Dark-horse firm planning dark-fiber ring
An offshoot of Walker’s Point cable contractor, Cablecom, LLC, is poised to be the first in the Milwaukee market to offer dark fiber for lease through a metro ring.
Dark fiber providers proactively lay fiber-optic cables through an area and sell access, typically in an indefeasible right-of-use arrangement spanning 20 years. Access is granted to a specified number of channels and bandwidth.
Fiber can be laid between metropolitan areas or, as in this case, in a token ring within a metro area.
Midwest Fiber Networks in March received the green light from the City of Milwaukee to install more than 20 miles of fiber-optic cable in city-owned communications conduit. The token ring would extend from the downtown as far south as Franklin, spanning 35 miles in total. The system is being designed to meet the needs of several users, who so far have yet to sign on the dotted line.
According to Midwest Fiber Networks principal Donna Raffaelli, the installation, which she said would hopefully commence this summer, would represent a first phase in what would be a farther-flung network. City of Milwaukee chief information officer Randy Gschwind said the hope is that a network would grow throughout the conduit system, increasing the availability and affordability of broadband connectivity in the city.
Crossing town
vs. crossing globe
Raffaelli and her associates are banking on the fact that, while interstate and international data pipeline companies have largely exhausted their resources with speculative long-haul projects, well-planned systems like their Milwaukee metro ring are the wave of the future.
In a trend dramatized by high-profile failures like that of Global Crossing Ltd. and Enron, which as a sideline dabbled in dark fiber, a binge of long-haul building in 2000 and 2001 has left surplus capacity when data has to go the distance. Even Digital Teleport, Inc., whose network serves southeast Wisconsin, filed for protection from creditors under Chapter 11 of the bankruptcy code March 22.
Analysts say this excess was driven by speculation that annual tenfold increases in Internet usage tracked by AT&T during 1995 and 1996 would continue.
But while only a fraction of the long-haul capacity currently installed is in use, when a signal needs only to travel within the Milwaukee area, there is a market for more capacity.
Raffaelli said her company would pursue businesses and institutions with multiple locations in and around the city as they could save money by using Midwest Fiber Networks’ cable and their own routers to run a wide-area network rather than funneling their networks over the public Internet via T1, T3 or commercial OC3 lines.
Due to improvements in optical hardware and the advent of Digital Wave Division Multiplexing (DWDM), a technology that allows more information to be sent through a single piece of glass, immense amounts of data can be sent through a relatively thin data pipeline. So advances in fiber technology mean the ring could handle more data faster than existing lines already in the ground.
According to industry insiders, the type of companies Midwest Fiber Networks winds up with as clients may depend on some market factors that are currently in flux.
One variable will be whether customers will turn out to be end users or service providers. Raffaelli was confident that enough large companies with their own hardware and IT staff could be lured to the ring as a lower-cost solution to connectivity via commercial T3 lines.
But Tim Keefe, a San Francisco-based analyst with Probe Research, disagrees, doubting that a "second tier" city like Milwaukee had enough enterprises that could use a network in this fashion.
"From their standpoint, their customers will be carriers," Keefe said. "It is not likely there will be many companies out there big enough to own their own equipment and light the fiber. More than likely is that Midwest Fiber will be going to carriers."
The carriers Keefe referred to were companies like Yipes, a San Francisco-based firm providing fiber connectivity in markets nationwide. Yipes would offer service over fiber owned by firms like the Chicago-based Looking Glass Networks, which is now deploying a fiber ring in the downtown Chicago market.
Another potential client, according to Keefe, would be Cogent Communications, which earlier this month purchased much of the bankrupt PSInet’s system, billed as one of the most extensive fiber infrastructures around.
But among end users, Keefe said "that target market may be very slim in Milwaukee. Somebody in the business of offering data services to others – they should be retailing this ring. Of course, I may be wrong."
One person who says Keefe is wrong is Bob DeRosa, vice president of American Fiber Systems of Rochester, N.Y. The firm serves what Keefe refers to as "second-tier" cities.
"Perhaps I would have agreed until Sept. 11," DeRosa said. "I believe that the need for broadband connectivity is increasing because many enterprises want to back up their data to a remote location. They want data mirroring -where their data is replicated at another site 15 miles away, 20 miles away. If both those locations happen to be within spitting distance of the fiber network, that is a very good opportunity. I am wondering whether Midwest Fiber Networks has asked the questions about enterprises’ current needs – post-Sept 11. – for real-time data mirroring."
Minimal competition is expected
Competition in the sector will be minimal, according to Keefe.
"Per community, there will be fewer metro dark fiber players than in the long haul – because if you throw in a ring, who wants to duplicate it?" Keefe said. "Somebody might put in another ring that connects with yours – so you have a Mickey Mouse face-looking thing. But with Milwaukee, you have to remember there is an 80-20 rule. That means 80% of all the traffic is being done in the Tier One markets."
But traffic that is here should be easy pickings given a lack of competition.
"The main competitor will probably be Ameritech," Keefe said. "The advantage (Midwest Fiber Networks) may have is that Ameritech probably dropped their fiber maybe four years ago. The new fiber will have increased capacity. With Ameritech, you probably cannot get up to 40 gig which is what you can get with OC3."
Keefe said that, apart from older fiber, Ameritech may be at a disadvantage because its system relies on switches and not routers.
"The 40-gig routers are very new," Keefe said. "The switching side has not gotten to 40 gig yet."
The fact that Midwest Fiber is designing a system around a hand-picked list of serious prospects will be an additional advantage, according to Keefe.
"When you get into the metro, it is a matter of what pieces of real estate do you touch? You want to be in with banks, hospitals," Keefe said. "If you can get to all those guys and you are there first, you might have some kind of competitive advantage."
According to DeRosa, his company typically gets at least one anchor customer in advance of construction, the goal being to secure revenue equal to about 10% of construction cost.
"Our business plan calls for us to seek out a service provider or a customer who would use at least 24 strands of fiber," DeRosa said. "We would own the fiber, but they would participate in the design. Allowing that anchor customer who needed 24 strands to participate in the decision-making would allow them to get ownership over the project. It also helps us to defray some of the construction costs."
The main vulnerability Keefe sees for the company comes not from competitors but from the depth of its pockets.
"I would look at their capitalization," Keefe said. "In this business, it is easy to have a negative cash outflow to get all the legal work done, and then start trenching before you have a dime’s worth of revenue…. And if they go bankrupt, who owns that fiber? Will the city claim that since it is in their conduit, it’s theirs?"
April 26, 2002 Small Business Times, Milwaukee
