A highway to profits?
Thursday, April 8, 1999
SCOTT MORITZ
Staff Writer
New Jersey's E-ZPass system -- the nation's most expensive, and possibly most
anticipated electronic toll collection project -- has dug itself a rut.
It's actually a 3-foot-deep, 415-mile fiber-optic cable trench. And if the bemired
contractor, MFS Network Technologies, completes the job, it's expected to raise $205
million in revenues over 20 years for the state as telecommunications companies lease
its excess space.
For better or worse, an innovative public-private contract has thrust the unlikely
amalgam of five transportation agencies into the business of building an enormous
underground data-communications tollway along one of the most vital information
corridors on the planet.
MFS Network Technologies, of Omaha, Neb., won the $500 million E-ZPass
contract one year ago, not just by underbidding Lockheed Martin IMS, but because
the plan included an opportunity for the state to generate funds for the project by
renting surplus pieces of the fiber route.
This rich vein of subterranean real estate runs along public right-of-way under the
shoulder of the Garden State Parkway, the New Jersey Turnpike, and the Atlantic
City Expressway, and is filled with six to eight colored plastic 1 1/4-inch conduits.
Just one fiber-optic cable being buried as part of the contract can potentially carry 670
million calls at one time. That is more than twice as many calls as AT&T's network
handles in an average day.
Managing a new public resource of this magnitude in order to extract the maximum
benefit for New Jersey residents, however, requires an expertise that highway
officials may not possess, say analysts, politicians, and consumer advocates.
"So much is involved, so much money and so much that is important to the future of
the state and the citizens here, that this needs to be examined by those with the proper
professional knowledge," said Democrat state Sen. Byron M. Baer of Englewood.
But turnpike officials downplay the complexity of selling fiber capacity.
"I don't think it is terribly difficult to value your fiber network and establish a
minimum pricing," said Turnpike Authority Executive Director Edward Gross.
Gross and other turnpike officials say they have been more involved with the
problems surrounding the violations-processing and customer-service aspects of the
E-ZPass contract, but add that MFS is uniquely qualified to oversee the marketing of
excess capacity.
"We have been more than prudent in developing information and properly relying on
MFS, which has been doing this for a long time in other areas of the country," Gross
said.
Still, Baer and others say no one, including MFS, can accurately gauge the value of
fiber capacity from one year to another, let alone over the length of a 20-year lease.
"This is a huge cable installation which may be sufficient to carry a large portion of the
entire commercial data traffic on the East Coast for years to come," Baer said.
"We urgently need objective studies that will tell us what the true value of this
fabulous resource might be," Baer said.
Gross said 20-year leases are the industry standard and that if the prices were too low
they would have been inundated with lease requests by now.
"This should be looked at in a positive fashion," Gross said. "This will generate a
fairly sizable amount of money over time to pay for the project without asking our toll
payers to pay for the project."
Inside one of these buried tubes, which sprout in a rainbow of tentacles at various
junction points along the roadside, is a fiber-optic cable that contains 108 hair-thin
glass strands. Each strand, depending on the network equipment that controls the
capacity, can carry more than 6 million phone calls at any given moment.
The fiber-laying work is more than half complete and is expected to be finished in
July, one month later than planned, said the turnpike's assistant chief engineer,
Donald Mauer.
The cable connects to fiber-optic pipelines in Manhattan, Delaware, and Pennsylvania.
And as data communications becomes the newest and fastest-growing traffic market,
analysts say any cable-burying project that doesn't include extra capacity is
ill-planned.
"Fiber is becoming so valuable, and you look at how important New Jersey is as a
corridor state, you can see how important this will be," said Carol Hollows, director
of the E-ZPass project.
The success of leasing fiber rides on the basic economics of supply and demand. Most
forecasts indicate that capacity will exceed demand for a few years but the gap will
narrow as more computer and telephone traffic merges onto new, higher-capacity
networks.
Analysts such as John Kessler, president of Kessler Marketing Intelligence, a
fiber-optic research firm in Newport, R.I., are bullish on bandwidth.
"More is not enough," Kessler said. "More computers are being sold and more
computers are being connected to the Internet, and more communication is done per
person at higher computer speeds."
The E-ZPass cable and conduits are treated like real estate and rented by the mile.
MFS is the leasing agent, and the Regional Consortium -- including the New
York-New Jersey Port Authority, Delaware, and the New Jersey tollway authorities --
are the landlords.
Lease proposals are solicited by MFS and brought before the consortium. To date,
two contracts, together worth $15 million, have been signed for 20-year leases of two
empty conduits, Gross said.
According to the contract, MFS will receive $55.8 million for laying the cable. After
the leasing begins and the consortium has sold $205 million worth of capacity, MFS
will start to take 15 percent of any new contracts. The consortium will keep the
remaining 85 percent.
The consortium controls eight of the 108 strands of fiber. Four strands will be used
by the tollways to handle E-ZPass and other agency communications. The remaining
four strands have not been spoken for, but Gross said an effort will be made to
involve other government agencies, such as transportation or education.
From the beginning, the MFS contract has been disputed. First by Lockheed, which
got beat on the contract, then because of the scrutiny MFS brought on itself through
sub-par performance and missed deadlines.
In July, MFS Network Technologies was acquired from WorldCom by Able Telecom
Holding Co., based in West Palm Beach, Fla. Before and after the purchase, key
MFS employees, including President Kevin P. Moersch, left the company. Also last
year, reacting to charges of mismanagement and insufficient finances, the state
Attorney General's Office reviewed the contract. After lengthy negotiations between
the company and state officials, the contractor agreed to pay $25,000 a day in fines.
By the end of last month, $1.8 million in lost revenue was tallied against MFS, Gross
said.
Official from MFS and the tollways meet Thursday to appraise the status of the
project, but analysts say it is unlikely at this point that MFS will lose the contract.
"They have come out of their darkest days and they are trying to get themselves out of
a hole," said Kip Rupp, an analyst with Sterne Agee & Leach in Atlanta. And like the
project itself, Rupp said, "they are gradually getting there." bergenrecord.com |
