Internet is in the building

Commercial accounts often are considered the sweet spot of telecommunications. High volume customers of both local and long-distance voice providers also are demanding Internet connectivity, virtual private networks and specialized communications needs such as videoconferencing.

But there's new competition for that sweet spot. A group of the nation's largest commercial real estate owners have partnered with venture capital firm Kleiner Perkins Caulfield and Byers to launch a company that offers their tenants local and long-distance phone service and high-speed Internet access.

Called Broadband Office, the company expects to begin selling service later this quarter in Dallas, New York and Washington, with more cities to come.

Other site-based telecom firms are out there - Allied Riser Communications has been operating since early last year, and On-Site Access launched in New York earlier this year - but Broadband Office differs in two major ways. First, it plans to sell voice and data services, whereas the others concentrate primarily on Internet access. Second, the eight real estate owner participants own 2000 office buildings in the 30 largest markets in the country. That gives Broadband Office a massive potential customer base at start-up - 10% of U.S. commercial office space and 40% of the space owned by real estate investment trusts in the country.

"We'll be in the top 45 or 50 major metros," said Kevin Compton, a general partner in Kleiner Perkins and a board member of Broadband Office. "We're still trying to figure out which ones will go first, but we'll have some offices up and running this quarter."

Broadband Office will spend up to $100 million in the coming year to install fiber optic networks in members' buildings, then buy backbone capacity from AT&T, MCI WorldCom and other wholesalers in an attempt to keep traffic on its network and offer quality-of-service guarantees.

Simplicity will be the selling point - the simplicity of having one contact point for all of a business' communication needs and simplicity in pricing.

"When businesses move into a building, they don't ask if you have electricity and can they take a tour of the generating plant," Compton said. "But that's what we do with computers because we think they're something different. And that's wrong."

The notion of dealing with one provider for phone service and Internet access should be part of the appeal of Broadband Office. For example, Compton said, commercial tenants complain about slow service from incumbents in bringing up or upgrading phone and computer service. Broadband Office expects to be able to speed activation times from weeks to days.

Although early pricing still is fluid, Broadband Office will work toward tiers of flat-rate price packages - a monthly cost per desk for both dial tone and data. "I don't want to get into 4cents per minute vs. 7cents per minute because that's not a good business to be in," Compton said. "Also, it's very hard for businesses to budget that way. Chief financial officers are going to love us if we can pull off fixed pricing."

Pricing will be the key to the offering, said Charles Ribiers, an analyst with real estate consultancy InSite Partners. "Broadband Office will have to hit the value proposition squarely; tenants won't pay a premium for convenience," he said. "The next quarters will tell whether the company can undersell the incumbents on connectivity and still make a profit.