Metro area networks are still a key target for future growth - Industry Trend or Event

CommunicationsWeek International, August 13, 2001 by Joanne Taaffe

Companies currently investing in MANs are divided over whether the core value lies in wholesale fiber or service provisioning.

Despite the capital expenditure crunch causing some service providers to shelve plans for expansion into metropolitan area networks (MANs) in Europe, construction is still underway by start ups and established carriers alike.

One reason for the positive approach is that, unlike with longhaul networks, metro dark fiber prices are a lot more stable. Yankee Group Europe of London, for example, suggests that prices in metro environments are less elastic due to the current paucity of companies selling dark fiber. It also predicts the market for selling metro dark fiber will be worth upward of $528 million ([euro]600) million) in 2005 across Europe's top 20 markets alone.

What's more, Yankee believes only a minority of the actual and announced metro rings will be selling on dark fiber, opening an opportunity for other players (see diagram).

Two service providers are hoping to fill the void, focusing on the wholesale metro sector. Paris-based Telecom Development, jointly owned by Cegetel and the French railway SNCF, intends this year to build MANs in the French cities of Paris, Lyon and Marseille. Another startup, FiberCorp, of Groot-Bijgaarden, Belgium, which has laid metropolitan fiber rings in the Netherlands and Belgium, hopes to secure funding to expand into Germany and France next year.

Both are targeting the carriers' carrier market, which can still offer financial rewards, according to analysts. "The wholesale [MAN] market is still quite strong...and access is still a profitable business," said Robin Bosworth, director of London-based analysts Schema Ltd.

Positive but challenging outlook

Nevertheless, metro startups will have their work cut out convincing carriers to buy capacity from them. According to John Williams, executive vice president for provider services at Infonet Services corp., of El Segundo, California, up to 80% of metro startups may fall by the wayside. He suggests the metro space has been over-hyped by some of the new entrants.

"The failures will continue, and we don't want to be his: [by them] when we build out our metropolitan networks," said Williams. Infonet's own MAN, in New York, is poised to go live in the next fortnight, "with London right behind," he said.

Nonetheless, the need for capacity is still there, said. Williams. Infonet currently has arrangement with Nortel Networks corp., of Brampton, Canada for its MAN deployment and operations, but the contract is not long-term, so there may be an opportunity for other service providers to supply the carrier. "We envisage our city networks will have multiple [gigabit-per-second] capacity, so we can provide gigabit Ethernet services," he said.

Telecom Development is contractually obliged to stick to the carriers' carrier market since shareholder Cegetel sells services direct to enterprises in France. FiberCorp. on the other hand, said it has chosen to target wholesale business in part because it believes that revenues from metropolitan data services will face flat or even negative growth.

The value is in infrastructure

Fibercorp provides dark fiber to buildings at a fixed cost of [euro]3,000 per month. The cost to the customer is this monthly fee, plus the cost of the customer premises equipment needed to take the fiber in and hook it up to the local area network.

"The value for us is having the infrastructure and providing it direct to corporate customers," said Armand Bogaarts, chairman and chief executive of FiberCorp. "This is what we are good at, and by focusing on this we will prove that there is money to be made from a pure infrastructure play. We do not provide managed communications services. We believe that an infrastructure player should never be in the content game."

Bogaarts believes the provision of metropolitan dark fiber gives information technology and telecoms managers the "freedom to execute their ideas without band-width constraints," at a price they can afford. "What is the point of having a gigabit Ethernet service provider?" he asked. "It's so cheap, it shouldn't be packaged anymore. The real value-add is in providing fiber...at a decent price."

corporate users, Bogaarts said, can now buy gigabit Ethernet switches directly and build their own services using the same networking technology they have on their own local area networks. "In the MAN there is limited value add. Infrastructure is becoming a service, and we're selling to corporate users directly," said Bogaarts.

Wholesale tactics questioned

Yet analysts question how many more enterprises will be willing to buy fiber and install their own gigabit Ethernet switches.

"A lot of [enterprises] are not interested in building up their IT departments," said Yum Petkovic, senior analyst at Ovum Ltd., of London.

Bosworth, at Schema, agrees. "The trend [among corporates] has been to outsource more and more to service providers. That would be a step in the opposite direction," he said.