The Last Miles Still the Hardest

Despite BLEC acquisitions, Ethernet carriers must still overcome access hurdles

With building local exchange carriers such a bargain these days, it seems its hard for providers such as Cogent Communications and Yipes Communications to resist snapping them up for a few million dollars, all in the name of building rights and access. But even with BLECs under their belt, those same providers will still face the age-old problem of actually getting to the buildings.

Yipes bought the access rights to 3,622 buildings from BroadBand Office for $2 million in cash, $2.5 million in equity and $900,000 in a forgiven debtor-in-possession bridge loan Yipes made to BBO. The providers fiber passes within one-quarter mile of 240,000 buildings.

Cogent merged with Allied Riser Communications at the end of August, but it appears that Cogent bought only ARCs in-building networks — not access rights. The companies would not reveal details of the merger.

ARC brings 900 buildings in 40 markets to Cogents fingertips. In addition, ARC was notorious for going into older buildings such as the Empire State Building and replacing copper infrastructure with fiber. But its safe to say that even with ARCs in-building networks, Cogent will still have to lease or build out metro rings and last-mile fiber, says Greg Mycio, New Paradigm Resources Groups director of broadband access.

"You still need to go from the metro core to the access core, and that entails laying fiber," Mycio says. "It costs money, and will take quite a while."

In addition to laying fiber, Yipes is looking at all kinds of last-mile technologies, including free space optics (FSO), wireless, copper, "everything," says Ron Young, Yipes co-founder and chief marketing officer.

Still, fiber is Yipes technology of choice, Young says. While costs vary from building to building and city to city, the company is taking a creative stance on getting fiber to the building. In some cases, the provider uses pre-existing incumbents conduits.

If Yipes cannot get to the building, in areas where cities are less than cooperative about allowing providers to lay fiber, it will use T1 (1.5-megabit-per-second) lines as a temporary solution.

Another little discussed difficulty is dealing with local governments. Its a big problem for providers, says Jason Knowles, a Current Analysis analyst. "Municipalities are gouging them, charging them to repave entire streets just for digging a trench. They may be better off partnering [for last-mile access]."

Sticking to the Game Plan

Telseon is one provider that has so far stood by its mantra of partnering for last-mile access, rather than buying a BLECs (pronounced BEE-lek) assets.

On July 31, the provider partnered with Everest Broadband Networks so that Everest customers in four markets would have access to Telseons IP-based network. Everest will be able to wholesale bandwidth to other Telseon service provider customers that might want to reach multitenant unit enterprise customers.

Telseon itself remains focused in the metro core, rather than the metro edge, because of the "enormous amount of risk at the edge," says Michael Hulfactor, Telseons director of market analysis. "Many of the tenants in the tall shiny buildings are low-bandwidth users. Lots of businesses are looking for ISP connections, but they are not going to be taking value-added services."

In addition to having pre-existing contracts with local incumbent carriers, many are branch offices, where major decisions are not made.

Telseon is also looking at alternative last-mile technologies, but rather than invest directly in them, the company would partner with providers. Telseon has partnered with free-space optics vendor Terabeam and is mulling partnerships with wireless and gigabit Ethernet-over-copper, Hulfactor says.

Still, analysts think acquisitions are a good way for providers to expand their number of buildings in a market. "By combining, they can really get a leg up," NPRGs Mycio says, referring to Cogent, which claims to have more than 3,000 customers signed up, but only 40 to 100 actually on its network.

In addition, ARCs in-building networks should allow Cogent to drive traffic onto its backbone, increase network efficiency and profitability, Current Analysis Knowles says. The catch is that customers are reeling from ARCs failure, and Cogent will have to convince them of its own stability.

As far as building service providers go, incumbents are the biggest BLECs around. And while providers such as Cogent and Yipes try to set themselves apart from the troubled players such as ARC and BBO, in actuality, they are all BLECs, says Nick Maynard, a Yankee Group analyst.

Elizabeth Starr Miller covers access technologies and competitive local exchange carrier business strategies for The Net Economy.