This gives a little flavor of how we factor into the backbone capacity market.


 Category:   Backbone, DWDM, Enron Communications

 Description Building A Better Backbone - And Business Plan
 :

 Detail:



By Carol Wilson, Inter@ctive Week
September 6, 1999 6:23 AM PT



The numbers are staggering: Six major new national fiber-optic networks will
come on line during
the next two years at a cost of $18 billion. Those new networks are in 
addition
to those already
built and operated by the Big Three of long-distance: AT&T, MCI WorldCom and
Sprint.

Thousands of miles of fiber-optic cable are being installed in ducts to which
new fiber can be
easily added by companies such as Enron Communications, Frontier 
Communications,
IXC
Communications, Level 3 Communications, Qwest Communications International and
Williams
Communications.

And that's just a piece of the story.

While competition in the backbone network business is booming, new 
technologies
coming into
the market will make it much easier to increase bandwidth available on any
fiber-optic network
tenfold or more. Dense Wavelength Division Multiplexing (DWDM) systems now 
exist
to put data
traffic onto 160 different wavelengths on a single fiber-optic cable. 
Technology
exists today to
enable each of those wavelengths to transport 10 gigabits per second of data.
Within two years,
that will reach 40 gigabits per wavelength per second.

"In effect, the backbone of the Internet is being rebuilt. The next step:
Recover all those costs of
construction,'' says analyst Peter Bernstein at Infonautics Consulting. "And
that step may be more
difficult than building the networks themselves.''

The combination of major new network construction and new technology for 
adding
network
capacity has led industry analysts and executives to predict a bandwidth glut
that is likely to drive
down prices in backbone transport of data much as the price of long-distance
telephony has
plummeted in the past few years. Frontier Communications admitted as much
earlier this year
when its second-quarter earnings weren't up to expectations.

Rather than a free fall in prices, however, expect the market to quickly find
new ways to use
bandwidth, both in terms of network-based applications and bigger backbone
networks to
support the rapidly growing field of faster access via Digital Subscriber Line
(DSL) and cable
modems. The challenge for network operators is to create new business models
that capitalize on
something other than cheaper bandwidth.

"I think the danger isn't so much of a glut as a lack of planning for the
backbone network that
could cause some major problems," says Claudia Bacco, an analyst at TeleChoice
who studies the
development of DSL. "Once DSL starts selling as a volume service, it will very
quickly increase
the demand for bandwidth in the backbone. Service providers need to have 
planned
ahead."

It's not surprising, then, to see a growing number of alliances between the 
new
backbone builders
and the competitive local exchange carriers (CLECs) that have been building 
DSL
networks in
major markets across the U.S.

Qwest invested in both Covad Communications and Rhythms NetConnect-ions, for
instance, and
a third data CLEC, NorthPoint Communications, includes Enron, Frontier and 
Level
3 among its
strategic partners.

That doesn't mean, however, that all of the companies investing billions in
burying fiber-optic cable
stand to reap rich rewards, cautions Bernstein at Infonautics.

"The problem isn't a glut of bandwidth, but a glut of service providers," he
says. "If everyone has
the same business model and is going after the same customers, that's a 
problem.
In addition, there
are timing issues . . . If you build it, they will come - but not necessarily
when you need them to."

At least nine players have built or are building national fiber-optic backbone
networks. These look
very similar, says Fred Harris, director of network planning and design at
Sprint. "There are
generally three East-West routes and three or four North-South routes that
everyone builds," he
says. "New York to San Francisco, Atlanta to Los Angeles, Seattle to Boston -
everybody has
fiber either in or near those corridors."

In earlier network deployments, the fiber was buried, never to be exhumed. But
today's fiber
cables go into ducts, allowing fibers to be pulled out or slid in later.
Capacity can be added
without any backhoes.

Today's newer fiber-optic cable, from companies such as Corning and Lucent
Technologies, is
designed to support higher transmission speeds without the light dispersion
problems that limited
speeds or distances on other fiber-optic cables.

DWDM technology and optical amplifiers, which boost the power of a laser's
signal over a given
wavelength, enable bandwidth to be added and allow signals to travel farther
without the need for
as many repeaters to boost signals along the way. Eliminating repeaters in a
long-distance network
wrings out installation, maintenance and power costs.

As Harris points out, if every company building a national backbone has 30
fibers along each
major route, and each fiber can carry 80 different wavelengths of light, 
that's
more than 20,000
different signals. Today, most of those signals would be powered by 
Synchronous
Optical
Network (SONET) gear, which operates at 2.5 gigabits per second, but a growing
number have
moved up to gear that operates at 10 Gbps.

Both Lucent and Nortel Networks have announced equipment that supports 160
wavelengths on
a single cable, and other vendors will have similar equipment within the next
two years.

Also coming into the market by 2002 will be new SONET gear that quadruples the
current
transmission rates from 10 Gbps to 40 Gbps. MCI WorldCom is testing these
systems, known as
OC-768 transmission systems, and expects to have one commercially available by
early 2001,
says Rama Nune, senior manager of optical and data network technology
development.

Nune stresses, however, that what's more important than having all the 
bandwidth
is knowing
"how to intelligently provision services over it and manage it."

New Models

Not surprisingly, most of the newer network operators have quickly moved to
talking about
services, not bandwidth.

There are exceptions to this: Enron is building a network that transmits
Internet Protocol
(IP)-based traffic directly over a fiber-optic network, with no intervening
transport systems or
protocols. But its network is built to provide backbone bandwidth for Internet
service providers
and content providers, says Stan Hanks, vice president of research and
technology at the
company.

At Level 3, falling backbone service prices would be good news, says spokesman
David Powers.
"We want to drive prices down by reducing the underlying cost of the network,"
he says. "We
think we can do it because we are building a green-field network that doesn't
have the cost of
legacy technology like circuit switches." Most other network operators are
looking to add services
to their mix, including Web hosting, to create a differentiated service. MCI
WorldCom through its
UUnet subsidiary, Frontier, Qwest and others have announced Web hosting
services.

Greater bandwidth and lower prices also will enable new video services to be
delivered over the
Internet, says Vab Goel, vice president of IP engineering and technology at
Qwest.

"One of the things Qwest is doing is building its own access rings in 25 major
markets," Goel says.
"We think this network will drive cost down and increase performance for
value-added
applications which can be delivered over an IP network. Today, most video is
compressed. With
faster access speeds, you can watch TV shows over the Internet. This becomes
interesting when
you talk about having access to any TV show broadcast anywhere around the
globe."

In addition to enabling new services, however, the sudden availability of
bandwidth will
dramatically change the way services are priced and sold.

"It's the next great challenge of the Internet - deciding how you are going to
bill customers and
what they will be willing to pay for," analyst Bernstein says. "I'm not sure
anyone knows yet."

Part of that challenge is matching a service that customers value with the 
need
to recover the high
costs of expanding a network.

"George Gilder likes to say that bandwidth will be free - well, putting in
20,000 channels of
OC-48 [2.5-Gbps transmision] isn't free; it costs billions," Sprint's Harris
says. "And the same
thing goes when you build up the local copper network to do DSL or cable
modems."

Already, however, DSL prices are dropping to $30 to $40 per month for a 
consumer
service that
offers up to 1.5 megabits per second. Businesses still typically pay $125 to
$400 per month for
higher-speed services that offer the same bandwidth in both upload and 
download
modes. That
compares very favorably to the $2,000 per month most companies paid for a T1
line until the past
two years.

But with customers assuming bandwidth will be cheap, how will nine backbone
network providers
recover their billions in investment?

"I don't have a crystal ball," says Nune at MCI. "With the access speeds going
up - whether it be
ADSL [Asymmetric DSL] or gigabit Ethernet - we anticipate many rich 
applications
to drive the
bandwidth of our customers."

Providing those applications - or at least building into the network the right
hooks for new services
- is the best hope for building a new revenue base, Harris agrees.

There will still be room for charging higher rates as well for levels of
reliability and transmission
speeds, says Qwest's Goel, but those charges will likely be packaged as part 
of
the application
cost.

In a world where everyone has access to the same technology, it will be the
business issues that
ultimately decide who succeeds at building - and sustaining - the backbone of
the next Internet.