Before We Piss Away Money–An Explanation of Networks
February 2, 2009
Did you know there is a factor of 10x more non-fiber sheath owners–non-owners of “infrastructure”–than there are of actual fiber sheath owners?
Did you know that the key to fiber route value is placement–unique routes, versus over-built, redundant, joint-built fiber routes?
Let me explain. If you have 5 carriers on the same fiber route, each with their own fiber sheath, what you have is a 40-year supply and demand imbalance and an inability to make a profit. Often this imbalance creates “distressed assets.” If you are from the beltway, and thinking about handing out our cash, read this paragraph a few times until you understand it. History has a way of repeating itself.
Just like UNE-Loops of copper, an IRU is not network ownership, it is a rented privilege. If your carrier has an IRU-based business model of a few fiber strands, you may need to ask some questions about future supply availability and/or overall capacity. Those who own the cable sheath control the supply and have unlimited capacity ability.
The costs to deploy fiber optic networks increase every year as labor is 60% of the cost!
What cost a $1 to build in 2000, now costs $2.00. Yes, distressed assets–they are distressed for a reason. The route…redundant cables…joint-built routes…fire-sold IRU’s to competitors, etc. These reasons gave credence to a massive fiber glut (circa 2001 to 2006), according to the real smart guys on Wall Street.
Since 2001, the Ma Bells of America have collectively spent over $25 billion on the deployment of new fiber optic networks. With such a supply glut as recent as 2001-2006, one would think there would be no need.
What is going on?
Owners of fiber optic cable infrastructure that allow IRU’s to be sold are actually providing open networks, which promotes real facility or network-based competition. However, our regulators don’t discriminate as they should between open and closed networks. The government should be bending over backwards for open-access network providers to promote substantive competition. More on this subject in a future blog.
Anyhow, there are different types of networks: oceanic, long haul, metropolitan and access. Let me describe each one in simple terms because I want to make sure we don’t piss away money needlessly:
Oceanic: Dropped from a barge to the ocean floor, this is a cable sheath wrapped inside of a steal sheath that connects continents or countries. Its capabilities are strictly transit and aggregation of point-to-point traffic. As many bits you can aggregate is what gets shoved down this pipe.
Long Haul or Regional Long Haul: This is the terrestrial version of Oceanic, but without the need for a barge or steal sheathing around the fiber cable. Long haul networks can be buried underground or strung from poles. This type of network terminates in what is called a carrier hotel in a given city or metropolitan statistical area (MSA). Long Haul capabilities are strictly transit and aggregation of point-to point traffic. As many bits you can aggregate is what gets shoved down this pipe. A national long haul network can run coast-to-coast, while a regional long haul network can cover a state or a region, such as the Northeast.
Metropolitan Network: This is the backbone network inside a city, suburb, town or village that enables connectivity between the access network (last-mile) and the long haul networks. These networks are not just bit stuffing aggregation networks.
Access Network: This is the last-mile or first-mile network that connects into the “edge” or metropolitan network backbone, which in turn connects to local data centers or the carrier hotel. Wireless last-mile broadband fantasies aside, the typical flavors of the access networks are copper, or–in less than 10% of situations–fiber optics. Copper has physical limits for moving bandwidth just like wireless silicon where fiber optics does not.
So what is my point?
Just follow the demand…do not build supply-side infrastructure with government tax dollars without the demand.
Next lesson…Traffic Engineering.
Written by Dave Rusin - Telecom Executive
Posted by wbrache | Filed Under Infrastructure and Bandwidth, Telecom definitions, Telecom dictionary, Telecom terms, Telecommunications industry
(No Ratings Yet)
Loading ...Comments
3 Responses to “Before We Piss Away Money–An Explanation of Networks”
Got something to say?
Feeds
Dave, I have seen organizations colaborating for shared networks, have seen some cash rich nation wide organizations building their own networks, I have seen organizations building monsterous networks as their own (kindaa) gesture and participation in infrastructure development – However all of them (I see) are underutilised networks with huge underutilised bandwidth.
I wonder, were they actually looking at any returns on their investment??
Dave responds:
You need to give me time frames.
In the last (Wall Street driven) land grab circa 1998-2001 deploying fiber had little to do with return. It had more to do with speed – “getting there first.” Of course, this resulted in irrational deployment behaviors with some carriers building on top of each other many times over.
Then you have the testosterone CLECs that came out fiber based but refused to lease fiber to others (closed networks) thus driving the incentive for other carriers to build over them as well. In those markets and routes, you have an oversupply of fiber and when lit, capacity.
Price points on capacity decline anywhere from 30% – 50% a year in our 10 largest cities as the result of irrational deployment exuberance where making a profit is difficult at best. With the government issuing cash via this stimulus package I have two major concerns: 1) there are no controls over irrational deployment exuberance, and, 2) small firms who build and operate locally that use local talent should be at the top of list.
However, re-election donor contributions at the Federal and State level will have a greater priority of influence. Small, proven Telecom companies know how to rationally spend money and open their networks. With government funds – will history repeat itself?
Also, there was an over-riding CLEC mentality back then where some believed they can garner 100% market share and have no need to partner. The logic was, for example, I can compete nationwide against the ILECs by raising X billions of dollars because I am smarter. It only took the ILECs over 100 years, tens of billions of dollars and monopoly regulation protection to build-out their facilities. The truth is in the pudding — look at the CLEC bankruptcies and look at how many homes and buildings have #2 wire in them since the CA 1996 — 13 years later, it is paltry. Will quick flash government funds just create more of the same?
Here is the deal, nothing in Telecom happens as fast or as large as the various research companies say and as Wall Street analysts believe. My view on this comes from experience not a spreadsheet business model which anyone can make dance 12 ways till Sunday.
Reality is the ILECs still concentrate market power along with the Cable Companies — we have a duopoly — rates of change and opportunities will happen only when all legal arguments have been exhausted. CA 1996 has been nothing more than 13 years of legal arguments whereby the ILECs and Cable Companies did well, very well. Regulatory is a big money game, small companies have zero chance of visibility alone or as a coalition. Big money flows to our elected officials which in turn ultimately influences everything.
Whether its a Republican or Democratic administration — just follow the money.
More of the same: govt inefficiencies performed by an out-of-control and bloated federal govt in collusion with monopoly capitalists, a complete perversion of the limited govt and free market our founders intended. When will this situation be transformed, as it must? Will it take a tax revolt?
Thanks for the highly illuminating (no pun intended) discourse, Dave. I am seeing the pattern, industry after industry: innovation itself is stymied, as well as the deployment of innovative, life-changing technologies, by plutocratic profiteers so that they can control, manipulate and get very fat, while you and I have to work 10x as hard to make our businesses the best they can be.
The two-party system’s broke. We obviously cannot have politics as usual, unless we all want to turn into another France, Germany or Spain.