Breaking the Bottleneck

Last year wasnt a disaster for every ambitious carrier or service provider: Both Telseon and Yipes Communications made good on their vows to provide fast, high-bandwidth service in 20 U.S. cities by Dec. 31.

Telseon and Yipes are among the pack of companies trying to break the traffic bottleneck around Americas largest cities by taking the metro ring out of the hands of the telephone companies and delivering on-demand, gigabit-per-second-speed data services to small and midsized businesses.

Its one of the hottest battles in the carrier business. The strategy is to offer faster data delivery at about half the cost of services provided by incumbent networks and regional Bells. Their service provider customers get control of the bandwidth, and so can boost revenue by offering different layers of service and speed to their business clients.

The pathway is Gigabit Ethernet, the rules are Internet Protocol (IP) and the medium is optic fiber, or sometimes copper to the last mile. The aim is to be able to switch a customers bandwidth from 1 megabit per second to 1 gigabit per second — or anywhere in between — with a few simple clicks.

GartnerGroup Dataquest, a research analyst firm, estimates that by 2004, the service-hoster market could reach $90 billion, of which Gigabit Ethernet would be a growing slice.

The idea is to move e-commerce and application service providers into the colocation facilities on the metro ring so that companies can do business together.

Among Telseons and Yipes direct or indirect competitors are Cogent Communications, Giant Loop, Looking Glass and XO Communications.

Cogent offers 100 Mbps speed to companies in Chicago, New York, Philadelphia and Washington, D.C., for $1,000 per month, less than the cost of a T1 (1.5-Mbps) line.

XO just signed an agreement to be Yahoo!s preferred Internet service provider, and it plans to launch Ethernet-based services in most of its 50 U.S. markets this year.

Yipes touts its Just-In-Time Bandwidth service, which is delivered over Gigabit Ethernet. "Almost any firm that needs more bandwidth will find our services an exciting and compelling value," Chief Executive Jerry Parrick says.

Telseons service can transmit data at 20,000 times the speed of the fastest dial-up modem, and aims to do so at half the price charged by traditional telecommunications providers.

Telseon, which raised $80 million in a second round of financing in May, is the first company to offer an exclusively IP-based colocation-to-colocation service, says Chief Executive John Kane. "Our secret sauce is self-provisioning."

Its a concept every service provider will have to embrace, analysts say. Rapid bandwidth provisioning and the ability to quickly adapt to changing demands will soon be key to growth and survival, says Joanna Makris, an analyst at The Yankee Group.

The Synchronous Optical Network (SONET) players should be worried by the advances made by Telseon and its competitors, says Tom Jenkins, director of consulting at TeleChoice. Telseons ability to allow customers to increase bandwidth on demand using a Web interface is a key innovation for an all-fiber IP network. "This on-demand bandwidth can open new opportunities," Jenkins says.

No two Gigabit Ethernet companies deliver services quite the same way. Cogent uses its own network, while Telseon leases space to connect its metro rings to core networks. Cogent uses Dense Wavelength Division Multiplexers to boost traffic capacity, while Telseon adds capacity by buying more optic fiber. Competitors also vary on the conduit: Telseon is among those extending optic fiber to the office, while others opt for copper for the last mile.

Telseon focuses on wholesale trade to service providers, while Yipes is a retailer, with customers such as graphic-design businesses, universities, law offices and school districts.

"The market for metro Gig[abit]-Ethernet providers will grow quickly," says Yankee Group analyst Nick Maynard. He predicts that SONET and Gigabit Ethernet will coexist peacefully, with customers embracing SONET for its reliability and Gigabit Ethernet for its scalability, quick provisioning time and low cost.

Telseon and Yipes hit their targets last year, at a time when many metro providers scaled back their plans, Maynard notes. "This is the time when youre going to see some of the players pull ahead, some fall behind. Yipes and Telseon are two in the space that will continue to do well.

"Its going to come down to not just who gets the funding, but who uses the funding efficiently so they can roll out into a city and have enough market penetration and customers to turn themselves into profitable and sustainable organizations," he says.

Telseon is taking a pure-play approach, operating as a neutral third party that wont compete against its own customers, Kane says. It makes a point of dealing with multiple vendors, purchasing switching boxes from Extreme Networks, Foundry Networks, Riverstone Networks and others.

Telseon acquires dark fiber from carriers such as Level 3 Communications and Metromedia Fiber Networks, or from cities or energy companies that own networks. It then connects the fiber to public colocation sites, bundles telephone and Internet services, and sells its infrastructure package to service providers.

Telseon only purchases fiber for the metro ring, typically less than 50 miles long. So, instead of investing in Dense Wavelength Division Multiplexers to expand carrying capacity, the company simply buys several of the 50-mile fibers to boost bandwidth for voice, video and data traffic. Its enough to divide the fiber into four or eight wavelengths via Coarse Wavelength Division Multiplexing. "We may never need DWDM," Kane says.

Telseons metro service uses a softswitch to provide the intelligence, sort data by priority and do the job routers traditionally did.

The companys strategy is to carry data traffic on Gigabit Ethernet, replacing the reliable but inflexible SONET rings that circle cities. "Within five years, IP will be the dominant topography," Kane predicts. "We want to be the post office in the metro area. As our customers traffic goes through, they can stick their letters in our mailbox."

Kane believes SONET has a bright future, but only in carrying voice traffic. "I can deploy a Gigabit [Ethernet] network for 80 percent less than the SONET infrastructure," he says.

An August 2000 survey by Forrester Research found that customers that are buying telecommunication services rank price as the eighth most important consideration, well behind the simple ability to provision the service. They complain that they cant get the service, that it takes too long to install, or that its not scalable for small or large businesses.

Now, the market is about availability, not price, Kane agrees. "Customers are so desperate to get bandwidth, they take it anywhere they can get it."