Tough times in the building local exchange carrier market are giving scrappy survivors such as PhatPipe and eLink Communications the chance to change the rules of engagement with commercial property owners.
Most BLECs cover the cost of wiring a building, pay an access fee to landlords and share 4 percent or 5 percent of the revenue. PhatPipe has broken out of that mold, having landlords cover the cost of establishing the infrastructure in their buildings — typically $10,000 per building — and paying no access fees, but sweetening the pot with a 60 percent revenue-sharing agreement.
PhatPipe also differs in that it has gotten out of downtown, targeting suburban industrial and office parks with local area networks built using fiber connections to the site and fixed wireless gear scattered among buildings. It uses gear from RC Networks to provision high-speed Symmetric DSL connections on the existing phone wires in the buildings. The service costs about $450 per month for a 1.44-megabit-per-second connection.
PhatPipe CEO Don Ankeny says the company is focused on the "NFL cities" and is working on projects in suburban Dallas, Denver, Houston and San Francisco.
PhatPipe counts some of the largest industrial park landlords — AMB Property, First Industrial Realty Trust and ProLogis — among its investors.
John Seiple, ProLogis chief operating officer in North America, says he likes PhatPipes partnership approach. "We feel with this model we wont get treated like a poor stepsister," he says.
By paying for the installations, ProLogis can better control the rollout of services and place priority on the buildings with the most demanding customers. Also, he is happy to pay the nominal initial fees to wire his buildings in exchange for the substantial 60 percent revenue share.
Seiple says having quality broadband connections in his buildings can help attract tenants.
That was the case for Akroria Networks, a Fremont, Calif., maker of optical networking equipment.
Meenakshi Singh, vice president of finance and administration at Akroria, says her company moved to its ProLogis-owned office space earlier this year partly because of the broadband service from PhatPipe. Finding the best office space at a good price was the most important consideration for Akroria, but Singh says she was worried about waiting for a data connection from Pacific Bell, the local incumbent carrier. Most other offices only had data connections from Pacific Bell, and those would have taken at least 10 days to establish.
PhatPipes service was ready immediately at about half the price of a Pacific Bell T1 (1.5-Mbps) line. "PhatPipes connection was definitely a motivating factor in our choice of office space. It meant less downtime and hassle for our company," Singh says.
Dave Bornmann, vice president of marketing at eLink in Bethesda, Md., says the industrys troubles are also helping his company cut more cost-effective access deals with building owners. Before the market shakeout, landlords with prime properties were courted by a half-dozen vendors, all willing to pay to get first-access rights. But now those free spenders are gone, and some landlords are more willing to contribute money to have their buildings wired.
Owners of the most coveted office buildings can still demand access fees, Bornmann says, but eLink no longer feels compelled to offer free wiring and access payments at the beginning of negotiations. "We feel the market change is creating opportunity for us," Bornmann says.
Like most BLECs, eLinks core product is a T1-equivalent connection. It costs $25 per seat, with a $600 limit on total cost.
ELink faces the same uphill battle confronting other BLECs. Bornmann says his company has enough funding to last through mid-2002. To become profitable before its money runs out, eLink must reach a 40 percent penetration rate in the 800 buildings now under contract. "If you make it through this, youre going to be in a good position," he says.