Williams moves up the food chain

$1 billion initiative aimed at putting carrier in the big league

If Austin Powers' Dr. Evil was excited about $1 million, he'd be in awe over Williams Communications' latest announcement. The company last week said it will spend $1 billion during the next few years to build several new data centers, expand its co-location facilities, scale its IP network and purchase additional transport and switching equipment.

Working to establish itself among the world's top global carrier's carriers, Williams' latest initiative is one in a long line of deals and partnerships the company has closed during the past 13 months as it focuses on expansion (see timeline).

"We recognize that success in this industry requires a focus on developing a network that can scale to meet the demands of carrier customers," said Howard Janzen, president and CEO of Williams. By scaling its core infrastructure, the company hopes to meet customer's growing needs, he said. "We need to get ahead of the tidal wave of demand we're facing instead of just constantly trying to keep up with it."

If Williams is falling behind, it's not because of a lack of diligence. During the past 13 months, the company signed numerous deals with SBC Communications - one of its main investors and a potential future buyer, and dozens of other ISPs, application service providers (ASPs) and competitive local exchange carriers (CLECs).

The company is on track to complete its 33,000-mile optical network by the end of the year - ahead of original projections. "There's an insatiable and highly elastic demand for bandwidth that requires a highly efficient and scalable network to meet that need," Janzen said. "We believe that we're building that network and can be a big winner in this dynamic environment."

Williams will become even stronger with the addition of more data center space and co-location facilities, one analyst said.

"There's an immense opportunity for facilities-based network providers to bundle co-location and transport services as an offering to ASPs, CLECs [and] ISPs," said Joanna Makris, program manager with The Yankee Group. "Service providers of all shapes and sizes are getting into wholesale markets."

But Williams will face heavy competition in this hot market. Makris pointed to recent data center initiatives by Qwest Communications, IBM, AT&T, Nortel Networks and Lucent Technologies; the last two also could see a windfall of contracts from the Williams expansion.

"Nortel is also in the space but lacks a backbone. Williams has the advantage of bundling data centers with transport," she said, adding that the company already has a good reputation for transport pricing, customer service and delivery.

Success will be largely determined in a time-to-market race, Makris predicted. "Are they late to market? Who's going to get there first?" she asked.

Williams' move into the data center and co-location space correlates with the company's desire to appeal to the next generation of ASPs such as Disney, Sony and News Corp. that need bandwidth to deliver content in several forms, including TV, movies and CDs via MP3, another analyst said.

Janzen believes five years from now almost all traffic will be content-oriented, said Russ McGuire, vice president and chief strategist with TeleChoice and a former Williams' employee. "How do you make sure that content is across your network? You host it."

Williams already delivers 60 terabytes per day of TV content via its Vyvx Services, a video backhaul and advertising distribution service, McGuire added. "As broadcasters and sports networks start to look more like ASPs with content, Williams wants that in data centers on top [of its network]," he said.

"We definitely see opportunity in the broadband media space as a tremendously hot area downstream for us," said Ken Epps, senior vice president and chief marketing officer for Williams. But right now, the company's newest initiatives will let Williams "continue to address the high bandwidth, high-growth, Internet intensive service our customers are asking for," Epps added.