Netting options for connectivity

On Sept. 11, 2001, Thomas Kenney was glad he had gotten rid of his T-1 line. As the director of IT at the Worcester Telegram & Gazette, a newspaper in Worcester, Mass., it was Kenney’s job to make sure the news staff had enough bandwidth to handle the surge in demand for information following the terrorist attacks.

The old T-1 connection from Verizon Communications Inc., Kenney says, would not have done the job. “Our needs suddenly went from the 2Mbps range to over 10Mbps. And we needed it five minutes ago. Sometimes it takes half an hour just to get Verizon on the telephone,” he says.

But Kenney had found a way around that infamous last-mile bottleneck that occurs in the section of network that is still so firmly controlled by ILECs (incumbent local exchange carriers) such as Verizon. In December 2000 he contracted with Yipes to supply the Gazette with high-speed data connectivity in a more responsive, flexible format.

Yipes Communications Inc., in San Francisco, is one of the new-breed telecommunications vendors that have so far managed to survive the economic implosion which destroyed so many CLECs (competitive local exchange carriers).

“Most CLECs could not grow fast enough to get to positive cash flow,” says Ron Hubert, a director at Deloitte Consulting in Los Angeles. “The main reasons are that the ILECs have a lock on access and, also, that the price structure made it very tough: Local service has always been priced below cost and subsidized by long-distance and business service.”

Yipes and others, including Cogent, MFN, and XO Communications, all focus on selling high-speed optical links to businesses, offering enterprises Ethernet options other than dealing with monolithic telecom carriers. “These companies are not immune to the current telecom financial woes,” says Ron Kaplan, an analyst at IDC in Framingham, Mass. “But, by going after business customers and offering data services, they haven’t been hit as hard as some of the less-focused CLECs.”

Kaplan says the services these companies offer can be cheaper and easier to deploy than traditional TDM (Time Division Multiplexing)-based T-1 services from the phone companies. “You have to look closely at the pricing in each case, but in general, Ethernet tends to be cheaper and more flexible than TDM,” he says.

Kaplan also says some of the phone companies are starting to offer Ethernet services but are more cautious about it for one simple reason: “This kind of service cannibalizes the phone companies’ own, lucrative T-1 business.”

Kenney is one of the lucky ones, having had a real choice in telecommunications. The Telecommunications Act of 1996 was supposed to usher in a new era of competition along with a new universe of choices. Now about the only thing most people can agree on is that the act has failed.

“You will hear one of two reasons cited for the failure, depending on who you talk to,” Deloitte’s Hubert says. “Either the act itself was flawed or the enforcement of it has been inadequate.”

The CLECs and most analysts will say the act is a clear failure because there is still very little telecommunications competition at the local level. The local phone companies claim that the act burdens them with regulations which are impossible to comply with and difficult to enforce.

But for some IT executives, there are now more options than ever before in spite of the market’s situation. Kenney, for example, looked at Cogent, another high-speed optical vendor. “Cogent’s cost per megabit was cheaper, but the monthly cost was higher,” he says. “The minimum they would sell was 100Mbps. But we knew we essentially needed T-1 capacity, so we went with Yipes.”

Building Bypasses

What sold Kenney on Yipes was the flexibility of provisioning what the company offered. “We can buy exactly the bandwidth we need in 1Mbps increments, and it is very easy to upgrade,” he explains.

Yipes likes to say that customers can upgrade within minutes on its Web site: On Sept. 11, Kenney used the telephone, and it took approximately 15 minutes. “Most of that time was taken up by the Yipes service rep trying to find the right sales rep to authorize the upgrade,” he explains. “They never found the right person, so they just went ahead and gave us the additional 10Mbps.”

In the end, those 10Mbps proved invaluable. “We were doing so much searching and uploading of photos, videos, and updating our Web site that our [usual] 2Mbps connection would have been overwhelmed,” Kenney says. Four days later, when things had cooled off a bit, he dialled service back down to 2Mbps.

Washington-based Cogent has also built a network that completely bypasses the public phone network. “Ours is a layer 3 [OSI stack] network,” says Dave Schaeffer, CEO of Cogent. “We run IP over dense wavelength division multiplexing [DWDM].” DWDM packs a lot of information on a single strand of fibre, and the layer 3 network can handle information with standard Internet-based hardware and software.

As does Yipes, Cogent offers city-to-city Ethernet connectivity – something that only became available last year. Customers can build LANs that reach beyond the metro area and completely bypass the standard TDM-, T-1-based technology.

Approximately 72 per cent of Cogent customers buy the service to replace T-1 lines, according to company officials. Cogent’s pricing is straightforward: US$1,000 per month for 100Mbps – it is all the company sells.

But Cogent’s service is not for everyone – the company only serves about 3,000 buildings nationwide. “We are very selective,” Schaeffer says. “We are in 20 major metropolitan areas, and we only install our equipment in buildings that are over 100,000 square feet, house at least 20 or more businesses, and are less than a quarter-mile from our metro fibre ring.”

If a building qualifies and there are paying customers, Cogent installs a rack of equipment in the basement, including a router and DWDM box. “We manage all of this,” Schaeffer says. “All the customer sees is an RJ45 jack that plugs into their router.”

“It is the advent of available fibre and cost-effective optical equipment which makes this [low-cost connectivity] possible,” he adds. “We like to think of ourselves as a next-generation ISP.”

And Schaeffer thinks this is just the beginning: “Current DWDM equipment only uses about 1 per cent of the optical spectrum, and throughput is doubling every 10 months.”

Ron Young, co-founder and chief marketing officer at Yipes, is even more outspoken about the potential for optical technology.

“ATM and SONet [Synchronous Optical Network] are the gods of the phone companies, and we are retiring them,” Young says. “DWDM can push a lot more information onto a strand of fibre. There is nothing stopping the ILECs from competing with us, but I don’t think they will. Did stagecoach manufacturers ever really compete with automobile companies, or railroad firms with airlines? The new technology is too disruptive and cannibalizes their fat-pipe, T-1 business.”

In for the Long Haul

Both Yipes and Cogent lease some of their fibre from MFN in White Plains, N.Y. MFN started building fibre back in 1996 and now has more than 1.2 million miles in 29 major metropolitan areas in the United States and Europe. Carriers such as Sprint are MFN customers, too; but in addition to leasing fibre, MFN also competes with some of its own customers. “We often extend connectivity directly to an end-user site,” says Treb Ryan, MFN vice-president of technology.

But like Cogent, MFN will only do this for customers with fairly large bandwidth needs. “Our slowest speed is OC-3 [155Mbps],” Ryan says. For those with really large appetites, MFN can install a DWDM box at the customer site, providing 32 OC-48 waves, he says. This multiplies out to more than 75Gbps.

“Alternatively, we can just run a piece of fibre from the customer site to one of our data centres on our ring,” Ryan adds. “This eliminates the need for DWDM gear at the building.”

Unlike Yipes and Cogent, MFN does not do city-to-city Ethernet, but Ryan says this will soon change. “We plan to offer it later this year. We have not done it yet since Ethernet tends to run slower than our minimum OC-48 [2.4Gbps] speed,” Ryan explains.

For those who want long-distance Ethernet now, XO Communications, in Reston, Va., is yet another choice. XO offers metro-area Ethernet and intercity Ethernet service for the 63 cities it serves.

“The benefit of long-distance Ethernet is that it has the potential to lower costs. You could theoretically do away with your frame-relay or ATM hardware, for example,” IDC’s Kaplan says.

“We offer Ethernet at three speeds: 10Mbps, 100Mbps, or 1Gbps,” says Garrett Hess, senior product manager at XO. “Prices for metro-area Ethernet are US$25 per megabit per month. Long-distance Ethernet rates will vary by distance and the particular markets served.”

XO also will install and manage the requisite gear at a customer site. “For the 10Mbps and 100Mbps service, we install an ADM [Add Drop Multiplexer] box,” Hess says. “If you want Gigabit Ethernet, we install a DWDM box.”

Analyst Dave Berninger at Pulver research group in Melville, N.Y., says optical alternatives to T-1 and long-distance Ethernet represent a new deal for IT executives. “Phone companies will generally sell you this class of service in only one way,” he says. “That is in a TDM signal, a dedicated pipe like a T-1 line. Companies like Yipes and Cogent are making competitive moves into this space.”

The bad news for customers outside major metropolitan areas, Berninger says, is that the ILECs own 95 per cent of the dark fibre. “But that still leaves plenty left over for these other companies to serve the large metro areas,” he notes.

Many users, such as Kenney at the Worchester Telegram & Gazette, are happy to take advantage of just such a scenario, seeking the flexibility and alternatives not offered by their ILECs and other carriers. “We would have been really hard-pressed on Sept. 11 if we had stuck with our T-1 line,” he says.

A Changing Market

As today’s communications market evolves, the telecom giants no longer dictate market direction, thanks to emerging market leadership metrics.


Voice-centric systems architecture – Data-centric systems architecture

Proprietary systems – Open, standards-based systems

Single-source solutions – “Best-of-breed” solutions

Leadership based on long-standing market presence – Leadership based on technological superiority and customer support

Supply-side orientation: slow to react to market demands – Demand-side orientation: highly responsive to market demands

Periodic innovation – Continuous innovation

Pricing differentiation – Product differentiation

Source: Aberdeen Group

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