FIBER fast and furious

Fiber operators have grown from the long-haul market into the metro market, proving that thinking small may have a big impact

Bigger is better, right? Networks are getting bigger, expanding into more places, and certainly the pipes are getting bigger - increasing to OC-768 in short order. But for some in the world of fiber optics, the bigger-is-better adage is off. In fact, as the fiber operator market expands, some operators are taking the opposite view. To them, smaller is better - at least in terms of individual network builds.

A recent outcrop of fiber providers in the metro market highlights the efforts to solve the last-mile problem. Companies such as Metromedia Fiber Network, which builds metropolitan rings that link directly to office buildings, and a slew of start-ups that pull fiber through buildings - and then offer services to its inhabitants - are obviating the unbundled local loop issues. Their business model targets high-usage customers and provides fiber to their doorstep or desktop. And it's working.

Competition breeds innovation, and before the Telecom Act of 1996, there was little of either. In the early days, AT&T, MCI and later Sprint operated long-haul fiber networks and offered long-distance services on top. But the breakup of Ma Bell and advancements in fiber optic technology opened the doors to other providers such as Wiltel, the utility company that launched a communications arm now called Williams Communications.

>From whence they came

Using an idea submitted to an internal suggestion box, Wiltel began pulling fiber through its unusedpipelines, which made ideal conduits. Its network transported photons instead of molecules, says Greg Floerke, senior vice president of engineering and construction for Williams. It was the first to provide wholesale services to service providers, he adds.

"Wiltel stepped in and took the opportunity to be a carrier's carrier. That created a whole new tier of resellers," Floerke says. "There was huge latent demand for capacity, and now they had a fourth nationwide carrier." Williams' biggest customer in the early 1990s was Long Distance Discount Services, now WorldCom.

Williams now offers a range of interconnection services from T-1 and DS-3 links to OC-48 wavelengths and frame relay, IP, ATM and switched voice services. "We don't brand it," Floerke says. "We provide a turnkey network and services for our customers to brand and sell."

New players also are announcing nationwide networks, but they realize the positive economics of buying fiber from wholesalers. Floerke suggests that even more national operators will spring up. "The barriers of having the capital and the wherewithal to build your own network with your own cable don't exist anymore," he says.

Qwest Communications, Level 3 Communications and others also have built long-haul networks to satisfy bandwidth demand. While those networks continue to grow, regional players such as CapRock Communications and Broadwing (formed by the merger of IXC Communications and Cincinnati Bell) emerged locally.

The competitive landscape also presents new marketing opportunities for fiber providers. Extant, a carrier's carrier, provides long-haul transport to competitive local exchange carriers (CLECs) across the U.S. It goes a step beyond that, however. Extant also acts as a clearinghouse for CLECs that want to trade different types of services, said Jane Jones, senior vice president of the CLEC strategic business unit for Extant.

"Extant's model is bringing CLECs and ISPs together so they can trade communications services between each other," Jones says. Earlier this year, Extant purchased Mantiss, an operations support system vendor, to simplify the interworkings of carrier activities. With Mantiss, Extant also can facilitate electronic communications to the incumbent carrier for provisioning. The long-haul provider also encourages its CLEC customers to do business with each other, thus bolstering their otherwise localized footprints.

Moving into the metro

Still, the network is only as fast as its slowest link, so there is a push to move fiber even closer to the customer. Companies such as MFN are building metro rings that deliver fiber to targeted office buildings - those housing small business - but high-usage - customers. That has opened the doors for a new class of provider: a building LEC (BLEC).

These companies wire office buildings and office parks that have fiber links to the metro ring. Their needs are different from other metro plays (Figure 1).

Players include Allied Riser Communications, BroadBand Office, OnSite Access and Urban Media. They often partner with metro fiber operators such as MFN that build fiber but don't offer end-user services. ARC, for instance, sits in all 26 Level 3 co-location facilities, as well as metro points of presence owned by Qwest, MFN, Nextlink and others.

BLECs work with property managers to offer communications services - sometimes exclusively - to all customers within the building. Essentially, the customers get advanced communication services and an experienced IT staff that can troubleshoot their problems.

"The abundance of long-haul fiber and the growing capacity of metro fiber has provided an opportunity we've seized," says John H. Davis, chief technical officer and a director on the board of ARC. "We're moving aggressively to solve the [communications] problems of the small to medium-sized enterprises."

BLECs provide applications and services such as Internet, e-mail, virtual private networking and streaming video capabilities. Voice services, including voice over IP, will be available in the future. Often a technical team is assigned to each building and maintains an office there or in a nearby office.

Many Fortune 500 companies and other large customers have these people and technical solutions in place. The booming economy has led to an outgrowth of smaller businesses that have the same communication needs but on a smaller scale in terms of equipment, staff and budget.

"We're taking these services down market," says Joe Basile, CEO of OnSite Access. "We're moving these services to the small and medium-sized business market, which has been ignored from a customized standpoint."

This burgeoning market will continue to grow as BLECs expand geographically and beef up their service offerings. "There are not a lot of barriers to entry," Basile says. "There will be other competition."

Consolidation is likely, too, perhaps as BLECs merge with each other or with metro fiber operators. "The metro resource is extremely valuable, and it's hard to deliver," says Jim Orr, director of network planning for CapRock. "Companies are getting tired of digging up streets. They are looking at acquisition strategies."

The success of these companies is almost guaranteed because service providers need high-speed access all the way to the end customer. "The local plant is legacy-based, and it has not advanced as quickly as the long-haul space," says Chris Rothlis, vice president of engineering at Broadwing. "For those that crack the code on delivering bandwidth and solving the last-mile problem, it's going to be huge."

To have and to fill

Of course, lighting fiber isn't enough. Carriers want to make more efficient use of their current fiber. They're demanding that network equipment evolve to support more users and more advanced services. Chief concerns are wave division multiplexing (WDM) and IP capabilities.

One of the most significant changes of today's offerings is that end users now can get wavelength services - a function of increased demand and fiber counts. Early on, Williams deployed 24-fiber cables, but today fiber operators are pulling more than 400-fiber cables. WDM furthers the flexibility of carrier service offerings. Initially fiber was split into one or two channels, but more recent product plans call for 160 wavelengths per fiber.

Despite the huge additional capacity available, Williams' Floerke says it "still can't keep up with demand."

The willingness of new fiber operators to provide new capabilities is forcing incumbents to rethink their network plans. "Fiber providers are really turning up the heat on incumbent carriers to compete," says Greg Wortman, senior director of marketing with Fujitsu Network Communications (Figure 2).

The emergence of services stems from customers wanting more from their providers, says Charlotte Denenberg, vice president of optical networks for MFN. Operators that started as dark fiber providers were asked to offer co-location services, then Sonet, WDM, gigabit Ethernet and, more recently, managed Sonet, WDM and gigabit Ethernet services. After creating WANs to link geographically dispersed LANs, customers requested that applications be linked via wavelength-based services.

"The metamorphosis of the business has taken us places we never expected," Denenberg says. That led MFN to acquire AboveNet, which has a similar business model for Internet-based communications.

Competitive carriers have largely been driving innovation in networking and services. Burdened with legacy networks, incumbent carriers have been slower to move. "Some of these emerging carriers want to push the envelope on the technology," Wortman says. "Qwest and Level 3 have stated goals to get to IP telephony and IP over photons. These companies are pushing all suppliers to develop IP solutions. The BOCs don't push that hard in terms of new technologies; it's more incremental."

The push for new data-centric capabilities will vastly change service offerings and applications. "Expect the unexpected," Denenberg says. "New technology is used for applications that were never even thought of. The real growth of the technology is leveraged in the same way post-Industrial Revolution products were never thought of [before] the Industrial Revolution."

After sorting out what works and what doesn't, MFN finds that "new technologies applied to those [applications] are head and shoulders above the previous attempts," Denenberg says. But network innovation shouldn't be cost-prohibitive for new providers, CapRock's Orr says. Operators must watch the bottom line as they grow. When a fiber operator upgrades its equipment, the old equipment can be recycled in a new market. "You don't really want to throw anything away," he says. "There is explosive growth in the network. When you build for today, you make sure what you deploy has a solid plan of record" from the vendor.

Orr won't buy a scaled-down version of a product unless he's sure he can add to it later. "You do your due diligence. You want to know what's coming and build a contract that takes you through the plan of record so you don't take capital hits."

Fiber futures

The future is an all-optical, point-to-point network that is easy to provision. Network technologies and equipment will offer more simplicity, enabling providers to be more flexible.

Because of the availability of fiber and WDM, billing models also are changing. WDM is the enabler that makes long-distance bandwidth essentially free, says Tim Cahall, vice president of marketing and sales for Lucent Technologies. Once, calls were billed based on length of call, time of day and distance. But with more fiber deployed and lit, the cost per bit drops precipitously, Cahall says. "Distance is no longer a factor. That is a fundamental shift in telecom," he says. "The next barrier to fall is the length of a call. We'll see how long that lasts."

The claim that ultra-cheap transport is here today is a bit exaggerated, says Mike Sava, senior vice president of network engineering and operations for Extant. "Prices are dropping, but not as fast as some people think," he says. "The fiber glut is a future happening. I've been hearing about all the fiber available, but we're not finding duplication in the fiber currently available."

However, prices will drop in a year or two as evidenced by the contracts providers are signing with operators for future fiber. "You can get good deals if you sign up early," Sava says. "If you are looking for [fiber] right now, prices and terms are still fairly static. I don't have a lot of choices."

Operators can charge more because "they know they are the only game in town," he adds. "I expect it will change dramatically early next year."

Likely it will have to. The emergence of bandwidth exchange markets will force better pricing. Currently in their infancy, companies such as Arbinet and RateXchange should fare well.

"The bandwidth trading piece is a big change," Williams' Floerke says. As the amount of bandwidth increases, prices will drop, thus leading to the commoditization of long-haul capacity.

The business reasons behind bandwidth exchange are obvious and have led to partnerships and leasing agreements between CLECs and competitive long-distance providers. "Why be held hostage by AT&T, MCI [WorldCom] and Sprint when you could lease a dark fiber from Level 3 or Qwest and interconnect the services?" Fujitsu's Wortman asks.

But fiber and equipment alone are not enough. The challenge moving forward will be getting talented employees to design and maintain the network. "You still have to have people to install it and operate it; you need expertise to provision it and provide quality of service," Floerke says. "That is the bottleneck right now."

The plethora of start-ups has intensified the competition for experienced people, as more companies vie to attract skilled technicians. Eventually, Floerke predicts industry consolidation will be driven by a staffing need rather than footprint alone. "To provision and operate the optical network, there are only so many people to go around, and I want to have those people," he says.

Downsizing for opportunity

The growth of fiber operators appears to be cyclical as their target markets decrease in size. First, fiber operators concentrated on long-haul networks, then metro, then buildings. Most metro fiber builds are in Tier 1 cities. Once those are saturated, opportunities lie in the oft-overlooked Tier 2, 3 and 4 markets, says Ed Bennett, director of network planning for Extant.

Incumbents also are building data networks to support Internet demand and e-commerce; while they struggle with legacy issues, competitive carriers can leapfrog them. "It's a good time to be in the business," Bennett says.

As the technology advances and the fiber operator market continues to expand, the players within it must set themselves apart. "Every company is capable of getting their hands on the technology," Broadwing's Rothlis says. "Customer service is king. In the end, the customer experience has got to be a positive experience."