The cyber building: Non-traditional carriers bring MDUs up to speed

Check into a few select Hyatt Regency or ITT Sheraton hotels, rent an apartment in Trump Tower or any of a dozen other upscale locations in cities across the country, or move a small business into the Transamerica Center in Los Angeles, and you will get the finest telecommunications services available. Digital TV, access to the Internet at megabit speeds and eight-way conference calling are few examples. You likely won't be sending much revenue in the direction of the local telco.

That's because in most of those buildings, Internet service providers and competitive local exchange carriers, among others, are the preferred providers.

Collectively, multi-dwelling units (MDUs) represent a relatively small portion of the overall telecommunications market. But as building owners continue to compete for high-end clients, many are beginning to realize that providing high-end telecom facilities through non-traditional carriers sets their buildings apart.

"The property owners love it because they can package service from a bunch of different providers," says Mor Allon, president of Foxcom, an Israeli company that has placed direct broadcast satellite (DBS) service in several Chicago MDUs by teaming up with Primestar.

In a typical installation, Foxcom uses a single dish to receive signals and then connects to a receiver node via fiber. From that point, service is delivered to individual units over the building's existing coax.

"We identified the requirements to deliver DBS into large buildings and found that coax was [causing] a problem" from the dish, says Allon. "You can't do it very well with high frequencies."

Because Foxcom is using the existing coax to reach each apartment, the cost to a landlord for offering a significantly better service than traditional cable TV is lower. "We're competitive with coax, so for the same price of coax distribution, you're putting in a hybrid fiber/coax system right in the building," says Allon.

Although it's not cutting into telco revenue yet, the company is on the verge of offering Internet access service via satellite, which is expected to attract high-end users. Perhaps of most concern to telcos is that reductions in the size and cost of equipment along with regulation are making it easier for competitors to enter the MDU market.

For competitors, MDUs represent an attractive market because they can be served for significantly less cost than single-family residences. In many cases, they also mean capturing a market that has shown a willingness to pay for high-end services.

"With these small modular scalable platforms, you literally can get into the telephone and data business for a fraction of the cost," says Phil Allen, executive vice president of Convergent Communications Inc. "It's all about a smaller distributed platform, and they are not coming from the traditional telco vendors. There's going to be a whole new economic model on the carrier side. It's a declining cost model, and this thing is going to develop through non-traditional channels."

The market also is developing because of telcos' negligence, some competitors claim. Seeing MDUs as an operational headache, many large carriers have focused their resources on the biggest corporate accounts, leaving a rich market to competitors, says Kevin Keating, a senior broker with Cushman & Wakefield, a Los Angeles real estate firm that has developed office space tailored to telecom carriers' needs. "A lot of the big providers don'tnecessarily want to go into a building to serve a 5000-square-foot office if they don't have to."

At the same time, though, some commercial building owners have been hesitant to let new providers into the building for fear of breaking off relations with carriers that have performed well in the past.

The solution for some is to concentrate on new-build areas. An example is Cox Communications' efforts in the Orange County, Calif. market. Employing its existing fiber network and Northern Telecom access nodes, the cable TV operator has captured huge shares of the telephone market in newly built MDUs where it offers service. In the four buildings where it offers a packaged service of video, high-speed data and voice, Cox is serving 95% of the residential telephony customers, says Chuck McElroy, vice president of residential broadband for Cox.

The ease of deploying equipment also is drawing in market players that initially had little intention of serving the residential market. Convergent, which bills itself as an enterprise carrier, says it is looking at the residential market in some areas where it overlaps geographically with corporate customers.

"We are exploring it at what was the shared tenant environment," says Allen. "Shared tenant has a bad ring to it because of the overpromises of the 1980s, but it's making a big comeback now. With the telecom act, it makes it a lot easier because you can become the local telco."

The leveling factor It's no surprise that CLECs and ISPs are among the biggest drivers behind the resurgence. Ironically, many of those same carriers are making the push into the MDU market using technology-digital subscriber line (DSL)-originally developed for telco applications.

Despite recent movements by the five Bell companies and GTE to develop a single DSL standard and U S West's announcement that it would roll out service in up to 40 cities, telcos are well behind CLECs and ISPs in actual deployment, according to data from the ADSL Forum. Of the 44 ADSL trials and service deployments that the forum tracks, only 16 are being run by local telcos. And of those trials providing high-speed data service to MDUs, the overwhelming majority are being run by ISPs.

"Clearly the ISPs have an advantage in the MDUs because they can get access to the copper," says Bill Rodey, vice chairman of the ADSL Forum.

Given the short copper lengths between basement telephone closets and individual units, it makes economic sense for an ISP to provide service off a fiber-fed DSL access multiplexer (DSLAM), he says. "All they have to do is put a [DSLAM] in the basement. You don't have to deal with load coils, and you're likely not to be going down aerial cable with power next to it, so you would expect the performance to be even more robust."

American Information Systems, a Chicago-based ISP, not only has found its performance robust, but extremely flexible. Using Westell DSL modems and a leased T-1 line from Ameritech, AIS has teamed up with the John Buck Co. real estate development firm to provide DSL service to apartment dwellers in Evanston, Ill.

AIS initially was drawn to DSL by the speed but was sold by rate-adaptive equipment that lets the ISP deploy service in increments of 128 kb/s, says Andrew Doane, director of network operations. "Someone can literally come in and decide exactly how much bandwidth they want in both directions."

Although he wouldn't discuss specific numbers, Doane says the company's project has been successful enough to expand to other buildings, including hotels. "We of course have gotten a large response from the technically savvy people," he says. "But we've had a little better than expected response from the work-at-home people."

One non-traditional provider is even giving ADSL another shot at providing video. FreelinQ, formerly Televideo, is using ADSL to transmit movies on demand to residents of Trump Tower in New York. Drawing on a library of about 300 movies housed on nCube servers, the service is free to residents and supported by advertising. FreelinQ is using ADSL modems from Amati and set-top boxes from Acorn.

The MDU market is so good, in fact, that it's drawing companies from a wide range of backgrounds outside the telecom field. Dualstar, for example, originally was a contractor installing large heating ventilation and air conditioning systems in New York MDUs. After expanding into electrical contracting work, the company went public and started packaging telecom services into its work.

"One of the advantages to being in the contracting world was that we had our pulse to the ground with the building owners," says Bob Birnbach, vice president and chief financial officer for Dualstar. "Competitive carriers had a hard time getting into these buildings. We had construction knowledge and were accustomed to dealing with the building owners in their environment."

The effort has paid off. Playing off New York's competitive services market, the company now uses multiple carriers to negotiate increasingly lower prices for landlords. Recently, the company signed a deal with Fujitsu Business Communication Systems under which it will bundle Fujitsu's switching equipment with its packaged service.

The first building to benefit from the partnership is One Columbus Place, a 730-unit apartment complex in the Lincoln Center area. Among the amenities offered at the cyberbuilding are enhanced telephone services such as unified messaging and eight-way conferencing calling, digital CATV, high-speed Internet access and a Web site dedicated to activities in the building. Dualstar also is providing CyberCierge, an on-site staff member who will provide technical support.

Still other companies are gearing their operations specifically for MDUs. In Chicago, 21st Century's entire business plan depends on the cost savings of serving densely packed residential and business customers with cable, Internet access and telephony.

Using a unique agreement between itself and the Chicago Transit Authority, 21st Century has built a fiber backbone alongside the CTA's rights of way, in most cases lashing the fiber directly to the support structure of the elevated train tracks. By bringing fiber directly into most of the buildings it wants to serve, the company can offer customers a menu of choices, including several flavors of high-speed data. More importantly, because it's a start-up, the company has few biases on the service side, says Stephen Lee, vice president of Internet and data services. "What we've built is really a telecommunications services network right from the start. We didn't have a lot of the hanging on legacy issues."

The company also is working on putting together virtual office packages that will allow companies with multiple locations to interconnect. One of the first accounts to take advantage of that will be a restaurant group, which is connecting all of its restaurants via cable modem. Locations off the 21st Century network will access the network through a dial-up connection.

"As the network is built out, we'll be able to use cable modems or 100BaseT so you can have multiple locations all able to communicate at 100 Mb/s," says Lee. "In the second phase, this will open up to the intranet/extranets so employees working at home can have access to things like personnel records and schedules. Eventually it can evolve to the point where the suppliers have access to the network, and they can do secure transactions and electronic commerce."

Such applications will be significant to boosting carriers' network traffic and high-speed data services revenue. Soon, the three most important words in real estate may be networking, networking, networking.