Energy Giant Enron Touting Plans For National Fiber-Optic Network
(Could be a nice contract for someone...)
NEW YORK -(Dow Jones)- Energy giant Enron Corp., following in the footsteps of pipeline company Williams Cos., on Monday announced plans to build a national fiber-optic network "backbone" by the end of 2000 to offer wholesale capacity to Internet and phone companies.
The strategy is reminiscent of Williams (WMB), which built a large fiber network along its gas pipelines, only to sell it in 1995 for $2.5 billion to LDDS, which is now part of WorldCom Inc. However, Williams kept a single strand of fiber and around that is
building a new telecommunications business.
With data now the fastest-growing market in telecommunications, Enron says its goal is to rent companies data-carrying capacity, using the powerful Internet-protocol technologies of fiber-optics, packet data transmission and computerized routers. The
foundation of Enron's plan will be three fiber-optic loops covering much of the U.S.
The Houston-based energy company, through its Enron Communications division, has joined forces with units of Montana Power Co., an electric utility, and Williams to build roughly 1,600 miles of fiber in the western U.S. The consortium, FTV Communications,
is building a loop from Portland, Ore. - site of Enron's wholly owned electric utility, Portland General - to Los Angeles, hitting Las Vegas, Salt Lake City and Boise, Idaho,
along the way.
Enron also has swapped some of its fiber on the route with Fonorola Inc., a Canadian phone company, in exchange for capacity on a fiber link between Portland and Seattle.
The FTV loop should be finished by the end of the year.
Enron Communications is in the engineering phase on the two other fiber loops: between Salt Lake City and Houston; and between Houston and Miami. Currently without partners on these projects, Enron said it plans to use its gas pipelines' rights of way for much of the fiber.
Enron's extensive pipeline system provides an advantage: obtaining a right of way to lay fiber in these regions can be difficult, said Steven Parla, an analyst at Credit Suisse First
Boston Corp.
These two other loops should be completed by the end of 1999. Enron plans to use fiber swaps similar to the one with Fonorola to gain capacity on fiber networks reaching
the Upper Midwest and Northeast. That way, Enron can have the backbone of a national network by the end of 2000, it said.
The planned fiber network is still a minuscule business compared with Enron's energy assets, given the company had $20.3 billion in revenue last year. But fiber could wind up
contributing to Enron's stock price by 2000, said Schroder & Co. analyst Raymond Niles.
Niles is bullish on Enron, and he hasn't even factored the fiber business into his earnings estimates or his 12-month price target of $70. "I think it's a business with a lot of
potential," he said. Enron's New York Stock Exchange-listed shares closed Monday at $56.688.
Meanwhile, Williams has been moving aggressively into the capacity wholesale business, with plans for 18,000 miles of fiber by year-end - considerably more than Enron plans for its network. And the division, with much faster growth rates than regulated pipelines, has been helping Williams's shares command a premium to most pipeline stocks.
Analysts said Enron is five to 10 years behind Williams in both infrastructure and experience. "This will not create another Williams Telecom," said Parla. "I think it (Enron Communications) can be meaningful, but I wouldn't want to oversell it now."
Observers said the connections between natural gas, electricity and data are natural, given the skills needed to run complex networks.
"It's a very similar business," said Robert Christensen, an analyst at Gerard Klauer Mattison & Co. "You're just moving light instead of gas." |
