Regarding Williams/ apologies if this was posted prior:
Williams: Second Time a Charm?
The industry has changed in the brief time that Williams has been out of the telecom business. But the new Williams Network is banking on a wholesale-only approach to make it a leader in meeting rising capacity demand.
Sam Masud, Senior Editor
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When you enter the 52-story Williams Tower dominating Tulsa's skyline, it's hard to miss the people at work in the 21,000-square-foot expanse of office space unbroken by walls or cubicles. The lighting has been designed to be easy on the eyes and soundproofing keeps the voices of the more than 300 employees in the cavernous room at a moderate level. The two 70-foot data walls and a 21-foot, full-motion video wall dominate the room, which is considered the largest trading floor west of Chicago. The business of the people in that room is energy, although you may be told, only half-jokingly, that someday it might be bandwidth that is being bought and sold. If your interest is networking, on the opposite end of the building is the Williams Network control center, which houses a 62-foot video wall that may well be the world's longest.
For Williams, a company which makes most of its money from its gas pipelines and energy services interests, there is no incongruity between the two mission control centers. As Howard Janzen, president and chief executive officer of Williams Communications Group, puts it, everything the company does is part of a transport business regardless of whether it is barrels, BTUs or bits that are being moved. Williams has been in the energy business for about 90 years, but dropped out of sight in the telecom industry when it sold WilTel, at the time the fourth-largest carrier after AT&T, MCI and Sprint, to LDDS WorldCom in 1995 for $2.5 billion. Last month marked the first full year since Williams announced its re-entry into the carrier space, this time as the Williams Network (although the company retains the right to use the WilTel name).
“We are back, big time,” Janzen exults. While only time will tell if the company's return is “big time,” Williams Network is off to a fast start. On its launch day, for example, the company announced more than
$1 billion in contracts to provide long-haul services to three service providers, including US West. One hint that Williams has the potential to be a major player again is the fact that Sol Trujillo, president and CEO of US West, attended the unveiling of the new Williams Network and predicted that a US West/Williams partnership would be a “perfect fit.”
Williams Network's fast start may even have surprised its own officials. “The first time around it took us three years to establish the market position that we now have established in a year,” said Gordon Martin, Williams Network's senior vice president of network services, who is back with Williams after being among the personnel transferred to what since has become MCI WorldCom. When Williams sold the bulk of its 24-strand optical fiber network to LDDS WorldCom, it kept one strand of fiber for its Vyvx network, which, among other traffic, carries more than three-quarters of the major-league sports seen on television. The three-year non-compete agreement with WorldCom expired a year ago, and Williams is racing the clock to invest $2.9 billion to build a bigger, better and faster nationwide network which, when completed by the end of 2000, will span 32,000 route miles. “That's a year ahead of our original build plan,” Janzen said. “[In 1997] alone, we built more square footage of POP [point-of-presence] space than in the entire 10-year history of WilTel. It's critical that we get to market in a shorter time frame.”
Williams has been able to reclaim its place in the carrier business so quickly by following a strategy of building, buying and swapping fiber. Williams was reborn as an energy/ telecom hybrid when it bought Houston-based energy company Transco with the funds from the sale of WilTel. Two years later, Williams began using Transco's right-of-way to put in a fiber network between Houston and Washington, D.C. With Montana Power Co., which has been in the fiber installation business since the mid-'80s, and Houston-based Enron Corp., which is building a nationwide fiber network, Williams is part owner of FTV Communications, a limited-liability company founded in September 1997. Playing out Williams' fiber-swapping strategy, FTV entered into an agreement last October that gave it the right to use fiber on a 745-mile Los Angeles-Sacramento network owned by GST Telecommunications. In exchange, GST obtained the right to use the fiber on FTV's 1,700-mile Portland, Ore.-to-Los Angeles route. Additionally, FTV purchased dark fiber rights on GST's 715-mile Sacramento-Portland route. Earlier last year, Williams bought a 350-mile fiber cable from MediaOne's telephony unit.
A Carrier's Carrier
Williams officials believe they have to move quickly if they want to take advantage of WorldCom sorting out its marriage with MCI. Williams officials view MCI WorldCom as the dominant player in the bandwidth wholesale business, while wholesaling in general is what they believe is Williams' core competency. After all, Williams is the dominant wholesale provider of natural gas, carrying nearly a quarter of the country's natural gas through its pipelines. Unlike the old WilTel, whose business was 80-percent wholesale and 20-percent retail, this time Williams plans to stick to the side of the business it knows best, something which will also assure Williams' customers that they will not meet Williams as a competitor. “I think that in relaunching the network, Williams will take advantage of past mistakes,” said Christine Heckart, vice president of consulting services for TeleChoice. “It was difficult for them the first time around and one thing they've learned is that wholesale and retail are very different. They see the industry fragmenting as it matures and they see a segment that survives only on wholesale services. IXC [Communications], when it first started out, was planning to be, if not only in wholesale, mostly in wholesale. In fact, they never really got wholesale going and have had more success on the retail side. But Williams can succeed because one of the things that really works for the company is that much of its senior staff has experience at WilTel, and WilTel, in the oldest sense of the word, was a carrier's carrier.”
Another reason that Williams wants back in the wholesale business is because it sees the demand for data services increasing rapidly, driven in large part by the combination of explosive Internet growth and faster access technologies. Whereas the big carriers such as MCI and Cable & Wireless were the major accounts for the old WilTel, Williams officials see increased business arising as a result of telecom reform. “The new opportunity will come due to regulatory changes, from well-funded entrants that control local access lines. Most analysts say there will be market shift to more wholesale business once the RBOCs are turned loose,” Martin said. Williams' target customer is virtually any service provider--interexchange carriers (IXCs), incumbent and competitive local exchange carriers (ILECs/ CLECs), ISPs and the cable TV companies. “The CLECs are in our sweet spot,” Martin said. “Six of the 10 largest CLECs are using our network for interexchange services.”
If wholesale is the word most frequently heard at Williams, then deconstruction is a close second. Janzen himself likes to explain deconstruction with an analogy: The big names of the computer industry in the 1980s were hit hard when vendors like Intel, Microsoft, Compaq and retailers such as Circuit City “deconstructed” the industry by grabbing elements of the value chain. Similarly, Williams is out to deconstruct the network industry. “That's what drives us to this wholesale-only approach. For the other emerging carriers to say they are driving deconstruction isn't really true because they all want to be retail players who have a wholesale element. Our strategy and position is unique because it is wholesale only. We're not competing with our customers, so we can drive deconstruction by bringing the best-of-class service to our customers and not compete against them.”
Williams entry into the long-haul business is welcome news to a CLEC such as Hyperion Communications, which is building a voice/data backbone covering much of the eastern half of the United States. Noting that Hyperion has a “very dense” network that also provides services in many of the smaller cities, Tom Cady, vice president of marketing and sales for Hyperion, said Hyperion's agreement with Williams will allow Hyperion to provide services in many of those second- and third-tier markets. According to Cady, whose company has contracts with Williams as well as with Qwest Communications, the two carriers make it possible “for us to hit all the markets we want to penetrate. Secondly, because they are both emerging players, their prices are attractive. Thirdly, it is important for us to have route diversity, and the Williams agreement, specifically, gives us that.”
With Intermedia Communications, which bills itself as the largest independent CLEC, Williams has a dual relationship. Williams and Intermedia have connected their frame relay networks and Intermedia, which like Williams uses Ascend Communications' frame relay and ATM switches, is also purchasing various high-speed circuits from Williams to link its POPs. “Before the contract with Williams was in place, we would buy capacity from whomever we could, such as MCI WorldCom. But we are not a facilities-based carrier because we don't own inter-city fiber. That means our backbone costs would have to always be higher than MCI WorldCom, AT&T or other carriers. The contract with Williams lets us get much closer to [those costs] because of the volume we buy from Williams,” said Richard Marchant, vice president for engineering at Intermedia, which is expanding its ATM network from 22 nodes operating at 155-Mbps OC-3 to 35 nodes operating at 2.5-Gbps OC-48 speeds in order to deliver both voice and data services via ATM. Intermedia also did not hesitate to sign a 20-year, $450-million contract with a “newcomer” like Williams. “We don't see Williams as a new player. They know how to build backbone networks; they've done it before. They were smart enough to maintain the right to the fiber routes when they sold the business to WorldCom,” Marchant said. “The risk is pretty minimal. The key to the [deal] is mutual benefit. They have a signature customer who is helping them cost-justify their network builds and we have a reliable bandwidth supplier who gives us bandwidth where we need it, at the price we need it.”
More than Just Bandwidth
Together with US West and Intermedia, Concentric (an ISP in which Williams has had a substantial stake since it went public in 1987) has been another anchor client for Williams from the beginning. Concentric, although it buys ATM services and leased lines from MCI and frame relay services from AT&T, has agreed to purchase additional ATM services, leased lines and network equipment, such as routers, from Williams. Williams, which provides network hardware through its Communications Solutions unit, has staked a claim to being the largest independent distributor and integrator of communications hardware for businesses after acquiring Nortel Networks' distribution unit in 1997--an acquisition that one Williams watcher said the company is still sorting out. As with Intermedia, it is a two-way partnership between Concentric and Williams; Williams sells bandwidth to Concentric and is a distributor of Concentric's virtual private network services to Williams Communications Solutions customers. “It's a competitive market with multiple suppliers, but the challenge is finding service providers who have the capacity and can provide timely delivery of services at an economic price,” said John Peters, executive vice president and general manager of Concentric's network application service division. “Williams has a very pure strategy of being a carrier's carrier.”
Williams' customers not only buy long-haul services, but also colocation space and an array of professional services. “US West not only can come in and colocate equipment in our POPs, but we go all the way to the point where we design, install and do all of the documentation of their equipment,” Martin said. “It's almost turnkey engineering, and that's unique because Sprint isn't going to use its infrastructure engineers to put US West equipment in its POPs. But our success is US West's success, and we have special services resources that we bring to accounts like US West and Intermedia. With Intermedia, we're engaged in supporting network planning, provisioning, etc.”
That kind of help is particularly important to Backbone Communications Inc. (BBCom), a Los Angeles start-up that plans to begin offering voice, video, data and Internet services to small- and medium-size businesses in the top 16 markets. BBCom's Ascend switches will be colocated in Williams' POPs and be managed by Williams. With local connectivity supplied by WorldCom's MFS unit, BBCom, for about $1000 a month, will offer customers wide-area services at 1.5-Mbps T1 rate, including Internet access through a national ISP. Using Cisco Systems routers, BBCom customers' on-net voice and data traffic will be carried over the Williams' ATM network, while other voice traffic will be passed to major long-distance companies. In selecting Williams, BBCom chairman and CEO Robert Bral is reviving an old relationship that he had when he used WilTel to offer customers long-distance voice services from a company that he sold to Brooks Fiber in 1996. “Williams is an extremely customer-friendly company. There's no question that they've created an environment that helps an entrepreneur like myself,” said Bral.
Ahead of the Pack
Indeed, Williams officials will be the first to point out that they have again taken the lead in building an advanced network just as they did with WilTel, which was the first IXC to offer commercial frame relay service. But Joseph Turcotte, Williams Network's senior vice president and chief operations officer, rejects a comparison of Williams with the other new breed of carriers, such as Qwest or Level 3 Communications. “Level 3 seems to be focusing on IP solutions, so you have the question of quality of service. Qwest, because of the purchase of LCI, is immersed in the legacy layered architecture. Layering creates complexity, which creates barriers to change, all of which is manifested in service delivery. Consider our voice network: It's not voice in the old TDM (time division multiplexing) metaphor. It's voice on our core ATM network. We are ION (Integrated On-Demand Network) already,” Turcotte said, referring to Sprint's much-vaunted ATM platform that supports all services, “and we've surpassed it in going to a more advanced concept of an optical network architecture.”
Criticism of Qwest aside, NationsBanc Montgomery Securities officials predicted that Williams, together with Qwest and MCI WorldCom, will strengthen their positions in the industry. “It wouldn't necessarily surprise us if 10 years from now, the top three carriers were Williams, Qwest and MCI WorldCom,” said Dan Tulis, senior managing director at Montgomery Securities. “Both AT&T and Sprint need more network capacity to be players for Internet traffic.”
Joe Whitehouse, Ascend's ATM products marketing manager, singled out Williams as a carrier that has truly embraced the concept of the new public network (NPN). “A lot of service providers are talking about the NPN in the sense of not having to buy the separate layers of a network, but Williams is the first to do that because it's not buying traditional SONET and digital cross-connect systems (DCSs). Everyone knows that the NPN makes sense, that it saves a lot of money in provisioning costs, but no one has grasped this quite like Williams,” Whitehouse said. According to Wayne Price, director of network architecture for Williams, eliminating electronic components like SONET add/drop multiplexers and DCSs translates into better network reliability as well as less space and power consumption in the central office (CO). “The biggest problem with traditional networks is that you have a lot of application-specific boxes. So you're steering bandwidth to a box that provides a service, but that bandwidth cannot be shared across multiple services,” Price explained. “For example, if I have a voice switch, and there are no calls on that switch because it's the middle of the night, all the bandwidth that I have on the backbone that is connected to that switch cannot be used by other applications. My frame relay, ATM and IP traffic cannot use that bandwidth, and that's inefficient.”
No Stranded Assets
In building its network, Williams has at once been aggressive and conservative. Even with demand for capacity rising, the company might be accused of being overly optimistic because it has installed between 96 and 144 fiber strands in every build, while also laying in additional conduits through which it can run future fiber. With the Nortel dense wavelength division multiplexers (DWDMs) that Williams is currently using, each fiber could be lit to provide 160 Gbps of bi-directional capacity. But to do it is no small decision, as Matt Bross, vice president and chief technology officer of the Williams Network, pointed out. “It's a fairly small incremental cost to run additional fiber when you're constructing a network, but that does not mean that there is inexhaustible capacity, because lighting that fiber to carry payload is a significant piece of the cost of building a network,” Bross said. The amount of fiber that Williams has put in the ground, plus how it has placed the optical amplifiers (about 40 miles apart, in contrast to some carriers that have opted for greater distances) puts Williams in a position to take advantage of higher capacity DWDMs in the future. “Advances in DWDM will favor our more conservative plan because 32- and 80-wavelength systems will work on our network because of our conservative spacing. This is something the experts will tell you,” Bross said. At the same time, he does not believe that installing the large amount of fiber is overkill. “Demand will cause us to light multiple fibers because DWDM technology will trail service demand. Secondly, as we see it, the market is evolving to where customers will start looking to buy wavelengths. So, instead of selling OC services at X speeds, we'll be selling wavelengths. There are no stranded assets in the ground.”
By using ATM as the platform supporting multiple services such as frame relay, IP and leased lines, Williams is positioned to get an early payback on its investment, according to Nimish Shah, co-founder and CTO of Sentient Networks. “Those leased lines are a huge revenue base, so [Williams] can make its network profitable quickly, rather than wait a few years to get a payback from the frame relay and IP services. Not only that, they'll also be able to provide much better leased-line service than what traditional carriers offer,” Shah said. Sentient makes a carrier-class access switch/concentrator that allows service providers to support customers' requirements for ATM, frame relay and leased lines. Installed at a service provider's POP or a CLEC colocation site, Sentient's Ultimate switch connects to an ATM core network. Although Williams has agreed to buy at least $10 million of Sentient equipment by year's end, Shah said Williams may move more aggressively: “From what they've told us, they will easily meet that [target] within the first five months.”
Officials of Williams Communications may not have to wait long, at least from the financial market point of view, to find out if they have the right telecom re-entry strategy. Williams is expected to make an initial public offering (IPO) of a minority interest in Williams Communications. NationsBanc Montgomery Securities anticipates that the IPO, which might take place in April or May, likely will offer outsiders a 7.5-percent to 15-percent stake in Williams Communications. “Right now, the way Williams' stock is trading, they're not getting credit for their network,” Tulis said. “But when that IPO takes place, we believe investors will realize a valuation more in accordance with the Qwests of the world. This is because the physical long-haul networking assets currently under construction, coupled with the talented communications group managment, makes the two companies very similar in capabilites.”
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