This from Wired News. I guess the question (or at least the one I had) is: If one were to start this new network, how would one get customers connectivity from existing home telephones and cellular systems to the new network? I guess a "10-10-321" type/like of thing would work but doesn't the call have to go through a gateway from the old to the new infrastructure??? If it does, does the Franklin gateway technology have the capacity to do what this guy envisions? Have a happy 4th! CAP
Level 3 Sends a Wake-Up Call
by Sean Donahue
4:00am 3.Jul.98.PDT
James Crowe is willing to bet US$10 billion that
Internet Protocol, the same technology that
shuffles email through the Internet, can make
traditional telephone companies obsolete.
Crowe's company, Level 3 Communications
(LVLT) is building an international fiber-optic
network that will carry local and long-distance
phone calls, computer data, and, eventually, video.
The crucial difference is, Level 3 will base the
network on the Internet Protocol, a move that
could make long-distance calls to anywhere in the
world virtually free, according to Crowe, the
company's founder and CEO.
"Don't get in the way of Jim Crowe," said Jeff
Pulver, a telecommunications industry consultant.
"He has the ability to make these things happen."
If anyone knows how to challenge telecom's
established order, it's Crowe. The former
power-plant engineer founded MFS
Communications in 1989 to offer businesses an
alternative to the Bell phone companies' service. In six years, MFS became one of the biggest
competitive local exchange carriers in the country, serving more than 50 cities. In 1996, WorldCom
(WCOM) bought Crowe out for $14.3 billion.
Crowe, 47 at the time, didn't sit around. Through
connections, he landed at construction company
Peter Kiewit Sons,' where he convinced chairman
Walter Scott to let him transform a small vision
of the firm into a telecommunications company.
The division, formerly known as Kiewit Divisified
Group, was spun off in April into a new company
called Level 3, with $2 billion in cash from Kiewit.
Shortly after the separation, Level 3 raised another
$2 billion in a public debt offering, doubling its war
chest.
The plan is to build a $10-billion fiber-optic network
in five stages. With its $4 billion in hand now, the
company will string 15,000 miles of fiber to the 50
largest US cities and selected cities in Europe
and Japan. It plans to raise money for the rest of
the network through cash flow and more equity or
debt offerings.
So what's so special about Level 3's network?
The Magic of IP
Crowe's convinced that the magic of the Internet
Protocol -- the set of rules for transmitting and
searching for information on the Internet -- will
overturn the $541 billion telecommunications
industry.
It boils down to economics. The cost of
transmitting information the way the Internet does
is much lower than the cost of transmitting
information through old-fashioned circuit-switched
telephone networks.
Here's how it works: In a traditional phone call, the
network opens a circuit that connect the caller's
telephone to the receiver's telephone. That wire
loop becomes completely dedicated to the call,
even if the callers sit stone silent. No other
information can be carried through the circuit as
long as the phone is off the hook.
IP technology is much different. The network takes
the voice of the caller, turns it into "packets" of
ones and zeros that a computer can understand,
and electronically labels each packet with a
destination address. Those packets are then sent
over the network. Each wire can carry packets
from hundreds of conversations taking place
simultaneously. When the packets arrive at their
destination, a computer reassembles them and
turns them into sound. No wire capacity is
wasted.
In theory, a telephone network based on IP is
vastly more efficient. In its first year, Level 3
expects its long distance rates to be 15 percent to
20 percent lower than current rates. But Crowe
says that in a few years, Level 3's rates might
drop by half or more every year as IP technology
advances. In fact, long distance may one day be
practically free, like email.
"That just hasn't been possible before because
we've had 100 years of monopoly in the telephone
industry," Crowe said.
Competition
Of course, Level 3 isn't the only company with this
plan. Startups like Qwest Communications
International (QWST) are building networks that
are IP-capable. Service providers will be able to
buy IP capacity wholesale from other network
builders like Williams Communications (WMB).
Among the large carriers, AT&T (T) has begun
testing its own IP telephony services.
That doesn't mean traditional telephone
companies are convinced.
"I don't see IP telephony putting circuit-switched
telephone companies out of business, by any
stretch of the imagination," retorted Ozzie deFaria,
marketing director of AT&T's IP telephony service.
Level 3 also has to move quickly to establish a
brand in the cutthroat long-distance business and
to bring in customers. The first customers are
slated to begin getting service in two months.
Level 3 also has to begin paying off its gigantic $2
billion debt, and needs the cash flow to finance the
construction of much of the rest of its network. So
far, it's anyone's guess how quickly Level 3 can
get customers to sign up.
"That will be based on how quickly they build their
network, how well it works and how successful
they are at rolling out services," said Sanjay
Mewada, analyst at the Yankee Group, a Boston
market researcher.
So far, Level 3 is coasting on revenue and profit
from a mining operation and computer consultancy
it inherited from Kiewit. From its telecom and
consultancy operations, it had a loss of $6 million,
or 4 cents a share, on revenue of $29 million in the
first quarter.
Its stock closed down $3.41 at $68.06 on
Thursday, about 18 percent below the stock's
record high of $83.75 in April.
Crowe himself is cagey about his stock's
prospects, as most CEOs are. But he's still
confident about IP telephony's future.
"AT&T and the Bells won't go away," says Crowe.
"But if the question is who's going to deliver the
most value to shareholders from this industry shift,
the answer is the new companies making the
most of IP." |
