ones have come onto the radar screen.
The good news is that most of these companies are thriving. Many have more than doubled their revenues between 1997 and 1998.
At press time, the majority of the companies profiled in this article were awaiting 1999 revenue reports. However, most were confident that their reports would show an even bigger profit between 1998 and 1999. (Readers can go to www.americasnetwork.com to see those 1999 revenues.)
In our April 1 issue, we'll profile Time Warner Telecom, CapRock Communications Corp., e.spire Communications Inc., Intermedia Communications Inc., GST Telecommunications Inc., Electric Lightwave Inc. and Nextlink Communications Inc.
If the 1900s was the Century of Copper for the telephone network, it seems clear that the next century, or at least the first half of it, will be known as the Century of Fiber Optics. This is the time of the fiber barons, who are building a high-speed network across the globe to carry ever-expanding, converged voice and data services.
Spending in the fiber optics market more than tripled from 1990 to 1999 - from a "mere" $4.1 billion to $14.6 billion - according to the 2000 MultiMedia Telecommunications Market Review and Forecast, recently published by the Telecommunications Industry Association (TIA) and MultiMedia Telecommunications Association (MMTA). The world's seemingly insatiable demand for broadband services, as well as bandwidth, will only boost those numbers as we splice our way in to the next millennium. The report says that spending on fiber optics gear is expected to increase from $12.2 billion in 1999 to $28 billion in 2003.
The TIA/MMTA report also notes that interexchange carriers (IXCs) increased their fiber deployment to 4.5 million miles in 1999, which is 15 times the amount of fiber they deployed in 1995. Factors driving growth include demand for Internet access, IXC entry into local markets and new carriers that are building high-capacity networks.
Fiber deployment has also gotten a boost from convergence. Cable companies installed nearly 2.6 million fiber miles last year, which accounted for 22% of the total amount of fiber deployed last year, the report says.
Long distance carriers have deployed fiber between urban areas when the distance between cities has justified the expense. Local exchange carriers (LECs), which have primarily used fiber to connect their interoffice facilities, have been laying the groundwork to increase fiber's penetration in the residential access area. LECs installed 322,000 miles of fiber in 1999. TIA/MMTA expects a whopping 2.2 million miles to be deployed in the residential area in 2003.
Last but not least, the fast-growing competitive access providers (CAPs, a.k.a. nonincumbents) are deploying a fair share of fiber optic cable as well. Deploying 1.2 million fiber miles in 1998, the CAPs bumped that number up to 3 million fiber miles in 1999.
The fiber barons
To produce this story, AN's Senior Technology Editor, Annie Lindstrom, talked with senior executives at 15 carriers. The two-part fiber barons series describes how these carriers are positioning and differentiating themselves in an increasingly competitive marketplace.
This segment, Part I, covers the following companies: Metromedia Fiber Network Inc., Williams Communications, NorthEast Optic Network Inc., Qwest Communications International Inc., Global Crossing Ltd., Teleglobe Communications Corp., Level 3 Communications Inc. and Broadwing. See the sidebar, "About this story," for details on Part II, which will be coming in the April 1 issue.
Metromedia Fiber Network
Metromedia Fiber Network (MMFN) is the name, and dark fiber's the game. With its focus on dark fiber, MMFN takes a unique approach to today's wholesale market. The company primarily sells raw fiber to its carrier and high-end business customers rather than services. However, according to Howard Finkelstein, vice chairman at MMFN, the company will also provide its customers with network integration services that help them put that fiber to use.
MMFN is currently selling fiber in five cities and has plans to ultimately extend its reach to 67 cities in North America and Europe. To that end, the company is building intracity networks throughout Europe. Those networks will be connected via intercity dark fiber, which will carry traffic generated by AboveNet, the Internet service provider (ISP) that MMFN acquired in August 1999, says Finkelstein.
"What we are doing, basically, is putting the oil of the 21st century into the ground," says MMFN's President and COO, Nick Tanzi (according to Finkelstein).
"Everybody agrees that fiber is the fundamental infrastructure of all telecommunications," Finkelstein adds. "We are creating a distribution business that literally goes to every floor of every building. As the applications catch up - as they are starting to do rapidly - people are going to need that bandwidth from everywhere."
Currently, MMFN is focusing its efforts on building out its network - and, says Finkelstein - "continuing to create the market for dark fiber and integrated applications that can ride on it." He adds that the company differentiates itself from its competitors by providing "seamless fiber optic distribution."
"Everything we do goes wall-to-wall. By splicing fibers together in our network, MMFN is able to provide each customer with their very own fiber path through our network."
Like many of the providers interviewed for this article, MMFN has been surprised by the demand for fiber and fiber-based services.
"Once they have the fiber, we are amazed at the amount of bandwidth and applications they use on it. One customer, which started with an OC-12 [622 Mbps) network, now is using multiple OC-192s (10 Gbps). A great percentage of our commercial customers add more fiber in their first year with us."
Williams Communications
Williams Communications' Network Division (see box, page 31) is on track to complete its 33,000 route-mile, Multi-Service Broadband Network by the end of 2000, rather than 2001 as originally planned. The carrier compressed its fiber deployment schedule by one year to "improve its time to market," says Frank Semple, president at Williams Network.
"If you look at the economics of these large networks, it's important for us to get everything on net as quickly as possible. That's kind of a mantra around here - on-net construction, on-net sales, on-net provisioning," he notes.
Currently serving more than 100 customers in 100 cities, the "carriers' carrier" has also launched an effort to move its network as close to the customer as possible.
"We are moving quickly on executing on our access services strategy that takes advantage of the dark fiber, which we have acquired from Multimedia Fiber Networks, and the local broadband wireless capacity we have acquired from Winstar, to extend our transport capability further into the metro area. During 2000 and beyond, we will have a huge focus on extending our backbone network further into the metro area at the transport layer."
As the network is deployed, Williams Network is relying heavily on its 60- member lab staff to supply it with technology that offers competitive advantages from both a service delivery and efficiency and cost standpoint, he adds. The carrier has announced many trials of equipment offered by startups in recent months.
"In this exploding market and its demand for bandwidth, there are going to be a lot of service providers out there selling bandwidth products. It's critical for us to be able to maintain quality of service and to provide multiservice platforms for our customers who need a full suite of service capabilities, including frame relay, ATM, data products, IP over Sonet, IP wavelengths or even dark fiber."
NorthEast Optic Network (NEON)
This "noncertificated" carriers' carrier serves in 100 cities in the Northeast corridor between Portland, Maine and Washington, D.C. (see box, page 33). NEON has 29 customers and big plans for its OC-192 (10 Gbps) backbone network that picks up and drops off traffic in those 100 cities, according to Vin Visceglia, CEO and chairman of NEON.
NEON sells lit services at rates of OC-3 and above. The company leases dark fiber, as well as collocation space in its 60,000-square foot space available from its East Coast points of presence (POPs), according to Visceglia.
While carriers battle among themselves for end user customers, NEON "supplies the blood that makes the body work, which in this case is called bandwidth," Visceglia says. "They all need what we have. We win no matter who wins and loses on their battlegrounds."
NEON's 1,000 miles of deployed fiber may seem paltry now, but the carrier aims to enhance its footprint in a major way in the first half of next year.
"We signed a very large strategic alliance with two utilities, Con Edison of New York and Philadelphia Electric in the mid-Atlantic space - the number one and two largest electric utilities in the country. Over the next two quarters, we plan to build out that portion of our network, which will include a significant deployment of Nortel Networks' 32-channel Optera DWDM systems," Visceglia explains. "We are also looking into end- to-end optical provisioning in the mid-year time frame, so we can begin providing wholesale lambda-based services."
Qwest Communications
Qwest (see box, page 35) is making itself known as a broadband Internet Protocol (IP) communications services company, according to David Boast, executive vice president of network engineering and operations for the global carrier. Qwest currently offers services to business, consumer and wholesale customers in more than 160 cities worldwide.
By midyear, Qwest's KPN fiber network in Europe will connect 46 cities in 14 countries. Qwest also is part of a consortium that is building a 13,215 route-mile cable from California to Japan.
According to a company spokesman, Qwest's mission remains to deliver the power of Internet-based multimedia convergence to its customers and make it all as easy as making a phone call.
In addition to making life easier for customers, Qwest recently adopted a technology deployment policy that takes advantage of the large amount of fiber in the ground and helps the company organize its network for convergence, Boast explains.
"We are lighting up more of the fiber in parallel to the core network for multiple purposes. We are working with a lot of the emerging technologies offered by some of the startups, such as Corvis and Qtera," Boast explains. "One of the advantages we have with all that fiber in the ground is that we don't have to wait until emerging technology is mature and then forklift the current technology. We are actually starting to deploy an emerging technology infrastructure, not in the lab, but in the field."
As the new technology matures, Qwest plans to put a hold on services going onto the old network and move everything onto the emerging technology network. Then, it will light up the next set of fibers for the new bleeding-edge gear, he adds.
In addition to trying out new technology on separate fibers, the carrier is segmenting its fiber plant by market.
"We actually have a network that we deployed for use by big bandwidth wholesale customers and one that supports retail customers, so one doesn't impact the other," Boast adds. "The biggest challenge in the future is going to be the organizational structure, so we decided to take all the network planning, engineering, operation and provisioning pieces and put them together now so that as new technology comes out, all we have to do is deploy it."
This tactic enables Qwest's emerging technology group to look for new technology across all services, all products and all types of infrastructure, he notes.
Level 3 Communications
Level 3 (see box, page 36) sees itself as a "telecommunications enabler," says Kevin O'Hara, executive vice president and chief operating officer for the carrier.
"We sell a complete and unique set of services to companies, which in turn add their value to those services and deliver the combined product to their customers," O'Hara explains. "To date, 90% of our sales have come from this profile customer."
More than 75% of Level 3's sales are made to "Web-centric" companies, such as ISPs, application service providers (ASPs) and Web-hosting companies. The carrier also offers its customers 3.4 million square feet of collocation space.
Level 3 recently announced plans to accelerate the buildout of its U.S. and European networks, and to complete its U.S. network by year's end. The company currently has networks in service in 27 U.S. cities and four European cities.
In addition to building IP-based networks, which the carrier brags are devoid of traditional circuit switches, Level 3 is also planning trans- Pacific and trans-Atlantic cables and undersea network connections to Tokyo and other Asian cities. A 1.28 Tbps trans-Atlantic cable is under construction.
Currently, the company's goal is to dominate the horizontal segment of the industry by providing very high bandwidth solutions at unit prices that drop by 20%, 30% or even 50% per year, O'Hara says. Because the telecommunication industry is realigning itself along horizontal segments, rather than vertically, companies that "focus and specialize will materially outperform companies that try to be all things to all people and provide all solutions themselves," O'Hara says.
Because price performance improvement in a variety of network technologies is accelerating even faster than Level 3's leaders thought it would two years ago, the carrier has gotten "religious" about taking cost performance opportunities, he adds.
"Also, the horizontal business model is occurring faster than most industry experts thought possible," O'Hara says. The realignment has caused Level 3 to further refine where it spends its capital and focuses its sales force. For example, much more has been spent on collocation facilities, and the sales force is focused on Web-centric companies, he notes.
Global Crossing
"What Global Crossing is trying to do is connect the planet," says Joe Clayton, vice chairman of Global Crossing and president of the carrier's Americas group (see box, page 38).
"If you remember four words, I think you'll understand what we are trying to do," says Clayton, formerly president and chief executive officer at Frontier, which was acquired by Global Crossing last year. "The words are local, national and global connectivity. I think you'll find that no one company has the type of footprint or plant that we do - either currently deployed or planned - in the world."
It's Global Crossing's breadth that makes it the company to watch going into the new millennium, he notes. Global Crossing, which is building multiple undersea fiber routes, is focusing its efforts on selling wholesale capacity to large carriers around the world, and selling retail business services to multinational corporations that need global connectivity. The carrier also offers midsize customers local and long distance on the same bill, Clayton explains. The carrier's Global Center division currently hosts 300 of the top 500 Web companies, or the "Web 500," as Clayton calls them.
Telling Global Crossing apart from the rest of the fiber barons is easy, he adds.
"Our competitors are companies that have developed, or are developing, an international focus. But I would say none of them has taken as broad and extensive approach as we have in terms of our global footprint."
Clayton explains that when he was at the helm of Frontier, he was looking to swap domestic capacity for international capacity. That pursuit led to talks between Frontier and Global Crossing. What began as a tactical discussion turned into a strategic one and the merger between the two companies followed.
"From a Global Crossing point of view, Frontier has filled in a major hole in its international network with the U.S. crossing," Clayton says. "We brought network and existing customer bases in from our Global Center, business-to-business and consumer divisions. We also brought in significant assets and a significant revenue and margin stream. At Frontier, we made money, which helps the new company fund additional acquisitions and organic growth. Our market value two and a half years ago was about $2 billion dollars, and now we are part of a company that is worth over $40 billion. I'd say that's a big change."
Teleglobe Communications
Teleglobe is building its GlobeSystem network, which will link 160 cities worldwide on a broadband service platform supporting voice, video and data. The network will feature a 60-node backbone that supports switching, as well as asynchronous transfer mode (ATM), IP and Web-hosting applications brought onto the network via 100 access nodes. Nearly 30 GlobeCity nodes are currently operating, and Teleglobe will add another 20 by year's end, according to Steve Heap, vice president and general manager of transmission services at Teleglobe.
Five years ago, Teleglobe was Canada's international telecommunications provider. With the advent of competition in Canada, the carrier set out to become a global broadband service provider that offers cost-effective broadband connectivity services on a global basis to carriers, ISPs, content providers, broadcasters and businesses.
"[We deliver] advanced broadband applications to customers in more than 100 countries and we consider ourselves today to have the premier communications architecture for the digital economy," Heap says.
Currently, the company is putting a lot of effort into building its dark fiber network and trans-Atlantic cables and other subsea cables. In the meantime, Teleglobe's sales force is focusing on getting revenue on that network, "so we can get revenue to match the spending that's going on," Heap adds.
Teleglobe approaches the global market from a long history of global communications, he says.
"It's very easy to say, 'I'm going to build this and build that,' and assume that you can run services globally on top of that. Running services globally is something that you have to live through the pain of, in order to do it really well," Heap explains. "The difference between us and our competitors is that we can get a cost base that is at least as good as anyone else's, but we have all the global service expertise that it takes countless years to build up."
Teleglobe is one of the world's largest suppliers of IP traffic to South America and Europe, he adds. The carrier currently has 150 U.S.-based customers.
Broadwing
Broadwing, an integrated communications provider, is the product of a merger between IXC (which, when profiled in America's Network in August 15, 1998, was primarily a wholesaler of dark fiber) and Cincinnati Bell, the Ohio town's local exchange carrier. The new company, which took the name of the feisty bird of prey late last year, is focused on providing business-to-business services in the data and Internet space, according to Rick Ellenberger, president and CEO of Broadwing.
Although Broadwing does provide voice services, most of the company's revenues reside in the data and Internet space. The aim is to make that even more the case going forward. "Our next-generation Gemini 2000 IP network just came online in the fourth quarter of 1999," Ellenberger explains.
Currently, the company is working hard to expand and improve its distribution capabilities with its own sales force, partners and agents in order to increase its direct retail-to-retail opportunities. Broadwing now has 700 sales people and aims to expand to 900 sales people by year's end.
The carrier also plans to add another 4,000 route miles to its network in 2000 and install next-generation optical gear in the network to improve its cost/performance ratio, he adds.
"We are also going to expand the number of POPs in each city to reduce the access fees we are charged," Ellenberger says. "And we have just launched a major effort to brand the company on a national basis."
Broadwing's association with Cincinnati Bell gives it local savvy that its competitors lack, as well as experience with digital subscriber line (DSL), Ellenberger says. In addition, the company's size enables it to be much faster, more aggressive and more innovative in its competitive space, he adds.
"We are faster than our competitors who have acquired much larger residential customer bases than we have. Our residential base is in a very isolated spot - one city in the U.S. - and it represents a much smaller portion of our revenue stream. So we think we have a much different situation than our competitors," Ellenberger says.
The biggest difference between IXC and Broadwing is that IXC had a very difficult time with the leadership team and where they were heading the company, Ellenberger says.
"We now have a team that Wall Street and Main Street believe lives up to its promises and does what it says it is going to do," he notes.
Top 15 fiber-deploying CLECs
Company Name Fiber (in route miles)
1. Level 3 Communications Inc. 14,000
2. AT&T Local 13,500
3. Digital Teleport Inc. 11,000
4. MCI WorldCom 10,000
5. MediaOne 10,000
6. ITC Deltacom 9,200
7. McLeodUSA 9,000
8. Adelphia Business Solutions 7,500
9. Time Warner Telecom Inc. 7,326
10. GST Telecommunications Inc. 6,808
11. Electric Lightwave Inc. 6,300
12. NTS Communications 6,000
13. CapRock Communications Corp. 5,500
14. Cox Communications Inc. 5,000
15. ICG Communications Inc. 4,499
Source: New Paradigm Resources Group
Incumbent fiber deployment
Company Name Route Miles Fiber Miles
AT&T 53,000 N/A
MCI WorldCom 77,000 N/A
Sprint 30,000 3.4 million
Bell Atlantic 86,000 5.62 million
BellSouth 70,064 N/A
GTE 17,000 N/A
SBC 100,000 5 million
US West N/A 2.3 million
Metromedia Fiber Network Inc. (MMFN)
White Plains, N.Y.
www.mmfn.com
NASDAQ:MFNX
Fiber deployed to date
Route miles: N/A
Fiber miles: 540,000
Upon completion of network buildout
Route miles: N/A
Fiber Miles: 3.6 million
Revenues
1997: $2.5 million
1998: $36.4 million
1999: $49.4 million (3Q)
Capital investment in network to date: N/A
Williams Communications Network Division
Tulsa, Okla.
www.willtales.com
NYSE:WCG
Fiber deployed to date
Route miles: 25,770
Fiber miles: 1.9 million
Fiber deployed when network complete
Route miles: 33,000
Fiber miles: N/A
Revenues
1997: $1.4 billion
1998: $1.7 billion
Capital investment in network: $2.2 billion
NorthEast Optic Network Inc. (NEON)
Westborough, Mass.
www.neoninc.com
NASDAQ:NOPT
Fiber deployed to date
Route miles: 1,000
Fiber miles: 70,000
Fiber deployed when network complete
Route miles: N/A
Fiber miles: N/A
Revenues:
1997: $394,704
1998: $863,000
1999: $5.7 million (analyst's estimate)
Capital investment in network to date: $100 million
Qwest Communications International Inc.
Denver, Colo.
www.qwest.com
NYSE:Q
Fiber deployed to date
Route miles: 24,500 (North America)
11,800 (Qwest KPN/Europe)
Fiber miles: 888,000 (North America)
Fiber deployed when network complete
Route miles: 24,815
Fiber miles: N/A
Revenues
1997: $696.7 million
1998: $2.2 billion
1999: $3.9 billion
Capital investment in network to date: N/A
Level 3 Communications Inc.
Broomfield, Colo.
www.level3.com
NASDAQ:LVLT
Fiber deployed to date
Route miles: 9,334 (U.S.); 2,139 (Europe)
Fiber miles: N/A (Level 3 is burying 8 to 12 conduits along all of its
fiber routes)
Fiber deployed when network complete
Route miles: 16,000 (U.S.); 4,750 (Europe)
Fiber miles: N/A
Revenues
1997: $332 million
1998: $1.0 billion
1999: $1.4 billion
Capital investment in network to date: $3 billion
Global Crossing Ltd.
Hamilton, Bermuda
www.globalcrossing.com
NADSAQ:GBLX
Fiber deployed to date
Route miles: 19,500 in U.S. (97,200 globally)
Fiber miles: N/A
Fiber deployed when network complete
Route miles: N/A
Fiber miles: N/A
Revenues
1997: $0 Global Crossing; $2.5 billion Frontier
1998: $424,000 Global Crossing; $2.3 billion Frontier
Capital investment in network to date: $841 million (U.S. terrestrial
network only)
Teleglobe Communications Corp.
Reston, Va.
www.teleglobe.com
NYSE,TSE:TGO
Fiber deployed to date
Route miles: 14,000 in U.S. (200,000 globally)
Fiber miles: 56,000 in U.S.
Fiber deployed when network complete
Route miles: 400,000 by 2004 (globally)
Fiber miles: N/A
Revenues
1997: $2.9 billion
1998: $3.4 billion
Capital investment in network to date: Investing $5 billion in GlobeSystem
broadband network over the next five years.
Broadwing
Austin, Texas
www.broadwing.com
NYSE:BRW
Fiber deployed to date
Route miles: 15,000
Fiber miles: 400,000
Fiber deployed when network complete
Route miles: 23,000
Fiber miles: N/A
Revenues
1997: $420.7 million (IXC); $834 million (Cincinnati Bell)
1998: $668.6 million (IXC); $885.1 million (Cincinnati Bell)
Capital investment in network to date: $1.8 billion |
