November 19, 2001
New Economy; Fiber, fiber everywhere. Some call it excess capacity, but others say it is greatly needed inventory.
COMMON sense dictates that if something is 95 percent empty, then just 5 percent of its capacity is being used.
But according to the new math used by many telecommunications companies, key links in their fiber optic networks can be operating at or near capacity even if, collectively, the nation's fiber networks are 95 percent empty. Judging from the bankruptcies of carriers like 360 Networks and PSINet, and the stock prices of big survivors like Level 3 Communications and Global Crossing, the financial world is not too impressed with the new math. To Wall Street, a glut by any other name is still a glut.
The carriers' argument, which has been bouncing around the troubled telecommunications industry for most of this year, is that a distinction must be drawn between the total fiber put in the ground and the fiber that is currently equipped to transmit voice, video and data.
The large majority of fiber installed during the huge building spree of the late 1990's is not yet connected to the optical and electronic equipment that is needed to transmit information over that fiber. As the industry sees it, the millions of miles of idle fiber they own should be seen more as a strategic inventory, rather than as excess capacity.
''Overbuilding for a couple of years is not the same as a glut,'' said Richard Mack, an analyst at KMI, a market research firm in Providence, R.I.
As long as they were lining up rights of way and digging trenches, the carriers say, it made sense to put all that extra fiber in the ground in expectation of future network growth. The investment to lay hundreds of fibers is not much greater than the cost of laying a single strand. By contrast, actually ''lighting'' a fiber to carry information requires the installation of switching and signaling equipment that costs 8 to 10 times as much as the fiber.
The carriers say that because they defer the big investments to light up the fiber as long as possible, the actual supply of bandwidth is much more in balance with demand than what many investors believe.
''Our utilization rate is running between 60 percent and 80 percent of available bandwidth,'' said Dan Scheinbein, vice president for network architecture and development at AT&T, one of the carriers with routes included in the survey.
He says the company keeps adding new carrying capacity so that AT&T can add new customers without loading the network beyond the 80 percent utilization level that provides a buffer against overloads during traffic surges. ''We don't want to run too hot,'' Mr. Scheinbein said.
The carriers and fiber suppliers argue that demand for new bandwidth is still growing strongly, with middle-of-the-road projections of 70 percent annual growth through 2005. So they say they will need to start laying still more long-distance fiber within 18 months.
Despite these glass-is-way-more-than-half-full assessments, control of some fiber networks has been sold -- or snapped up in bankruptcy -- at a fraction of its market value two years ago. Companies that lost out were start-ups like GST Telecommunications that borrowed heavily to build their networks only to find they were unable to attract customers fast enough to begin paying down those debts.
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