Jumping into the race: Energy companies combine assets to target smaller markets

While the service provider market continues to grow, players are hoping to find untapped niches in the bandwidth market. And though some believe energy companies trying to break into the telecom market are a little late to the game, their current assets and strategies cannot be overlooked.

A group of six energy companies detailed plans last week to combine assets and offer connectivity to smaller markets suffering from limited bandwidth availability. With the Tier 1 cities fairly saturated, tapping into the small and medium-sized markets is the next logical step. It will be easier for energy companies to reach those bandwidth-deprived because they already have rights-of-way established and some fiber deployed.

The new entity, called America's Fiber Network, was created by GPU Telecom, Allegheny Communications Connect, FirstEnergy Telecom, CFW Communications, R&B Communications and AEP Communications, which is a subsidiary of American Electric Power.

AFN's network is based on Nortel Networks' equipment and will be a combination of OC-48 and OC-192 links. The network will be concentrated in the northeastern U.S., although it will extend as far west as Chicago when completed (see figure). Once built, the AFN network will consist of around 7000 route miles of fiber.

"While this is a start-up and a new company, this is not a new business to us," said Pete Thomas, vice president of AEP Communications. "It is really the combination of assets of six companies, and we are positioned to serve customers today."

AFN essentially opened its doors for business with an existing customer base, Thomas said. And it expects to expand rapidly in the underserved areas, such as the Tier 2 and Tier 3 markets.

"We are not going to focus on large Tier 1 cities - we want to fill the void left in smaller markets," said David Brauer, vice president of strategic initiatives for GPU Service.

Despite the focus on small and medium-sized markets, AFN will interconnect to Tier 1 cities to provide a more regional strategy.

"It is really a `super-regional' focus," Brauer said.

AFN's strategy is not new. CapRock Communications, for instance, offers regional connectivity primarily in the southwestern U.S.

"There are a number of regional players - CLECs and others - willing to do both wholesale and retail out there," said Kevin Mitchell, analyst of service provider networks for Infonetics Research.

"It's a strategy that has worked for [NorthEast Optic Network]," said Scott Clavenna, principal analyst with Pioneer Consulting.

The NEON network, which also has energy roots, focuses on the Eastern Seaboard and touches multiple smaller markets.

But AFN's plan represents many growth markets not served by major CLECs or dark fiber brokers, such as Metromedia Fiber Network, which should provide opportunity for AFN, Clavenna said.

"The fact that they already have fiber and rights-of-way are huge assets," Mitchell said. "It will definitely give them a head start."