Dynegys Broadband Dreams Still Alive

Enron's telecom dreams may be foundering, but those of its hometown rival, Dynegy, are still alive and appear to be getting brighter.

Enrons telecom dreams may be foundering, but those of its hometown rival, Dynegy, are still alive and appear to be getting brighter.

Today, Oct. 15, Dynegy announced that it lost $15 million in the third quarter on its global communications business, $5 million less than it lost during the second quarter. And the company expects Dynegy Global Communications, which just completed a 16,000-mile-long optically switched mesh network, to break even over the next 12 months or so. The company also has 8,000 miles of fiber in Europe.

During an analyst conference call this morning, Dynegy CEO Chuck Watson said the communications business has surged since the tragedies of Sept. 11. Since then, "theres been strong growth in broadband, and I think its permanent. I felt we were close to the bottom over last few months," he said. Now, in the wake of the terrorist attacks, corporations will start using more videoconferencing and Web conferencing, which means that "broadband requirements are going to be up dramatically for the foreseeable future, and I believe it will be a permanent way of doing business differently," he said.

According to Watsun, the revenue in the global communications business doubled in the third quarter from the second quarter, reaching $8 million.

While thats not much compared to Dynegys overall finances - the company reported third-quarter net income of $286 million on revenue of $8.52 billion - its clear that Dynegys bullish approach to the broadband business has not wavered, despite the market downturn. Thats a sharp contrast to Enrons attitude. During the second quarter, Enron Broadband Services lost $102 million on revenue of $16 million.

Last month, the energy giant responded to the loss by quietly rolling its broadband business back into its wholesale trading arm. That means any revenue or losses incurred by Enron Broadband Services will be little more than rounding errors in the numbers of Enron Wholesale Services, the companys massive trading business, which had revenue of $48.5 billion in the second quarter.

Compared with Enron, which has 18,000 miles of fiber and 25 pooling points spread among Asia, Europe and the U.S., Dynegy appears to have an edge in terms of metro connectivity, said Stan Hanks, a principal of Portland, Ore., technology and communications consulting firm Network Mercenaries. Hanks, who also spent three years at Enron helping the company develop the technology for its fiber networks, said that Dynegy has an agreement with Telseon that gives it access to metro customers in cities throughout the country. The Telseon deal, signed in May, gives Dynegy access to 18 major cities, and can be expanded later.

Dynegy also has a customer focus that Enron does not. "Enron is an arbitrage company. They think about what facilitates their trading operations," Hanks said. By comparison, Dynegy has "people who have a background of working for customers," he said.

In addition, Dynegy will be more patient in waiting for the broadband market to develop, Hanks said. "It will take a while. But Dynegy has the capacity and the culture to make this work. I think they are a long-term player," he said.

Dynegy hasnt given up on bandwidth trading either. Although the much- ballyhooed market that has yet to fulfill its promise, Blake Young, Dynegys president of global technology, told Interactive Week earlier this month that Dynegy will soon launch a broadband portal. He also said that a liquid bandwidth trading market "will emerge," adding that bandwidth will soon be a commodity. "This industry is not going to go away. The enterprise needs are too big. Our attitude is pretty bullish," Young said.