The unusual suspects

The companies Telephony rounded up for this year’s Ten to Watch lineup represent everything but the ordinary. No typical telco mentalities or predictable me-too alibis to be found here: The rap sheets of the companies in this crowd provide proof that standing out from the crowd of communications service providers these days means taking a risky road.

This Telephony staff report profiles companies we believe will make headlines during the next year—maybe indefinitely. Their unifying characteristic is their competitive disposition. All but one of the organizations that make up this year’s Ten to Watch were founded within the past five years, and several celebrated their first birthdays this year. That means they’ve been brought up against a backdrop of contention where they’re always watching their backs.

But while the companies profiled on the following pages might be considered accomplices in their push for competitive ascension, the technology formats each of them wields are very different. Some of them are lighting the way with glass—laying fiber in the metro network or using it to connect cities and hubs. Some are shooting mobile apps across the spectrum. Still others are not banking on a single technology but instead keeping their options open.

The customer hits of these outfits also is varied, as are the services they’re aiming to provide. Because most are new on the scene, they’re typically going for high-end markets that will give them the biggest scores. But some are stepping into the shadows, trying to take over smaller territories where their more established rivals don’t yet lurk. Some of them are taking new slants on old standby services such as voice, while others are angling for new ways to host and deliver data content.

The burden of proof is on these companies to show hard evidence of their potential. They’re featured here because they’ve done something to deserve it—maybe they’ve raked in a lot of dough, shown that they’re technologically crafty or proved themselves worthy of a showdown by putting a dent in the customer base of their adversaries. Now they must deliver on their promises.

—Jason Meyers

The undaunted upstart

XO Communications will be a carrier to watch in 2001 if for no other reason than this: It’s a new name with an ambitious business plan that aims to become a service provider strong enough to go toe-to-toe with industry heavyweights.

And the former Nextlink—renamed after the Concentric Networks acquisition—doesn’t plan to be scared by the recent pounding other upstart service providers have taken from Wall Street. Despite the tight capital markets, the company recently announced a European buildout to provide facilities-based, high-bandwidth data services in Western Europe by as early as mid-2001.

"We don’t believe in a regional model, we don’t believe in a ‘smart build model,’ we believe in a ubiquitous, national model," says XO Chairman and CEO Dan Akerson. The goal for XO: deliver IP-based broadband services from customer premises to customer premises across vast distances.

XO plans to do so by combining broadband fixed wireless and metro area fiber at the local level with a long-haul network on the scale of AT&T’s, WorldCom’s and Sprint’s.

This "marriage" of long-haul assets, what Akerson calls "best-in-class last-mile economics" and developments in optical switching, will enable XO to serve a lot of broadband capacity and services to businesses, without being delayed by provisioning bottlenecks or squeezed by a narrowband local loop. Across such a network, time and distance become meaningless, he says. "New York and Los Angeles become suburbs of one another from a telecom perspective—and we can do that because we control it from end to end," he adds.

Although XO’s ambitions may sound like the old AT&T pre-breakup, the services it plans to send across the network are different, as is the business model. For example, XO will be able to charge users a flat rate for bundles of voice, data, Web hosting and Internet access. It will still earn a tidy margin because it’s not renting another provider’s network, executives say.

The carrier’s XO Options service packages target small businesses with 10 to 100 employees. Its $100 million investment in back-office systems already allows it to offer these customers consolidated billing.

For the more upscale crowd, XO is taking advantage of local fiber to extend corporate Ethernet networks beyond the office building’s front door. XO’s gigabit Ethernet service, launched this year with Yahoo as the anchor tenant, will allow data centers to link across metro regions and perhaps one day across the country, Akerson says.

"I’m wondering why we can’t take the frames and stack them on a Sonet stack and take that nationwide," he says. "That would revolutionize the point-to-point private line incumbent base that AT&T has. It would rattle the industry."

But before XO runs away with the corporate telecom market, it first has to finish learning to crawl—that is, complete its network buildout and prove it can make a profitable business from all of its capacity.

XO’s recently announced 3700-mile inter-city European network will increase its EBITDA loss for 2001 by about $50 million. And analysts estimate the continued network buildout and other expenses will require XO to raise an additional $2 billion before it becomes cashflow-positive, expected sometime in 2005.

Meanwhile, XO’s stock has fallen with the broader market, dropping to the mid-teens from the mid-60s in the spring. Although the company has cash and access to capital of $3.2 billion, Akerson admits the biggest question surrounding the company is additional funding. That could come from big-name investors, through vendor financing or a bond offering.

"In times like this you’ve got to keep a steady hand on the tiller," Akerson says. "We will work our way through this storm. I’m not saying it’s a good time to spend prolifically, but I think this is a good time to position ourselves to move into Europe and to continue our buildout."

—Vincent Ryan

Speech therapy

It might seem unusual for a communications newcomer such as TalkingNets to hinge its business plan on voice, an application so many other service providers seem to consider a commodity with no future. That judgment is likely to dissipate, however, when it becomes evident that the company’s strategy calls for a completely modernized, Internet-driven approach to voice delivery.

TalkingNets bills itself as a telephony ASP because it is applying a version of the application service provider model to voice delivery. The company’s technology method is founded on a softswitch-based IP network that connects to the IP networks of ISPs, allowing those outfits to provide their business customers with voice services without the expense and regulatory roadblocks involved in doing it themselves.

"We approached the market to address the small business—businesses that the traditional Class 5 CLECs had really ignored," says Tony Surak, co-founder of TalkingNets and the company’s executive vice president of sales and marketing. "We wanted to leverage the fact that the ‘other providers’ that are serving those small businesses—the ISPs—are looking for other offerings to sell them. Because small businesses have never really had a choice, they’re likely to take an alternative option."

TalkingNets has been on a veritable tear since it was founded in November 1999, completing the first phase of its network construction in one year. This past September the company inked an interoperability deal with Level 3 Communications that allowed the two companies’ softswitch-generated voice applications to traverse local and long-distance networks without passing through incumbent local exchange carrier (LEC) switches. And in November, TalkingNets made its commercial debut in Denver and Cleveland on the networks of its first two channel partners, Denver ISP Interfold and Cleveland-based building LEC Next Wave Resources.

The company also has been successful in attracting substantial capital investment from well-known venture capital firms such as Venrock Associates and Charles River Ventures, despite the difficult fund-raising environment that currently exists for start-ups. Company principals believe the company’s model for return on investment and low up-front costs are major attractions for financiers.

"One of the things that makes it easier to stomach for investors is that our capital requirements are a lot less," says John Philips, another co-founder and TalkingNets’ president and CEO. The company’s costs are a fraction of that of traditional CLECs, he says, and the structure of the business plan allows TalkingNets to speed up or slow down its buildout as capital availability and other factors dictate.

In addition to the continued expansion of its network footprint and channel partner program, TalkingNets is focused on enhancing its service capabilities. Current offerings include basic local and long-distance and early versions of a virtual PBX feature, but the company plans to enhance the PBX functionality and add functions such as voice mail, caller ID and unified messaging to its offerings.

Of course, technology selection is a major factor to success in making all that happen—and given the primary business of TalkingNets’ customer targets, the technology choices the company has made appear to be right on the money.

"We’re building our whole network on technologies that have emerged because of the Internet," Philips says.

—Jason Meyers

Wireless urgency

Two years ago, George Davis, president and vice chairman of Aether Systems, remembers banging on doors trying to get people to listen to his company’s ideas. Today, everyone is listening. In fact, the phone is ringing off the hook, he says.

That’s because everyone is beginning to understand the value of uniting the wireless world with the Internet. Corporations such as Office Depot are seeing the value of real-time access to the Internet and corporate information anytime, anywhere. But executing this is dumbfounding to many corporations.

Aether’s name means a hypothetical invisible medium that transmits light waves and other forms of radiant energy that fills all space. That’s the company’s goal for the wireless industry; Aether aims to be a one-stop shopping center for connecting the Internet and corporate data networks to wireless networks and devices.

"The mindset here is that we know we have to continue to be in hyper growth mode to support what we’ve committed to the industry," Davis says. "In this business plan, we have to always have a sense of urgency. You’re only the first mover once."

A recent survey conducted by financial firm Wit SoundView of IT managers who attended the Gartner Symposium, a conference for Fortune 1000 IT managers, found that only 1% of corporations extensively use wireless networks to access company-specific applications such as

e-mail, contacts and schedules. Thirty-nine percent said the primary barrier to adoption of widespread wireless access to data within their companies was the lack of a complete solution. And 80% of IT managers said they would either strongly or slightly prefer to adopt an end-to-end solution as opposed to building it themselves.

To build this end-to-end solution, Aether has been acquiring, partnering and investing in companies to position itself in the middle of the wireless Internet universe, growing the company from 60 employees a year ago to 1000 today. Currently, it can either provide part of a solution or an end-to-end solution, depending on customers’ needs. The key component to this effort is the company’s wireless platform, designed to serve as a link between wireless devices, wireless networks and content.

"What we want is more types of companies to build to our platform, which will push services back to us," Davis says. "We’re doing a lot of unique things to push to the developer community access to our platform so it will start to become a standard."

One of the first components of Aether’s expertise is the Aether Intelligent Messaging platform, middleware that ties enterprise and wireless networks together. The company’s first major acquisition of Riverbed Technologies added software and synchronization know-how to this platform. Other acquisitions in the medical, public safety, transportation and government sectors have given Aether the ability to target these vertical industries.

Most recently, the company bought Cerulean Technologies, which gave Aether access to Cerulean’s PacketCluster Patrol application for the public-safety market. Aether’s wireless offerings include its Blackberry messaging service and Web content services. The company’s creation of AirLoom—a Web-to-wireless service Aether developed with AlterEgo—gives Aether a presence in the wireless ISP market. And mobile commerce will be another area Aether targets in the coming year, Davis says.

"If you look at the metrics, look for new software products, look for us to continue to develop and build more enterprise customers within the vertical markets and new vertical markets through acquisitions and look for more Aether-branded Blackberry users," Davis predicts.

—Lynnette Luna

Castles in the air

The advent of broadband defined a new market as innovative upstarts saw a window of opportunity in buildings. These start-ups sought to update the outdated cable infrastructure within those buildings and, in the process, changed the meaning of "in-building" communications.

A pioneer in this segment is Allied Riser Communications, also known as ARC. Founded four years ago, it has grown from humble Dallas roots to gain a market cap of $75.1 million. The company pulls fiber through a building’s risers, the goal of which is to bring broadband access to every tenant within that building.

"Part of the investment criteria we like to know before we do anything in a building is to know the market opportunity for that building and when the break-even point is," says Gerald Dinsmore, president and CEO of ARC.

ARC’s approach has served it well. The company had an active year. In the second quarter of 2000, ARC was in 49 metro markets in the U.S., with access to more than 245 million square feet of space. In May, it began construction in 16 new markets reaching 13 million square feet. On top of that, ARC bought a 68% stake in Shared Technologies of Canada, a conglomerate owned by AT&T Canada, three Canadian commercial property owners and a real estate investment adviser. That investment gives ARC access to 35 million square feet of commercial office space north of the border.

It also has forged partnerships with fiber builders and communications companies working abroad, but it has yet to build out there.

In addition, ARC has signed deals with Universal Access for local loop services; TXU Communications for metro dark fiber; Enron Broadband Services, Level 3 Communications and Qwest Communications for backbone transport; and InterNAP and national ISPs. In June, it began testing AirFiber’s wireless optical telecommunications equipment, and this year, it also launched a slew of new offerings, including remote Internet access and security, Web design and hosting, business-to-business portals, Internet-based TV and voice and Internet conferencing services.

The company’s goal is to provide broadband services to approximately 800 million square feet of office buildings by the end of 2004.

Sounds like solid growth, and ARC is fully funded through 2002. But that’s not reflected in the company’s stock, which has flagged from the high 40s to about $1 per share. The company is streamlining its deployment strategy and estimates 2001 revenues of $50 million.

That could account for some changes in the senior management team. In October, Dinsmore took over the post of president and CEO, replacing David Crawford. Other top-level newcomers include Chief Operating Officer Terri Compton, who came from Jato Communications and GTE, and Todd Doshier, senior vice president and chief financial officer.

On the job for less than a quarter, Dinsmore will focus on "igniting sales growth in the company and taking advantage of the services available through Allied Riser," he said. Dinsmore also wants to restructure the compensation plan to ensure the sales team is "working the buildings to get maximum penetration."

Dinsmore brushes off the notion that a building local exchange carrier’s customer base is captive. To win and keep customers, ARC must to do more than waltz in and rewire the infrastructure; it must sub-segment the population and market to their specific communication needs. "Very critical to the success of the company will be getting the right packages out to the right target markets," he says.

If he succeeds, ARC could be coming soon to a building near you.

—Susan Biagi

Vision quest

Eighteen months ago, Equinix conceived of a place where the players that make the Internet go—ISPs, carriers, content providers—could gather to interact and prosper. Equinix saw this as a place that would defy current models by letting these players choose partners from amongst themselves rather than having a network carrier make the selection.

"About a year-and-a-half ago, I wouldn’t call it more than a vision," says Peter Van Camp, Equinix’s CEO. "The company has just done a lot of great work, evangelized the model and worked with everyone from the carriers to managed service providers… all getting access to the networks at this exchange point that we built on the Internet."

The Internet Business Exchange, or IBX, is typically a 100,000- to 300,000-square-foot facility full of the electronics needed to make a Web venture successful.

"The Internet is no single network—it’s all these backbones that interconnect with each other," Van Camp explains. "At intersection points of all these backbones, we’ve created one of the most secure and full facilities on the Internet to allow all these service components to come together in a facility and interconnect with each other."

The IBX succeeds, he says, because "there’s just no more powerful place now to implement content and e-commerce solutions because of the actual proximity of being adjacent to all these service providers and the edge of all these networks."

Intriguingly, companies that thrive in the Ether-space need the bricks-and-mortar office reality. "There is a physical aspect of connecting networks and services. Bringing it all together in one place lets people connect across the room and really sets everything they do at kind of an origin point of Internet connectivity," Van Camp says.

Equinix has opened IBXs in New York, Washington, Los Angeles, Dallas, Chicago and Silicon Valley and will add sites in

Secaucus, N.J., and London next year. Network providers connect to all six sites to create key points around the Internet where traffic flows can go. Each additional site that’s connected re-architects that region of the network into its new location.

Equinix gives its clients more than a gathering place, Van Camp emphasizes, by allowing them the freedom to interact with each other and to select the partners that best serve their Internet needs. "The customer will come to an Equinix IBX and assemble a best-in-breed or best-in-application fit from all the service providers and sit there and deliver service," he says.

Equinix then adds value by managing and monitoring the network performance. The Equinix model is about choice, Van Camp says. So far it has drawn network/ISP providers such as Ameritech, Verizon, Cable & Wireless, UUNet and WorldCom; managed service providers Loudcloud, Akamai and IBM; and content/e-commerce companies such as Epoch, Forbes.com and the National Hockey League.

"Our twist on the business model is we provide a choice from the best-of-breed providers of everything that you would need across the value chain," Van Camp says.

The openness of the concept, he says, is what has allowed it to flourish during the last 18 months and grow outside the previously structured Internet services marketplace.

"The momentum of the model is just starting to show up in a big way," he says. "Today, we’ve opened six facilities. Three, from a pure business standpoint, have become EBITDA-positive. That just creates, obviously, a strong business momentum for the company to continue to grow."

—Jim Barthold

Executioner’s song

Depending on the type of competition, a winner is either the one with the most points when the clock runs out, the first one across the finish line or the last one left standing at the end of the match. Competition in the telecommunications space mostly resembles the latter, except that there is no end to the match. You can win the battles, but you never win the war. The war never ends.

So how does a successful communications provider play the game?

"It is something that is simple to say, easy to understand, as common sense an idea that exists. It’s the ability to execute," says Robert Taylor, president and CEO of Focal Communications.

Sounds easy. But even Taylor admits it’s not.

"Common sense takes a tremendous amount of effort to get right," Taylor says. "And execution is hard."

The ability to execute its own vision and not that of its vendors, suppliers or competitors has positioned Focal among the industry leaders most prepared to survive the service provider shakeout that is sure to come in the next few years as belts tighten and businesses fail.

"It is in these periods of controversy and downturn when the next generation of carriers and leaders emerge," Taylor says. "We will lead by showing large corporate customers that there is not just an alternative to the [RBOCs] but a better alternative."

In Focal’s eye, a better alternative is one that excels at providing what it sees as the three top corporate customer priorities: redundancy, diversity and customer service.

Focal began operation in 1996 with a time division multiplexing-based Northern Telecom DMS switch, but it now ensures redundancy and diversity for its customers with a network that boasts five distinct switching platforms: circuit-switched, ATM, Ethernet, IP and softswitch.

"That allows us to go after the customer’s business in whatever way the customer is buying their service," Taylor says.

Yet customer service has always been Focal’s top priority, and it plans to go home with the one that brought it to the dance. "After four-and-a-half years of business, we have virtually zero customer churn," Taylor says. "We will continue to deliver excellent customer service, and we will set the bar for how well competitive carriers can compete not just against the RBOCs but against IXCs as well."

Taylor points to his company’s back office as its most strategic asset. "There is no difference in the technology that we buy from what SBC buys or XO or WorldCom. It’s how we operate it and, ultimately, the back office we put around it," he says.

Focal followed the path less traveled as it built many of its own back-office support systems. Taylor claims this gives Focal a distinct advantage in "offering the products and services we do, in the fashion we can, with a quality of service no one else has been able to manage."

To build those systems well and maintain a relatively low EBITDA, Focal had to attract a management team with the necessary background. That the company has done that and has retained them is a significant accomplishment and advantage. With an employee churn rate nearly as low as its customer churn rate, Focal can provide a level of consistency that has been sorely lacking in its competitors through recent battles.

—Tim McElligott

Unlimited partner

TeleCorp PCS defies its categorization as a relatively small entity in a mobile wireless world where mostly behemoths roam. Like many of its bigger brethren, TeleCorp’s history is marked by aggressive network expansion, strong subscriber penetration, enhanced service introduction and high revenue per customer.

The definition of TeleCorp’s character is attributable, at least in part, to one centrally important trait: The company is the largest affiliate of AT&T Wireless Services and is 23% owned by AT&T. And while TeleCorp prides itself on its regional focus and independence, its connection to and reliance on AT&T for certain aspects of its business plan is crucial.

"A lot of the things we’ve done are specific to running our local business, but it’s certainly a benefit to have a partner that gives you national reach," says Gerald Vento, founder and CEO of TeleCorp.

That association seems to be paying off. At the end of the third quarter, TeleCorp reported 405,444 total customers and network penetration to 85% of its licensed markets, located mostly in traffic corridors in and around large markets.

TeleCorp also shows behavioral signs that seem to mimic those of much larger wireless entities, including a tendency toward expansion by aggregation. Last month, when TeleCorp closed its acquisition of fellow AT&T Wireless affiliate Tritel, it emerged with a 14-state footprint that includes 16 of the top 100 markets in the U.S. and covers more than 35 million potential customers.

Vento himself represents an ingredient of TeleCorp that distinguishes the company in a sea of larger competitors. Before helping found TeleCorp, Vento was a figure in the competitive era of wireless that resulted from the PCS spectrum auctions. As vice chairman and CEO of Sprint Spectrum/American PCS, he presided over the first company to launch a commercial wireless network in the PCS spectrum.

The wireless usage habits of TeleCorp’s customers are also a significant factor in the company’s ongoing growth. "We see great acceptance in the consumer and new business marketplaces for companies like ours," Vento says. "We really want to go after customers that fit that high-use pattern."

The next step for TeleCorp is the move into mobile data—another area where TeleCorp’s AT&T affiliation comes to the forefront. When AT&T recently announced that it had selected the general packet radio service format as the next step in its data strategy, TeleCorp followed suit. That kind of decision is important for a number of reasons, not the least of which is that mobile data is what Vento believes will help sustain TeleCorp’s prominence—particularly if the company pursues the customer bases he believes to be the most receptive to data offerings.

"What drove the wireless business to a great crescendo were the early adopters who liked the full-featured phones and AT&T’s predictable billing," Vento says. "What will drive the data business is not just that sector, but also the Y Generation—people who are very data-centric. If we can give that Y Generation a mobile phone, they’ll find an application that will suit them."

—Jason Meyers

All about control

Riding on the cusp of a technological wave is among the most exhilarating times for any company. Of course, there’s always the danger of getting swamped by the crest or being taken out by the undertow.

But for Jerry Parrick, CEO and founder of Yipes Communications, the thrill of being at the front of the metropolitan optical wave is unmatched. Having served as chairman and CEO of Nokia’s high-speed access group and as president of the former U S West !nterprise unit, Parrick is familiar with the spotlight. The difference this time around is that he heads a company at the forefront of a technology that’s familiar to many of his customers: Ethernet.

Broken down into its basic services, Yipes provides enterprise users with a gigabit Ethernet connection between LANs that can be located as close as next door or across the country. And while a number of companies claim to be charging into the gig-E market with big pipes, Yipes’ plan is about more than throwing huge amounts of bandwidth at the customer.

"We have a very ambitious plan to empower customers to control this network," Parrick says.

Indeed, it’s that control factor that makes the Yipes plan different than many others. Coining the term "Just In Time Bandwidth," Yipes’ three currently available services let users control the amount of bandwidth they want on a dynamic basis. "We characterize it as an application-aware network," Parrick says.

Though somewhat new to the metro market, Yipes isn’t without competition, namely incumbent carriers that have been offering to extend ATM-based services. In response to the gig-E invasion, ATM advocates continually point to the technology’s inherent quality of service (QOS) capabilities. However, while Yipes’ technology is based on the Internet, it isn’t quite the same, Parrick says.

"What [ATM providers] will generally cite is the common knowledge of QOS in the Internet," he says. "The fact of the matter is, the network architecture we’re using has several layers of QOS."

The architecture includes queueing behind every port, which lets the company identify different levels of QOS. In the WAN, because the company is buying transit from the largest carriers offering the most stringent service level agreements, it also can enable multiprotocol label switching.

"We have not had a single incident where an MIS director said to us, "No, you don’t have enough QOS." Parrick says.

Ironically, Yipes is kicking its buildout into high gear at a time when the investment community has turned sour on a number of other plans. That’s particularly true of competitive carriers—a fact with which Parrick is well acquainted. Still privately funded, Yipes has received about $230 million, mostly from venture capital houses.

"I would characterize it as too many entrants in essentially the same market niches," he says. "I don’t think you can have 25 or 30 competitors in the same market without there being a shakeout."

In the metro market, though, there’s still enough room for differentiation, he adds.

"If I was just offering big fat pipes, then I could say that the service is going to become a commodity," Parrick says. "If I start laying on the capability that I give customers, I’m no longer talking about a big, fat, commoditized pipe. That’s actually a value-add."

—Vince Vittore

Last man standing

For all the things the management of New Edge Networks point to as evidence of its distinctiveness, the ultimate measure of the company’s success may be simply whether or not it exists a year from now.

That’s because New Edge is generally associated with a service provider category that lately seems to be headed for a prominent position on the industry’s endangered species list: the data competitive local exchange carrier (CLEC) providing DSL connectivity. Companies that just a few years ago were heralded as the future inhabitants of a monopoly-free telecom world have, over the past several months, found themselves in increasingly dire financial and strategic straits.

New Edge—the management of which bristles at both the DSL and data CLEC associations, preferring to be categorized as a broadband access and transport provider—has not been immune to hardship. Despite the company’s success at securing equity funding, New Edge still was forced earlier this year to shed nearly one-third of its work force and shelve plans to complete a nationwide network build.

But the strategy on which New Edge was founded is the vehicle that should help it ride out the storm. That strategy, to paraphrase New Edge President and CEO Dan Moffat, is based on an almost missionary-like devotion to making high-speed data access as available in places such as Walla Walla and Brainerd as it is in San Jose or Chicago.

"We’re building the rest of the country," Moffat says.

New Edge also boasts a technology approach that’s about as malleable as a focus on smaller markets is steadfast. With the recent acquisition of West-Net, in fact, most of New Edge’s current revenues come from non-DSL services such as its ATM backbone and WAN applications. It’s that open-mindedness that makes New Edge steer clear of the DSL categorization even though DSL currently is its most-favored access medium.

"The best near-term opportunities in our markets are the loops," Moffat says. "It’s the most economical way to do broadband right now." To New Edge, though, the guarantors of long-term success extend far beyond access loops to a national fiber backbone, an openness to using whatever form of end user access technology makes the most sense and especially a knowledge of back-office functions.

"The hard part of this business is everything below the waterline—the incumbent LEC issues and the [operations support system] issues," Moffat says. "It’s the heart of the business. What we have is a whole lot of people who know how to do stuff below the waterline."

As of Nov. 13, New Edge had 135 fewer of those people on hand. Because of the lack of funding outlets outside the private equity realm, the company made the difficult decision to restructure its business plan and make cuts that would allow it to extend available capital through the end of 2001.

"If you’re on a growth curve and the money stops, you have to scale down quickly, reduce your burn rate and hope that it comes back," Moffat says. "When the music stops, everyone has to find a chair, and it had better say ‘fully-funded’ across the back."

While the gloom still looms for New Edge until new avenues of funding reopen, developments in other areas likely have helped ease the pain a little—most notably, a decision by Microsoft to use New Edge’s network to extend its MSN HighSpeed service to smaller markets. Meanwhile, while the apparent demise of many DSL providers may be negative for the sector overall, it does reduce the risk that other competitive providers will try to mimic New Edge’s designs on business customers in second- and third-tier markets.

"We’ve been left as the only one standing out there," Moffat said. "It’s us and the ILECs."

—Jason Meyers

Toward the light

Like many small-company CEOs,

ViaLight’s Mike Bookey knows he’s up against some big competitors. Unlike many of those organizations, though, Bookey doesn’t appear fixated on the difficulties of cracking open local markets the way other cable overbuilders and competitive local exchange carriers are.

Maybe it’s because ViaLight is neither an overbuilder nor a CLEC.

Taking a wholesale approach, ViaLight builds and operates what it calls public LANs (P-LANS) that bring fiber directly into the homes and businesses of end users. Other providers then "rent" bandwidth to provide voice, video or data services over the IP-based network while maintaining ownership of the customer. ViaLight, in effect, acts as a "service agency" that gives users the choice of multiple providers.

A better analogy—and one cited by Bookey himself—is of a shopping mall owner.

Typically, shoppers have acres of free parking, access to a facility that’s temperature-controlled and dozens of amenities—all without paying an admission fee, he says. "But not really free. The mall owner is just creating an environment to attract the shopper."

And while the business model is somewhat complex for the service provider market, what makes ViaLight unique is the simplicity of its plan.

"Basically we’re taking corporate intranet technologies and applying that to community space or the last 10 miles," Bookey says.

Founded in 1988 as Digital Network Architects, the company initially provided technology consulting, engineering and project management services. That all changed in 1996, when Judd Kirk, president of Port Blakely Communities, a large Seattle-area land developer, asked Bookey to provide fiber network services for the Issaquah Highlands master plan community.

Since then, the company has signed pacts to put similar networks in two other communities in Washington and launched Ue/ViaLight—a joint venture with a subsidiary of Australia’s United Energy—which will export the P-LAN and service agency concept to Australia, New Zealand, Malaysia, Indonesia, and Hong Kong. In addition, ViaLight is working with a Canadian venture partner to study the feasibility of integrating the P-LAN and service agency platform as an extension of energy services.

"I think of it like electricity," Bookey says. "We’re just delivering bits instead of electrons. We’re not the cable provider, and we’re not a telephone provider. We’re an infrastructure provider, but it’s a soft infrastructure."

In the cable environment, ViaLight would not only be able to sell access to multiple cable operators but to video providers that want to specialize in specific events.

"A video on demand, for instance, would be a virtual circuit for 24 hours and you could use it however you want," Bookey says. "Our model is more like the time-sharing computer models."

But such an analogy may be a little ahead of schedule because the company currently only offers high-speed data services to about 400 homes and is just starting to test voice over IP. While video (which Bookey believes holds the key to making the plan work) could be easily integrated into the IP infrastructure, Bookey admits it requires a delicate political dance among cable operators that have fought hard to keep exclusivity rights to territories.

"We want five, six or seven cable operators," he says. "It’s a chicken-and-egg problem. Everyone that’s winning today doesn’t want the world to change. Getting a cable company to compete with another cable company isn’t a technical problem, it’s a business and political problem."

—Vince Vittore