Illinois chooses fiber for highway payoff

By STEPHEN HARDY

In the continuation of a growing trend, the Illinois State Toll Highway Authority has chosen fiber-optic technology as the basis for a network that will enable automatic toll collection as well as communications. According to a representative of the company hired to provide the network, the application provides a lesson for others considering a partnership between government agencies and private communications firms for the construction of a communications network along government-owned rights-of-way.

The highway authority recently issued a multimillion-dollar contract to mfs Network Technologies, Omaha, NE, to build a 276-mi fiber-optic cable and conduit system along the authority`s rights-of-way. mfs is a subsidiary of WorldCom Inc.

The network will provide digital voice, data, and other communications services for the authority; aid in the establishment of the authority`s i-pass electronic toll collection program; and serve as a continuing source of revenue for both the authority and mfs through leasing of excess fiber capacity to third-party users. Construction of the network will begin this spring and be completed by the summer of 1999.

mfs will use a phased approach to network construction, which involves the installation of four conduits. The first phase will include the installation of infrastructure along Interstate 294 from the Wisconsin border to the intersection of Interstate 90 (see figure on page 1). The company will use cable of varying fiber counts in the network. mfs will provide only the cabling; the authority will provide the network electronics. According to Bob Eide, vice president of sales and development at mfs, neither the electronics supplier nor the cable vendor had been selected by press time. However, he revealed that mfs would likely choose Siecor Corp., Lucent Technologies, or Alcatel for the cable.

Eide considers the use of wavelength-division multiplexing (wdm) on the network unlikely. "Because it`s a new network and they`ve got a sufficient number of fibers with the new construction, there are no current plans to do any type of wdm," he says. "There`s no reason to spend that kind of money on electronics when you`ve got a fiber-rich environment."

The fiber-rich environment will provide the key to increasing the revenue generated by the network by adding as many new customers as possible. "There are a couple ways to do it," Eide explains. "We haven`t ordered any fiber yet. We try to hold off on that until the last possible minute. We know that if we have a lot of dark fiber sold, we`ll just order more. You`ve always got the option later on--if you have a lot more dark-fiber demand--to go in and pull a second cable in one of the other ducts."

Eide says that the company prefers to use standard singlemode fiber, but will accommodate customer requests for dispersion-shifted fiber as the need arises.

The deal with Illinois represents the third time that mfs has joined with a state highway authority for the purpose of building a fiber-optic network. The first project involved the construction of a 524-mi network along the New York State Thruway; the second, which is still being finalized, will see mfs team with New Jersey highway authorities. The company also has begun construction of an 82-mi network throughout the Bay Area Rapid Transit District in San Francisco, Oakland, and San Jose, CA. In each instance, mfs is responsible for building the network and leasing the excess capacity to third-party users. The company and its government partners will share the revenues generated by the fiber leases, says Eide. This enables the government agencies to subsidize the cost of building the network, he adds.

However, the Illinois project represents a slightly different arrangement, he says. "The biggest point is that they`re paying up front to build it," Eide explains. "And they`re doing that for two reasons. Number one, they need some fiber facilities for their own use. And second, we`ve found that the market reacts better to a network that everybody knows is going to be built. There`s a firm commitment on our part, [and] there`s a firm commitment on the part of the authority. So it allows us to get to the market more quickly and be more successful in a shorter time." The fact that the authority will supply funding up front also provides a fairly even distribution of risk between mfs and the authority, says Eide.

In contrast, the New York State Thruway decided not to proceed with the construction of its network until mfs had succeeded in finding customers for the excess capacity. "It was ultimately very successful, but it did take us a little bit longer to put the whole deal together," Eide says of the New York project.

The Illinois project raised several issues that are important for any public agency considering a partnership with a private firm for exploitation of its rights-of-way. "A key to making a successful project is for everybody to have realistic expectations," says Eide. "One of the problems that we`ve had in certain places around the country is that some consultants and advisors to state agencies are making wild claims about how valuable the right-of-way is. And if the agency has an unrealistic expectation, then the project isn`t going to be successful. The right-of-way isn`t worth any more than whatever somebody is willing to pay for it. The basis of that willingness is looking at what your project is offering versus what the alternatives are to get facilities."

For example, explains Eide, if the total cost of using a highway right-of-way (including construction costs) is x, and the cost of using a railroad right-of-way is x-2, then the value of the highway right-of-way is only x-2, all things being equal. What may make the situation unequal, he says, is speed to market.

"People are willing to pay some premium for speed to market--but you have to be able to prove speed to market," he says. "Because we`ve seen situations in which some agencies have taken years from the time they`ve decided they wanted to do a project to actually making the decision to do it--and in that period of time have actually lost potential customers."

One key to managing expectations is realizing that the traditional consumers of rights-of-way--long-haul carriers--are not as hungry as they used to be. "I think that we`re on a declining trend of people needing rights-of-way, especially in long-haul markets," says Eide. One reason for this is the number of mergers that have taken place in the long-haul community. "So as the mergers increase and the number of entities in the marketplace decrease, there are fewer entities to sell to--plus the fact that every year, people are building more networks, so there`s less need."

This doesn`t mean that agencies should give up hope of turning their highways into gold. Some competitive local access providers are stepping into the demand gap left by the departing long-haul carriers. "State agencies are becoming more aware of the communications needs that they have, and so their demand is going up," Eide adds.

In conclusion, Eide says the time is still ripe for the exploitation of rights-of-way--even if the boom years have passed. "There`s still a relatively long period of time to do these deals," he says. "I think the difference is that five years ago everybody could have gotten his systems for free and gotten paid a lot of money for the right-of-way. However, over the next five years, they`ll probably get some revenue from some carriers and get some cost offset. But the revenue potential is diminishing. So there`s still a lot of room for many of these projects, but the upside potential is deteriorating for the state agencies." q