Young Telecoms Take a Lesson From Elders

By eweek  |  Posted 2001-07-23

A new crop of telecom carriers has emerged, boasting pedigreed leaders who promise to learn from the mistakes of their fallen cohorts — or at least scoop up their assets.

Among the upstarts with new business plans are Aleron, led by ex-Teleglobe Communications chief Paolo Guidi; Velocita, led by ex-Global Crossing CEO Bob Annunziata; and across the ocean, Storm Telecommunications, led by Steve Carroll, ex-president of WorldCom Europe.

On the one hand, these new carriers plan to avoid the high debt that plagues older players by serving as contractors to major carriers, or by laying their optical fiber in a trench that a bigger company has dug. They also try to develop outsourcing contracts with their bigger allies.

On the other hand, the new car-riers have been sighted eyeing assets of fallen competitors. Aleron reportedly was interested in acquiring the assets of NetRail, and Velocita was looking at PSINets backbone. In addition to cheap equipment, there is the greater draw of customers and traffic.

"You have a lot of assets out there that are available for pennies on the dollar. The idea of a next-generation Internet Protocol services provider is just as good — it was just executed poorly, and people are trying to do it right this time," said Mark Stone, president of Narus, a vendor that helps telecom carriers profit from IP services.

Startups will end up competing with struggling carriers that built their networks the old-fashioned way — by paying with cash from junk bond sales.

Level 3 Communications last week announced Verizon Communications as a customer, in a move that observers believe is the first step toward making Verizon an "anchor tenant" on Level 3s network. The move could also be a prelude to Verizons acquisition of Level 3, which analyst Hilary Mine of Probe Research said was Level 3s plan all along.

Backed by mega-financier George Soros, Storm was born out of a failed joint venture between two Scandinavian national carriers, Telia and Telenor. Hesitant to spend money to dig trenches on its own, Storm sought big partners that needed optical fiber and paid to build its network with specific customer contracts, lighting the first part a year ago.

On this side of the ocean, a similar approach is used by Velocita, the largest of three contractors hired by AT&T in December 1999 to build its next-generation OC-192 (10-gigabit-per-second) network.

The new carriers hope that by avoiding huge debt and seeking uncrowded markets, they will survive as others fail.

"Todays markets require very efficient use of every dollar. Overinvesting in ever-larger capacities of depreciating facilities in advance of true revenue-based traffic just isnt prudent," said Jeff Barrows, senior vice president of global networks of Aleron, and formerly director of internetworking engineering of UUnet.

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