Building Broadband Sputters

Companies wiring buildings for broadband access are starting to sing the blues.

Companies wiring buildings for broadband access are starting to sing the blues.

Building local exchange carriers (BLECs) are struggling with a sluggish economy, lower-than-expected demand and very few avenues for new capital. The net result will be fewer independently wired buildings in the future, industry experts said.

BLECs blame Wall Street for the sudden reversal of their fortunes. Douglas Morgan, vice president, National Strategic Initiative, at Allied Riser Communications, said that in the space of four months in late 2000, investors went from encouraging multicity build-outs to demanding quick return on investment from buildings already launched.

"The expectations have turned 180 degrees to preserve capital, get buildings EBITDA [earnings before interest, taxes, depreciation and amortization]-positive as quickly as possible and radically change your business," Morgan said.

The most flamboyant BLEC, Urban Media Communications, had at least 200 business customers and is now all but out of business — no one answers the phone at its Palo Alto, Calif., headquarters, and its network operations center is similarly without life.

Urban Media was backed by some of the biggest names in venture capital, including Accel Partners, Comdisco Ventures, Softbank, Tyco Ventures and Western Technology Investment. None commented on Urban Medias fate.

While defaults like Urban Medias are not common among BLECs, many have been hit hard by the technology recession. In light of curbed expansion plans, Allied Riser fired 140 employees.

BroadBand Office — with an all-star crew from UUnet and millions of dollars in the bank from Kleiner Perkins Caufield & Byers, Microsoft and Sun Microsystems — was the poster child of BLEC success. The company has split its operations in two; it is focusing on the metro backbone market and decreasing emphasis on BLEC services.

The BLECs are expected to fight tooth and nail to wire big buildings that house more than nine companies and have more than 100,000 square feet of office space — a market that could be as shallow as 60,000 buildings in the entire country, analysts estimated. The rest of the building market, estimated at roughly 700,000 structures, will most likely remain regional Bell territory.