Bandwidth Barons

The Rush to Mine High-Speed Services in Bay Area

Posted: 12/1999

Bandwidth Barons
The Rush to Mine High-Speed Services in Bay Area
By Gail Lawyer

Competitive telecom service providers are entering the San Francisco Bay area with the same pioneering spirit of Levi Strauss. During the California Gold Rush in the mid-1800s, Strauss came to San Francisco and built an empire selling jeans to the thousands of miners who were migrating to northern California in search of fortunes.

Likewise, competitive local exchange carriers (CLECs) in the Bay area are betting on the booming high-tech industry to drive the need for telecom services and bandwidth.

The personality of those living and working in the San Francisco Bay area--which includes Oakland, San Jose and the rest of Silicon Valley--has not changed much in the last 150 years. During the gold rush, it was said that San Francisco "was built on the strengths of entrepreneurs who saw an opportunity and moved quickly to seize the advantage." Those entrepreneurs remain. Instead of striking gold, they're striking it rich in high-tech.

More than 5,500 high-tech companies reside in Silicon Valley, and each one has significant needs for Internet access. "These companies are pumping a lot of bandwidth, says Michael Young, a vice president and general manager for Metromedia Fiber Networks Inc. (MFN), White Plains, N.Y.

As a result, a host of competitive providers has been drawn to the Valley to build high-speed networks and develop capabilities for transmitting lots of data.

Because of the number of early-adopting high-tech companies in Silicon Valley, Advanced Radio Telecom Corp. (ART), Bellevue, Wash., decided to launch its 100 megabits per second (mbps) wireless broadband service in San Jose this September. "It's a litmus test for our business concept, says Henry C. "Harry" Hirsch, ART's chairman and CEO.

ART's wireless network--what Hirsch calls "consecutive point"--is designed in a ring topology, similar to existing synchronous optical networks (SONETs). ART brings all local data traffic back to the point of presence (PoP) of Denver-based Qwest Communications International Inc., its partner for long-haul traffic. By doing this, ART completely bypasses incumbent telco Pacific Bell (PacBell), San Francisco, a subsidiary of SBC Communications Inc., San Antonio.

Hirsch says ART is targeting customers in nonfibered buildings that need a T1 or more worth of service. Eventually, ART's carrier-class wireless network will be available in 40 major markets across the United States.

Bandwidth isn't only in the sky. Several fiber-based providers are burying a lot of it around San Francisco Bay.

"Many thought that 96 pairs would have been enough," says MFN's Young. "But with the bandwidth explosion and e-commerce, 96 doesn't work anymore."

MFN launched its dark fiber network in July 1998. Currently, the fiber courses 320 route miles from downtown San Francisco's financial district to San Jose. For diversity's sake, in case of the inevitable earthquake, the network crosses all major bridges spanning the bay. "That helps strengthen our network," says Young.

NEXTLINK California, Bellevue, Wash., is another company adding a lot of bandwidth to the Bay area. NEXTLINK launched service in May 1998, with plans to provide local dial tone service for small and medium-sized businesses. "We found that the Internet is driving these companies," says Donald Kermin, NEXTLINK's general manager. "Their connection to the Internet is more important than dial tone."

For that reason, NEXTLINK has put in a 432-fiber network that includes a submarine portion under the Bay Bridge. During construction, NEXTLINK laid three additional empty conduits that will be able to hold 800 strands each, should more bandwidth be needed.

Pumping Up the Last Mile

List of CLECs in San Francisco Market
(Adobe Acrobat Reader required)

Bandwidth isn't needed only in the backbone. Bay area businesses and residential customers served only by copper also are demanding high-speed Internet access. While there may be a select few Silicon Valley executives who need--and can afford--a T1 into their homes, that's not a practical solution for the masses.

What is being put into widespread use is digital subscriber line (DSL). "DSL has come in and filled a void between ISDN and T1," says Brad Connors, president and CEO of DSLnetworks, San Francisco.

In fact, competitive DSL offerings were virtually born in the Bay area.

Covad Communications Co. was perhaps the first data CLEC in the area. The company was founded in 1996 in Santa Clara, Calif., and began offering DSL coverage from Napa Valley in the north and Santa Cruz in the south.

"This has been a good place to cut our teeth," says Joe Devich, executive vice president of corporate services for Covad. He believes if Covad can please the Valley's technologically savvy customers, it will be able to please almost anyone.

Most of Covad's DSL lines are resold by 50 Internet service provider (ISP) partners, says Devich. The company also is working on vertical applications, such as a partnership with WebMD, Santa Clara, Calif., to bring a package of Internet services and high-speed data connections to the health care industry.

NorthPoint Communications Inc. is another native northern California DSL company. In fact, the company is named after North Point St. in San Francisco, where its founders met in an apartment to develop their business plan. The company first turned up two central offices (COs) in San Francisco in October 1997, and by early 1998 had a total of 11 COs in service. Commercial offerings began in March 1998.

A NorthPoint survey of customers showed that 45 percent were upgrading from ISDN, while 47 percent had been using dial-up services.

In addition to selling through ISP channel partners, NorthPoint has joined forces with the Fort Worth, Texas-based Tandy Corp. to sell DSL through Radio Shack stores nationwide.

Although Rhythms NetConnections Inc. is headquartered in Englewood, Colo., the Bay area was one of the first markets in which the company launched its services. Instead of a wholesale model, such as the ones used by Covad and NorthPoint, Rhythms is focusing on retail sales to enterprise customers.

"We package services around the technology," says Bruce Woodrey, Rhythms' metro vice president and general manager. "A lot of young companies here are looking to leverage that technology to drive their costs down. They're excited that economical bandwidth can allow their applications to scale."

Rhythms has completed building out 80 COs around the Bay area.

DSLnetworks is another DSL provider focused on the enterprise customer and providing service to ISPs. The company, founded in San Francisco April 1998, aggregates DSL lines from a variety of competing providers, including PacBell, then backhauls the traffic to a central data center to manage the service.

"Lots of small ISPs are looking for solutions, but don't have the resources to have a DS-3," says Connors. "They spend all their money upgrading systems to stay competitive. They see DSL as a big money pit. Small ISPs can come to us, with virtually no money up front, and start reselling the next day."

More DSL offerings are being unveiled by the minute.

The most recent entrant is FirstWorld Communications Inc. The Denver-based CLEC bought two ISPs in San Francisco at the beginning of 1999 and instantly gained a customer base of 35,000. Currently, FirstWorld is offering dial-up Internet access and DSL, which is a combination of its own service and wholesale lines from PacBell and Covad.

Other existing traditional CLECs have gotten into the DSL business too.

Focal Communications Corp., Chicago, began providing competitive local phone services in fall 1998 using the "smart build" approach. Within a year, Focal had claimed eight of the top 15 high-tech firms as customers, says Andrew Robitshek, Focal's Western region vice president and general manager.

The company is now getting ready to expand its service portfolio. In conjunction with NorthPoint, Focal will be testing a voice over DSL offering in the Bay area. Eventually Focal hopes to provide switched services through its entire U.S. footprint.

ICG Communications Inc., Englewood, Colo., got its start in San Francisco in the early 1990s when it bought competitive access provider Bay Area Teleport. In addition to providing commercial services to business customers, ICG began offering DSL through its ISP customers in October 1998. This December, ICG launched a new DSL package for ISPs. Called Internet Remote Access Service, ICG provides the companies with the necessary CO equipment, phone lines and collocation space.

Fighting for Collocation Space

ICG, along with most every other provider, is discovering that collocation is a big business, especially in the "dot com" crazy Bay area.

"We find [collocation] is a hot topic. We sell out on a regular basis and try to stay ahead of the curve," says Dave Gilbert, California vice president for GST Telecommunications Inc., Vancouver, Wash. Gilbert believes customers are more interested in collocating in his facility, rather in carrier-neutral collocation sites, because in his CO customers can buy services straight off the switch and not be saddled with the expense of purchasing additional lines.

"Everyone wants a 'www' site, but they don't want to house it," says Mark Danforth, city manager for Level 3 Communications Inc., Omaha, Neb. Level 3 opened a San Francisco gateway facility in October 1998, and is currently building a metro area network around the Bay. Until its local network is complete, Level 3 will be reselling T1s from PacBell and MCI WorldCom Inc.

FirstWorld, Denver, too, has seen the extreme interest in collocation. The company has two facilities in San Francisco that are expected to be full by January. A third facility in San Jose, with 20,000 square feet of clean space for collocation, was set to open in early December.

The Allure of Small Business

The Bay area has one of the highest percentages of fast-growing small businesses in the country, according to the Bay Area Economic Forum, a partnership of business, government, higher education and community leaders. Of the more than 52,000 businesses in the Bay area, about 96 percent have less than 50 employees.

The majority of small businesses are active in computer hardware and software development, Internet and e-commerce applications. In fact, the Bay area is home to the highest Internet penetration in the country, and has attracted 35 percent of all U.S. venture capital funding, states the Economic Forum.

Several competitive providers have found their calling serving the small to medium-sized business market.

"Companies are growing so fast, so when they look for service they want to have someone who can move with them," says Rob Orlando, general manager of national and key accounts at Global Crossing Ltd., Hamilton, Bermuda, (formerly Frontier Communications). Global Crossing offers integrated voice and data services over T1, web hosting, and DSL in partnership with NorthPoint.

GST had a problem defining Bay area small businesses. "There may be businesses with less than 50 employees, but they may spend more than $40,000 a month on telecom," says Gilbert. To solve the dilemma, they opted to focus on customers who needed at least a T1.

GST, which has been in the Bay area for almost four years, initially built a network to serve the tertiary markets on the East Bay, from Walnut Creek to Pleasanton. "Everyone else was concentrating on downtown San Francisco, so we became the logical provider for other carriers outside of San Francisco," Gilbert adds.

Allegiance Telecom Inc., Dallas, is aiming its offerings to even smaller customers. The CLEC provides local voice, DSL, and dedicated Internet access up to the T1 level.

Teligent Inc., Vienna, Va., is using its wireless broadband offering to sell redundant networks, as well as high-speed connectivity to small and medium-sized business customers. Currently, Teligent's service is available in 100 Bay area buildings.

In Through the Back Door

Vancouver, Wash.-based Electric Lightwave Inc. (ELI) now has two sales offices in the Bay area, but it wasn't always like that. For more than five years, San Francisco was ELI's second largest frame relay market, even though the company didn't have a sales force there. "Most of our customers started with us outside the area," says Michael Morey, ELI's regional vice president. These customers bought ELI's data service in San Francisco because they had branch offices there.

ELI has a local network that is tied into its SONET network, which spans much of the Western United States. Among the company's offerings are local, long distance, transport, private line and data services, such as Internet, frame relay, asynchronous transfer mode (ATM) and remote access.

While it builds its data network, Intermedia Communications Inc., Everett, Wash., has found its San Francisco niche in the interconnect business, says P. Hayes Baird, Intermedia's senior director of strategic marketing. Currently, the company has more than 150 customers, including Macromedia Inc., San Francisco, and the Fairmont Hotel.

By the end of this year, Intermedia expects to complete construction of an OC-48 ring around the Bay. Sometime in 2000, Intermedia will begin providing voice over Internet protocol (VoIP) with San Francisco being the first market.

Convergent Communications, Englewood, Colo., is also serving 6,000 business customers from Fresno to the California-Oregon border, but with a twist. Convergent owns the telephony and computer equipment and handles the outsourcing of all of a business' telecommunications needs. "Our model is stronger here because companies can't get the talent to do it themselves," says David Korba, Northern California vice president and general manager for Convergent. "They use our services to replace [Internet telephony] departments."

Playing Catch-Up

Even though PacBell hasn't sat idly by and let competitors steal its customers, the incumbent telco admits it has had to play catch up.

"Our competitors beat us into DSL, but because it's so hot, we got into it quickly," says Dan Jacobsen, an executive director for PacBell. The telco also just has started offering Integrated Pathway, a channelized T1 service. The approval to launch that service was mired in discussions with the California Public Utilities Commission because PacBell is still a regulated company, he noted.

"Technology is moving faster than regulation," adds Jacobsen. To whit, he notes that more than 1 billion minutes of Internet traffic traverse PacBell's network each month.

Not only is PacBell trying to keep pace with the technological revolution, it's trying to keep up with the wholesale demands from CLECs. "For the last year we've been building collocation and interconnection links at a record pace," says Jacobsen.

While most competitors tend to complain about the speed and dexterity with which incumbent telcos provide the network elements and services required by the Telecommunications Act of 1996, PacBell has received decent marks.

"Compared to its cousins," says DSLnetworks' Connors, "PacBell has been one of the best to deal with."

Off the Road
Earth Friendly, Traffic Weary Northern Californians Opt For Telecommuting
By Gail Lawyer

Many San Francisco Bay area residents are tired of joining more than 3 million of their neighbors stuck in traffic as they commute to and from work. Instead of quitting their jobs, each morning some employees are taking a 20 second walk from the kitchen to their home offices.

"Everybody knows that the Bay area is ground zero for telework because of traffic and real estate prices and availability," says Bruce Woodrey, metro vice president and general manager for Rhythms NetConnections Inc., Englewood, Colo., a provider of digital subscriber line (DSL) services.

Not only is it a cost saver, it's also a time saver.

All told, Bay area commuters waste about 90,000 hours a day--during which they could be at work, or enjoying their free time--sitting in traffic, according to the Smart Valley Telecommuting Initiative.

"Companies are discovering that telecommuting could save them money" by taking people out of offices where rents are high and making the employees more productive during their work days," says June Langhoff, director of the Bay Area Telework Association and author of the book, Telecommuter Advisor.

About 21 percent of workers surveyed this fall by Rides for Bay Area Commuters, a non-profit group, said their employers gave them the option to telecommute. This number is up from only 16 percent during the previous year's survey. Of those workers who do have an option to work from home, 84 percent take advantage of the opportunity. The Rides' survey reported that 41.4 percent telecommute two to four days a month, while another 39.4 percent work from home five or more days a month.

Even though a majority of businesses do not offer telecommuting options, there are some companies that have turned telecommuting into a benefit to attract and retain employees in a tight job market where unemployment runs 2.5 percent.

"For companies to keep employees and keep going, they're going to have to use a telecommuter model," says Brad Connors, president and CEO of DSLnetworks, San Francisco.

Telecommuting "improves the quality of life," says Joe Devich, executive vice president for corporate services at Covad Communications Co., a Santa Clara, Calif.-based DSL provider. "This is an area where people put a premium on quality of life."

Langhoff, for instance, refers to a survey of Silicon Valley businesses, in which about 27 percent listed the ability to telecommute among benefits such as health care and stock options. Rumor has it that one company even offered employees a $3,500 bonus to stay off the roads and work at home.

Langhoff believes that more widespread deployment of high-speed Internet access to the home via DSL and cable modems will encourage more people to work from home. Several telecommunications companies in the Bay area are banking on that as well.

Covad, Rhythms, DSLnetworks, NorthPoint Communications Inc., San Francisco; Pacific Bell, San Francisco, and many other providers are now rolling out DSL service throughout the entire Bay area. In fact, about 27 percent of the DSL lines that NorthPoint installs in homes are being used for business, says John Stormer, the company's vice president for consumer markets.

In addition to these DSL providers, cable companies are also bringing high-speed access into the home. AT&T Broadband, a subsidiary of AT&T Corp., is now completing trials of cable modem service in Fremont, Calif.

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