MAKING WAVES

The leaders of the retail metro wavelength services market, as identified by the Yankee Group late last year, are an odd triumvirate, with one conspicuously diminutive standout. Qwest Communications and AT&T — titans with tens of thousands of employees in their ranks — divide the lion's share of the market with five-year-old OnFiber, which has a staff of about 100.

To earn that distinction, OnFiber surpassed a throng of rivals, from XO Communications and AboveNet to SBC Communications and Level 3, using a mix of focus, agility, resourcefulness and versatility. The company claims to have more than doubled its annual revenue in 2003, collecting $350,000 in revenue per employee last year, a number that tops all the Bells, including Verizon Communications' roughly $334,000 in revenue per employee.

“[OnFiber is] a very strong company in this space,” said Yankee Group analyst David Parks, referring to the retail metro wave services market. “They're still a small company, but that works to their advantage in a lot of ways. They're nimble and aggressive.”

In its fall 2003 report, the Yankee Group estimated that the U.S. wavelength services market would swell to almost half a billion dollars in 2005, approaching three-quarters of a billion the following year. But the research firm is in the midst of updating those figures, which Yankee's Parks thinks will be smaller — and the market tighter — upon re-inspection.

Pioneer Consulting predicted the North American metro wave service market would barely exceed $25 million in 2005, not quite $65 million in 2007. The sector, like any other part of the enterprise telecom services market, has grown intensely competitive and is groaning from downward price pressure. Metro lambdas are commonly priced 15% to 20% lower than OC-48 or OC-192 private lines, according to Yankee Group.

“From 111th and 8th to 60 Hudson Street [in New York], there's price pressure every day,” OnFiber CEO Danny Bottoms told Telephony in March 2003. “But from 60 Hudson to, say, 165 Halsey in Newark, that's different. There's a handful of guys that can provide that service. We're making very conscious efforts to hold our price.” The level of competition has risen since then, however. In August, for example, OnFiber's competitor, FiberNet, announced new collocation services in the Halsey Street carrier hotel that Bottoms mentioned.

Still, Austin, Texas-based OnFiber says it focuses mostly on customers that lack fiber access, in markets where fiber is not as abundant and demand is higher. And it is expanding in those markets.

In June, OnFiber used assets from its 2002 acquisition of Telseon (a former competitor) to launch service in Phoenix. It also beefed up its Boston-area assets by acquiring C2C Fiber Networks, whose 350 route miles of fiber gave OnFiber access to towns like Lawrence and Framingham, Mass. A month later, fueled by a $12-million funding injection, OnFiber entered the business districts of Portland, Ore., by acquiring Portland General Broadband. Bottoms told Telephony then that the company wasn't done with its M&A activity.

In March, OnFiber branded its AdaptiveBuild method of custom network building, wherein the company uses a combination of construction expertise and an extensive knowledge of other companies' fiber to build wavelength links between customer sites.

“They'll work with all those fiber providers, stitch together the different segments involved, make that completely transparent to [the customer] and manage all the relationships,” Parks said. And where no fiber exists, OnFiber builds its own.

Bells have a tendency to favor their own fiber in such applications, a limitation that may explain, at least in part, why the Bells handle only 38% of 2.5-Gb/s and 10-Gb/s retail metro waves while competitors such as AT&T, XO and others control the other 62%, according to Yankee Group. But using their own pipes also gives the Bells a cost advantage over OnFiber, since the latter has to pay to use others' dark fiber.

“There's definitely an issue there,” said OnFiber's director of business development, Boyd Chastant, referring to the effect of those differences in cost structure on price competition. So OnFiber tries to get an edge over its larger rivals by promising quicker deployment than large bureaucracies will permit or allowing customers to avoid long-term contracts.

“They're willing to go the extra mile because they want that business,” Parks said. “It's their core business.”

OnFiber has begun five to ten “major projects” since the company introduced its AdaptiveBuild custom-networks brand in March, Chastant estimated. When Shutterfly, a digital photo developer, began to outgrow the DS-3 connection it had from Level 3, the company replaced the DS-3 with a 1.25-Gb/s link from OnFiber, getting 27 times the bandwidth but paying only 30% more per month. NBC uses OnFiber to send bandwidth-hogging video back and forth between its Los Angeles studios and its New York headquarters.

OnFiber also seeks out hospitals and educational institutions, as well as financial services firms with disaster recovery and business continuity needs.

Many financial firms in New York, for example, responded to the 2001 terrorist attacks by backing up their data in New Jersey, using thick pipes to connect to the other side of the Hudson River, only to conclude that their backups were still too close to Manhattan to survive, say, a “dirty bomb” nuclear attack there. These days, many of them are planning to store data even farther away.

“A lot of people have gone back to the drawing board,” said Frank Coluccio, a consultant with DTI Consulting who aids East Coast financial firms with data network planning.

Their need for network diversity to ensure redundancy gives OnFiber's patchwork quilt approach another edge over the Bells' single-network solutions, Chastant said.

“Now [enterprises] are starting to say, ‘Prove it to me, show me the diversity down at the street level that this network is completely separate from other sources of connectivity I might have so I'm assured that a single fiber cut, a fault in your central office, a fault at my site, will not cause this network to go down,’” he said.

Still, many financial services companies are opting to light and run their own dark fiber network rather than contract a wavelength service provider, Coluccio said, because handing the project over to an outside firm still requires the enterprise's information technology personnel to participate in much of the planning and implementation of the network. And every do-it-yourselfer means one less potential customer for OnFiber.

Last year, several equipment vendors touted new coarse wavelength division multiplexing (CWDM) gear as, among other things, a tool for expanding the wavelength services market by offering CWDM's lower price points to customers that otherwise would not have considered waves. But sources familiar with the retail metro wave sector say CWDM's impact so far has been noticeable but not noteworthy.

Over the next few years, spending on CWDM gear should consistently decline as a percentage of North American metro WDM equipment spending, according to Pioneer Consulting. Though OnFiber (which uses gear from Ciena's ONI Systems acquisition for metro DWDM and from Ciena's Internet Photonics acquisition for CWDM) uses CWDM extensively — for about half of its custom wavelength services projects, according to Chastant — the technology doesn't necessarily open many new customer doors because the cost savings it provides is usually overshadowed by the larger costs of physical construction in a custom-built network.

Going forward, OnFiber's growth will depend less on new technologies and more on the attentive customer care it hopes will differentiate it from larger firms. Though a single point of contact manages each customer account from the time of the initial order, when asked how many of OnFiber's 100 employees are customer-facing, Chastant said, “Almost all the people at OnFiber will end up facing the customer at some point.”

optical

For more information on the growing role of wholesalers in the metro wavelength services market, see the Optical section of our Web site.
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