Fiber and conduit exchange partnership keys network builds
Fiber and conduit exchange partnership keys network builds
By ROBERT PEASE
Despite differences in overall network building strategies, three companies have joined to share interests in a 715-mi fiber-optic network segment currently under construction between Sacramento, CA, and Portland, OR. In the true spirit of "coopetition," the fiber-swap alliance between GST Telecommunications Inc. (Vancouver, WA), Pacific Fiber Link Inc. (PFL), and Williams Communications fits neatly into the West Coast strategies of all three firms while saving costs as well.
The GST/PFL/Williams relationship has evolved over time. Back in August 1998, GST and PFL penned an agreement by which GST purchased a portion of the Sacramento-to-Portland fiber route that PFL was building. Linking that segment to the rest of its California fiber route provided the major portions of GST`s planned Virtual Integrated Transport and Access (VITA) network, which converges voice and data networks onto a common backbone using a combination of packet, frame, and cell technologies (see Lightwave, August 1998, page 17). The agreement also provided for options to acquire additional fiber on each other`s routes throughout North America, creating a synergy between the two companies that has enabled both to decrease time-to-market objectives for their individual network strategies.
Soon after the agreement, FTV Communications LLC entered the same corridor by buying $30 million worth of fiber on the Sacramento-to-Portland route under construction by GST and PFL. FTV, a partnership between Enron Communications, Touch America, and Williams Communications, also agreed to swap fiber on its 1714-mi western route from Portland to Los Angeles by way of Boise, ID, Salt Lake City, and Las Vegas. In return, GST swapped fiber on its 745-mile California long-haul network from Los Angeles to Sacramento.
The FTV swap and purchase agreement was Williams`s first major deal with GST, leading to the more recently announced partnership to build the Sacramento-Portland route. Williams is purchasing network facilities valued at $47.2 million, which will be split between GST and PFL.
Parting with tradition
Closer examination of this latest announcement illustrates why fiber swapping can help carriers achieve their telecommunications network objectives, even as a stop-gap measure. For example, although GST and PFL may be maximizing their efforts to grow quickly by swap agreements, Williams generally prefers to "go it alone."
"Anywhere we can develop telecommunications facilities along pipeline rights-of-way, that`s Williams`s choice and, by far, a choice to construct the network ourselves," says Todd Steele, manager of business development and planning for Williams. "In fact, I would say that a very small percentage of our network, when fully completed, will be from joint construction and non-pipeline rights-of-way."
Williams owns more than 40,000 mi of pipeline rights-of-way throughout the country, both gas and liquid pipelines. With right-of-way issues a major concern in planning new fiber-optic network construction routes, Williams has a strategic advantage over many long-haul carriers. But even Williams isn`t opposed to breaking with traditional strategy to gain the advantage of time to market.
"The advantage of this transaction was that it filled a key component of our West Coast strategy from Portland to Sacramento," says Steele. "The route already had a lot of work completed on it. If Williams had opted to build it ourselves, we would be at a considerable disadvantage from a time perspective. By participating in this joint build with these two partners, we also gain considerable economic advantages, particularly cost reductions."
More means less
GST and PFL, although different in their focus and objectives, both seem to agree that buying or swapping fiber is the fastest and most economical way to build out a long-haul network. Simply put, more participants in a project means each participant shoulders less cost. Part of GST`s cable deployment strategy is to keep an open door to the possibility of new participants.
One element of such a strategy is to install additional conduit that exceeds the needs of the company, with the intent of selling or swapping in order to expand the network while reducing overall construction costs.
"As we construct the network, we`re also putting in extra fiber," says Greg Warta, vice president of network development at GST. "The good thing is, at this point, we haven`t had to commit firmly to our fiber count. So if we can continue to bring others into this network, we`ve got a small window of opportunity where we can oversize the cable as we close a few more deals. Of course, that`s all contingent upon success."
Warta believes most people in the industry today prefer swapping fiber to buying it because of its numerous benefits, including tax benefits. He views buying fiber as more of a fallback position. "That`s not as advantageous to the purchaser as a swap," he explains, "but sometimes it`s necessary, and it`s still more cost-effective than actually constructing it themselves."
According to Lisa Miles, director of investor relations at GST, the company will probably widen its current western footprint toward the eastern United States by 2000. She expects GST will be involved in additional facilities builds and swaps throughout the coming years.
"The bottom line is that a fiber swap is a win-win situation for both parties," says Miles. "I think that`s why you`ll see these swaps moving forward. The companies can gain significant synergies from one another and it definitely reduces the costs for both parties."
Developing fiber "condos"
While GST is competing to become the West Coast`s primary service provider with its long-haul VITA network, PFL considers itself a developer that assists carriers in building out their network architectures.
"We take away a lot of the things they prefer not to deal with, such as the engineering, design, criteria, licenses, and rights of way," says Larry Olsen, vice chairman and chief financial officer of Worldwide Fiber Inc., of which PFL is a subsidiary. "There`s really a lot of work at the bottom of the food chain, but without that work being done properly and done well, the networks don`t get delivered in a fashion the carriers can use them in. Carriers spend so much time on retail strategy, they`re pretty happy to have a developer look after all those issues, deliver their network, and let them install their electronics."
PFL uses a strategy it calls "condominium development," which it says makes building fiber-optic systems similar to building condominiums. Basically, PFL goes out and finds a number of participants who need fiber or conduit over the same routes.
"If we can put enough of those players together on a right of way that is particularly diverse, that is, not going through a traditional right-of-way route," says Olsen, "we`re able to sign on some major carriers who are looking to pick up backup fiber routes."
The strategy of Worldwide Fiber as a network developer is to build a large network in the United States and internationally through PFL. As the network segments are constructed, Worldwide is retaining both fiber and conduit for its own accounts.
"We will, as time marches on, have a fairly large network capacity ourselves," says Olsen. "We`re really, at the present time, just putting the strategy into place as to how we intend to capitalize on the value of that network."
So far, that network runs from Seattle to Toronto and is expected to extend out to Halifax. A development is already underway from Montreal to Albany, and a fiber swap, under negotiation at press time, will further extend the network into New York City.
"I believe we`ll see a lot more of these strategic agreements as we build out our network," says Olsen. "We`re currently building down both U.S. coasts and across North America. In the coming weeks, we`ll probably sign similar agreements with four or five large carriers involving east-to-west corridors in the U.S. Some we`re planning on doing ourselves, while selling participation in terms of fiber."
Whether swapping, buying, selling, leasing, or otherwise leveraging their fiber-optic cable and conduit, telecommunications companies are seeing tremendous advantages in partnering with others, even when it means having their fiber strands lying beside those of the competition. As fiber is stretched to its capacity limits by technologies like dense wavelength-division multiplexing, many existing networks will likely be built out and expanded solely on the basis of a "swap here or a lease there." q