What's been missing - until now - are regional exchanges to provide access to networks.
It shouldn't surprise anyone that energy companies have installed the vast majority of the some 75 million miles of optical fiber in the ground today, or that those same companies are lighting dark fiber and developing optical networks to boost return on their investment. For utilities, such investment fits perfectly with their two most valuable assets - rights of way and long-time experience in distribution services. The goal is simple: to buy and sell bandwidth just like gas and electricity.
Already, brokers are working with companies that own the transport fiber to create the standards and protocols that will make it possible to deliver bandwidth on-demand. With that in place, the focus will shift to building the actual infrastructure for physical distribution.
Yet, if utilities aren't careful, they will hit the same snag that has hampered traditional telcos: network interconnection. Until very recently, it's been a case of "fiber, fiber everywhere," but nowhere to connect. Now, however, a new model has emerged. That model is the optical transport exchange - the one place in each major market where multiple long-haul carriers, dark-fiber providers and metro networks physically converge. The end result is a neutral interconnection exchange where everyone comes together to connect virtually anything to anything. This is the "turnkey" solution utilities need to bring bandwidth to market.
The Promise of Exchanges
Today, carriers link networks in three basic ways: (1) in their own local central office, (2) in office buildings called "telco hotels," which evolved naturally as multiple carriers strung fiber to tenants in those buildings, and (3), most commonly, through expensive one-to-one connections. No cost-effective standard has emerged that might allow energy companies to get where they need to go - until now, that is. Optical transport exchanges bring order to the chaos. They bring buyers and sellers together.
These exchanges are located at the crossroads of the country's premier fiber routes, giving easy access to networks through highly engineered, but neutral, interconnection facilities. Their sole purpose is to interconnect transport networks to enable the exchange of any kind of traffic - voice, data, Internet, streaming video, you name it. They function as optical "watering holes" for all kinds of service providers.
But for utilities starting up in telecommunications, the most important thing to remember about these exchanges is that they level the playing field for new entrants. They provide access to everything a utility might need, including:
- technical support services,
- a ready pool of customers for both dark fiber and optical tributaries, and
- infrastructure to physically deliver bandwidth.
The concept is simple. Gaining entrance to these neutral exchanges speeds time to market, and can save considerable amounts of money in ramp-up costs. Each facility supports thousands of incoming strands of fiber, which can be cross-connected either physically using traditional patch cords, or logically by using an intelligent optical switch. The end result is a nexus of optical networks and a capacity that can be tapped and replenished.
This centralized approach to network interconnection speeds the entire process. It simplifies circuit provisioning and enables the creation of a database that lets buyers and sellers track the available capacity within any exchange at any given moment.
So utility companies who enter the fray today will enjoy a strategic advantage that was unavailable before to other startups. But that is just the tip of the iceberg.
The Power of Networks
Envision this. With easy access through regional exchanges, transport networks become ubiquitous: a classic commodity. That allows service providers to move up the food chain. They focus instead on developing value-added products that ride on the network. And because everything is aggregated at the exchange, end users will be able to purchase different services from best-of-breed providers - one wavelength for Internet access, another for long distance, and so on.
Of course, service providers will remain free to bundle and sell transport service, if that's what they want to do. In fact, utilities appear well positioned to run the transport business - which is just the transmission and distribution of photons instead of gas and electricity. Yet, at the same time, optical exchanges should allow providers to package telecommunications in many different flavors - pure transport, value-added network services, retail, wholesale, or private-label. That's the direction we're headed. And in this scenario, the field is wide open.
Building the Business
Industry pundits are predicting the value of traded bandwidth could skyrocket from $5 billion, where it is currently pegged, to nearly $28 billion by 2004, and each day brings more news.
On March 30, Williams announced the spin-off (set for April 23) of Williams Communications, the classic example of an energy company using its network assets to create a broadband business. Earlier, on March 21, Touch America, the broadband info subsidiary of Montana Power, announced its latest deployment in building a 25-mile fiber ring in the metro Denver area. On March 9, the utility subsidiary Consolidated Edison Communications Inc. announced plans to launch a broadband exchange facility in Manhattan's "Silicon Alley." Yet, there are still obstacles to overcome. That was shown clearly on April 6, when Enron Corp. announced it would eliminate some 20 percent of jobs at its broadband unit, Enron Broadband Services, which has completed building its 18,000-mile fiber-optic network.
Perhaps the biggest hurdle is getting all the players to play. Right now, the big carriers are fighting for market share in an increasingly competitive arena. Frankly, they don't see offering bandwidth on-demand as a critical requirement of their business. Still, they can't afford to ignore a lucrative emerging growth sector for long, especially with new competitors nipping at their heels.
Optical transport exchanges can't resolve all the issues, but they will make some things much easier. First, they function as "watering holes," attracting all kinds of carriers to one central place where they can do business faster, easier and cheaper. They resolve interconnection through the use of intelligent optical switches. This technology, though still being tested, promises to allocate variable bandwidth dynamically, which will make it possible to deliver customers something as simple as an STS-1 connection or as sophisticated as wavelengths that can carry any kind of information in its raw medium.
The Value of Partners
Utilities are veterans in the distribution game. And they are learning about commodities, with last summer in California serving as a baptism under fire. Yet what they're looking for in telecommunications is the missing link: a plug-and-play partner. And that's exactly what they get with optical transport exchanges.
This business model is in sync with the times because pure optical networks are the wave of the future. As the need rises to connect thousands of fibers, there will be an even greater demand for a centralized market solution - exchanges that are neutral to protocols, technologies and topologies. Their sole purpose will be to connect huge pipes at the core of networks. Utilities that get in on the ground floor of these exchanges will be in a perfect position to ride the next wave of innovation in telecommunications. And, reap the rewards.
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