Will Telecom Firms Gain On Steady
Diet Of Fiber?
Date: 3/3/98
Author: Reinhardt Krause
Companies are rushing to build new fiber networks
that could spur a telecom revolution - or result in a
capacity glut.
Four new fiber-optic networks could be completed by
2001, as companies race to provide high-speed data
and Internet services.
In addition, Jackson, Miss.-based WorldCom Inc. has
stitched together an advanced fiber network through a
spate of mergers. And AT&T Corp. is rushing to
upgrade its existing fiber system in the face of the
increased competition.
The arrival of so much fiber, which carries data much
faster than copper wiring, could change the
economics of the phone industry. For consumers, it
could mean cheaper phone calls and Internet
access. For companies, it could let new telecom
players emerge and create new alliances.
''The industry will not be the same for the fact that
we're all building (fiber) networks,'' said Joseph
Nacchio, chief executive of Qwest Communications
International Inc.
Denver-based Qwest expects to complete its
16,000-mile network by mid- '99. It will span 125
major U.S. cities.
IXC Communications Inc. and Williams
Communications Group, a unit of Williams Cos., also
are well along on their fiber networks. The fourth new
player is Level 3 Communications Inc.
Fiber optics serve as the backbone - the high-
capacity portion - of communications networks. The
systems use laser light pulses to send data through
glass fibers. The fiber-optic cables are buried in the
ground along rights-of-way, such as railroad lines.
These new fiber networks might operate more
efficiently than fiber systems built years earlier by the
leading long-distance phone companies.
''(Our) operating costs are lower compared to
retooling or reengineering an old fiber network,'' said
Mike Vent, IXC's executive vice president of network
operations. ''You're controlling more network with less
support systems.''
Austin, Texas-based IXC had completed about 5,500
miles of its fiber network through '97. It plans to have
about 18,000 miles done by the end of '99.
Tulsa, Okla.-based Williams Cos., a natural gas firm,
is getting back into the communications game.
Williams sold its old fiber network three years ago for
$2.5 billion to a small long- distance carrier that later
grew into WorldCom. But Williams early this year
signed $1 billion in contracts with three phone
companies that will lease capacity on a new system
that Williams is building.
''There have been advancements in fiber and
optronics,'' said Howard Janzen, chief executive of
Williams. ''The network we sold was the latest
technology at the time. Now that looks pretty
antiquated.''
Williams plans to spend $2.7 billion over the next four
years. The system will span 32,000 miles, including
its existing fiber.
''We're focused on being the lowest cost-point
operation,'' said Janzen. ''Some of the (existing)
players are very burdened trying to get their networks
modernized.''
He refers to such companies as AT&T. But at a recent
meeting with financial analysts, AT&T trumpeted its
efforts to upgrade its national fiber network.
It plans to use new laser technology from Lucent
Technologies Inc. to increase the capacity of its
existing fiber-optic system. Lucent's new lasers will
double AT&T's network capacity by year-end, the
companies say.
''Our network architecture is future-proof,'' said AT&T
President John Zeglis. ''Nobody is going to be able to
turn their (fiber) capacity into services for real
customers better than AT&T.''
The phone giant also might lease capacity from cable
TV operators that own fiber-optic networks, analysts
say.
New players like Qwest, however, are starting out
fresh with new fiber systems. Qwest late last year
unveiled low-cost pricing for long-distance calls
made over the Internet in seven cities.
AT&T announced a similar pricing plan last month for
long-distance calls made over the Internet. The prices
are cheaper than conventional calls.
''We're already affecting the market dynamics of the
industry,'' said Nacchio, a former AT&T executive. ''The
reason AT&T made such a big deal (of cutting
long-distance rates) at Mike's (AT&T CEO Michael
Armstrong) first conference was simply because of
us.''
The fiber networks being built by Qwest and others
are designed to handle a mix of voice, video and data.
Level 3 has unveiled the most ambitious fiber plans.
Level 3 is a communications start-up backed by Peter
Kiewit Sons Inc., an Omaha, Neb., holding company.
Formed by former executives of MFS
Communications Co., which WorldCom bought two
years ago, Level 3 plans to build a 20,000- mile fiber
network. It plans to compete in local phone markets
for business customers.
Level 3 says it has raised about $2.5 billion to
construct its network. Unlike the other networks, it
would use the Internet's method of transmitting data.
That could give it an edge.
There are other new fiber players. Some electric utility
companies are installing fiber- optic cabling along
their rights-of-way. They plan to partner with phone
companies.
With so much new fiber capacity planned, some
industry analysts warn of a possible glut. Qwest's
Nacchio disagrees.
''If you take a long view, all of this capacity will be
needed,'' he said. ''Short term, there will be some
(new fiber) carriers that do very well and some that do
marginally well.''
Who will buy up all the fresh fiber capacity?
Williams' biggest customer will be US West
Communications Group Inc., the Englewood,
Colo.-based Baby Bell. Tampa, Fla.-based
Intermedia Communications Inc. and Cupertino,
Calif.-based Concentric Network Corp. also will lease
capacity from Williams.
Qwest financed its fiber-optic network by partnering
with GTE Corp. of Stamford, Conn., and Frontier
Corp., a carrier based in Rochester, N.Y.
Most of the fiber upstarts think of the regional Bells
and Internet service providers as potential customers.
Benjamin Scott, IXC's chief executive, says demand
for fiber bandwidth will explode when faster
Internet-access technologies are deployed close to
homes. ''I don't see a glut; I see a big wave of
demand,'' he said.
(C) Copyright 1998 Investors Business Daily, Inc. |
