London Calling

BLEC mania sweeps Britain, Europe

Building local exchange carriers are dropping like flies in the U.S. But interest in wiring commercial and residential buildings and providing broadband access in metropolitan areas is surging in the U.K. and Europe, opening doors for surviving American companies to export their know-how.

The European market swell is a pleasing antidote to the painful telecom fallout in the U.S., which has been especially brutal for BLECs (pronounced BEE-leks). Out of an estimated 60 participants in the market, only a handful survive, and some high-profile failures, such as BroadBand Office, have people wondering if wiring buildings is a good business at all. Even companies that wire hotels, which were long viewed as natural avenues for hooking broadband customers, are struggling.

On the other side of the pond, the majority of BLEC players are European; many large, publicly traded American companies have pulled back their overseas expansion plans.

"I dont see the European market on our horizon any time soon," says Allied Riser Communications spokesman Joey Mooring. "The only international market we have significant presence in is Toronto. What you will see us do, because of the economic times, is concentrate on the domestic market, and when we get these buildings profitable, we will begin to look and see what is the next strategy."

However, some American companies say that survival in the urban broadband wars has earned them credibility on the other side of the Atlantic — credibility that some are very eager to convert into British pounds and, come next year, euros. "London was a very natural place for us to go because there is a common language, a lot of common types of law and political structure," says Carlo Lalomia, chief technical officer of IntelliSpace, a New York-based, in-building connectivity provider. IntelliSpace has plans to ride the U.K. BLEC wave further into Europe, beginning with Paris; so far, the company has wired 10 buildings in London.

Lalomia, who gets two speaking invitations per week to spread the gospel of metro connectivity, says that traction in the European market came suddenly. IntelliSpace was on a media tour with a vendor, Riverstone Networks, explaining the importance of being able to support both fiber and copper last-mile broadband connections for the building market. The message, spread around December 2000, almost a year after IntelliSpace entered the market, earned the company tremendous mind share with the public; it also propelled IntelliSpace into the top four most-recognized brands in the U.K., and made it one of the better-known BLEC brands in Europe.

"There arent any other American BLECs operating in London, but there are about three other BLECs starting out here. That doesnt make anybody better or worse than anybody else. How- ever, IntelliSpace has lots of market experience," says Camille Mendler, director of the convergent communications service of The Yankee Group Europe. As BLEC startups go, IntelliSpace is probably the largest. Three of its main competitors are Centric Telecom; eLink Communications, based in Bethesda, Md.; and HighSpeed Office.

Access From Home

Outside of the Commercial Building Universe, Stockholm, Sweden-based Bredbandsbolaget offers residents of multidwelling units 10-megabit-per-second connections, and Italys e.Biscom targets buildings that have both office space and residential dwellings.

Although the European multitenant broadband market is nascent, Mendler notes that the time for breaking into the business couldnt be better. BLECs, metro service providers and builders of metro fiber rings have the full and undivided attention of European consumers because of the high cost of fat, last-mile pipes.

The Yankee Groups research indicates that an average European customer pays $550 per month for a 2-Mbps pipe, whereas internationally — and primarily in the U.S. — the cost of bandwidth has plummeted to $3.50 per month for the same amount of pipe.

"Europe stands both regulatory and infrastructurewise in a similar stance today as the U.S. was five years ago," says Bob Berger, CEO of CityNet Telecommunications, a Silver Spring, Md., company which builds small metro rings that connect individual buildings to large metro backbones through sewer pipes. CityNet recently finished wiring sewers in Vienna, Austria.

Berger says that the European telecom market has been slow to deregulate. When the Telecommunications Act was codified in 1996, there were 21 U.S. markets open to competition. In Europe, liberalization came into effect only in the last quarter of 1998, and some carriers operating in Europe say that even the most deregulated market, the U.K, still has a ways to go. Level 3 Communications, which runs metro networks in nine European cities, complains that Asymmetric DSL (ADSL) deployment in Britain is off to a tough start.

"Unbundling the local loop is a significant bottleneck, to be able to get ADSL equipment — DSLAMs [DSL Access Multiplexers, pronounced DEE-slams] — into local exchanges," says Paul Alexander, Level 3s director of European access strategy.

These problems add to the pressures of a metro-fiber deficit. While long-distance optical fiber networks are verging on a glut of capacity, there is a dearth of fiber in the cities, and upgrades of existing networks are politically complicated.

"In Germany, you need all sorts of rights of way to build, and if a joint build has happened near where you need to build, you have virtually no chance to build again," Alexander says. "The same story goes for Brussels [Belgium], where there is a moratorium for two years, and also to lesser extent London, but certainly Paris."

Berger, who deals chiefly with connecting metro rings such as Level 3s to individual buildings, says that the cost of tearing up a street to build a lateral could skyrocket.

"Many of the metro builders who use traditional methodologies have found that if the cities let you trench their streets at all, they literally require you to remove one cobblestone at a time, number them and place them back in like order," Berger says.

Berger estimates that at the end of 2000, less than 1 percent of European commercial buildings were reached by fiber, saying that the number of residential buildings that had fiber was "a rounding error." Level 3, which contracts with IntelliSpace, estimates that the percentage of traffic on its network attributable to next-generation carrier activity in Europe is far less than 5 percent.

IntelliSpace views lack of competition and pent-up demand as a perfect opportunity, and is confident that its strategy of connecting the buildings with both fiber laterals and copper last-mile — and of being extremely selective about tenants to ensure that enough customers would pay — will work in Europe, just like it did in the U.S.

IntelliSpace, which quibbles over the BLEC moniker because it sells only data connections, says that it can wire a building for $50,000, compared with a voice and data network that would run $250,000 to $700,000.

"Customers in Europe can be paying upwards of $1,000 per [Mbps] on connectivity sometimes," IntelliSpaces Lalomia says. "I can give them better economies of scale, so I charge them half of that."