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Facilitating Distributed Last Mile Broadband Access Providers

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Archived from 2001. Describes a potential startup company that facilitates the construction of broadband last mile infrastructure (Fiber/Wireless/Wireline) by local entities such as municipalities, utilities and local entrepreneurs. The local entities capitalize and operate the local infrastructure. Newco helps them plan, construct, deploy and operate the infrastructure, creating an economy of scale for distributed infrastructure construction and deployment. Newco itself does not capitalize, own or operate the local infrastructure but does generate upfront and recurring revenue, thus making it suitable for traditional VC investment that supports a strong return on investment with an appropriate time horizon.

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Facilitating Distributed Last Mile Broadband Access Providers

  1. 1. . . . . 15550 Wildcat Ridge . . Saratoga, CA 95070 . . 408-882-4755 . rberger@ibd.com . Internet Bandwidth Development Facilitating Distributed Last Mile Broadband Access Providers. . . . . . . . . . A way out of the Telecom Dark Ages
  2. 2. . . . . A Way Out of the Telecom Dark Ages . . . Facilitating Distributed Last Mile Broadband Access Providers A Way Out of the Telecom Dark Ages Executive Summary The described Newco is a company that facilitates the construction of broadband last mile infrastructure (Fiber/Wireless/Wireline) by local entities such as municipalities, utilities and local entrepreneurs. The local entities capitalize and operate the local infrastructure. Newco helps them plan, construct, deploy and operate the infrastructure, creating an economy of scale for distributed infrastructure construction and deployment. Newco itself does not capitalize, own or operate the local infrastructure but does generate upfront and recurring revenue, thus making it suitable for traditional VC investment that supports a strong return on investment with an appropriate time horizon. __________ We have entered a vicious downward cycle of a telecom collapse; A Telecom Dark Age. Most of the broadband last mile access service providers have gone Chapter 11 or shutdown. The equipment vendors that supply them are severely downsizing with layoffs and write-offs. The backbone service providers have no way to connect their fat inter-city pipes to end users since there are no widely deployed cost effective last mile access options. Businesses created on the assumption that there will be broadband connectivity to homes and businesses are also collapsing. Investors in the telecom/Internet industries feel burnt and have been fleeing from the entire segment, seeming to leave no capital to break the cycle or customers to utilize their portfolio companies’ optical and wireless equipment. The lack of widely available broadband last mile access is the linchpin of the dilemma. What is needed is a way to deploy new broadband last mile infrastructure (Fiber and Wireless) throughout the country without depending on any single entity or small number of large funding sources. This is a proposal for a new company (Newco) that will stimulate a renaissance in the deployment of last mile broadband access by leveraging a broad base of “White Knights”: municipalities, utilities and local entrepreneurs. Newco acts as the facilitator of a distributed buildout of local infrastructure. These “White Knights” or Local Entities (LEs) supply the raw capital, people, rights of way and end user customers. Newco awakens the latent resources in the Local Entities through evangelism. It then facilitates the planning, design, construction and operation of the local infrastructure and services through its customer relationship with the Local Entities who actually own and operate the local infrastructure. Newco generates revenue by offering packaged solutions with consulting to bootstrap the Local Entity’s business. Training and Certification of a whole range of players generates 2CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  3. 3. . . . . A Way Out of the Telecom Dark Ages . . revenue and creates a pool of trained personnel for Newco and its customers. Long term, Newco generates ongoing recurring revenue by supplying products and services (backbone connectivity, training, network equipment, IT/OSS, 2nd level network/technical/customer support, etc.) to the Local Entities thus minimizing the Local Entities’ hassles and dramatically decreasing their time to market and increasing their return on investment. We Have Entered a Telecom Dark Age It has become clear that the US is now in a Telecom Dark Age. The data CLECs (Covad, Northpoint, Rythms) have been forced into chapter 11 or liquidation by monopolistic practices of the Incumbent Local Exchange Carriers (ILECs). The wireless local carriers(Winstar, Telegint, ART, Metricom) have all declared bankruptcy. Broadband “3G” Cellular recedes further into the future and has funneled hundreds of billions of dollars away from construction into government coffers. The Telecom/Internet equipment vendors have seen their revenues drop and their stock value drop even faster. Layoffs and write-offs have been the biggest in history. The current government administration has signaled that they have no intention to support the newer competitive local carriers and are instead allowing the ILECs to pretty much do as they please. The investment community has fled from any investment in new or existing access service providers, effectively abandoning their investments in network equipment providers by leaving them without customers. The ILECs and a couple Cable TV companies are the only last mile access providers left standing and effectively to control the last mile access market. It was originally thought that the new CLEC and ISP broadband access service providers would connect our homes and businesses to the big fat pipes of the new backbone carriers such as Level 3, Williams and Qwest. But these new providers are bankrupt and no new ones are expected to emerge anytime soon. With no way to get broadband from the big backbone carriers to the home and office, some of these new backbone carriers are now facing possible bankruptcy or hostile take-overs. Now we are left with just the ILECs who have promised broadband over and over and over since even before the original breakup of AT&T in 1983. First it was ISDN, then it was Fiber/Coax and now it Project Pronto and Passive Optical Networks. But they have never delivered, they have only milked their customers as much as they can get away and have minimized any actual new investment into infrastructure. We can not expect the ILECs to come to our rescue delivering new broadband services at any large scale within our life times. We can not expect the current federal administration’s regulatory environment to encourage rapid deployment of broadband last mile access. We can not expect VCs or Wall Street to fund new companies to deploy their own $100Billion national broadband last mile infrastructure. With no new broadband last mile access, then there can only be limited new broadband services. and all Many of tthe companies started in the last few years based on the assumption there would be broadband access in the home and office will have increased business failure. There will be limited markets for all of the optical and other network equipment investments as well, leading to huge failures in the startup and existing network 3CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  4. 4. . . . . A Way Out of the Telecom Dark Ages . . . equipment vendor market. All of this accelerates the vicious cycle of less and less investment and innovation in the Internet, Telecom and Broadband. Are we left then, in a Telecom Dark Ages where there will be no new major construction of last mile broadband access, the continued destruction of network equipment vendors, and the continued collapse of internet based businesses? Latent White Knights: Local Municipalities, Utilities and Entrepreneurs The CLEC and National ISP model of top down, build and own it all, has not been able to deploy large scale broadband access to homes and offices. The CLECs and ISPs did not build new broadband last mile infrastructure, but expected to ride on top of the physical plant of the ILECs. The ILECs tend not to build new infrastructure unless pressured by competition or regulation.The But there are entities at the local level that have vested interest, community support, access to local capital and rights of way that could build broadband access infrastructure in their local region. These Local Entities could include: • Municipal Governments • Public Municipal Utilities • Division of existing Private or Public Power Utilities • Local Private Companies • Local Cooperatives These Local Entities (LEs) think and act locally. They are close to their community and businesses. Some already have business relationships in place that can be leveraged. There is a strong possibility that they can raise money suitable for their local fiber/wireless build based on these relationships. In the case of municipalities, they have the ability to float bonds and control rights of way. Utilities generally have access to capital, can leverage their existing rights of way and infrastructure. Local entrepreneurs will know where there is local money that would be interested in this opportunity. What they don’t have is the experience, knowledge or skills to plan, build and manage Telecom / Internet infrastructure. Most probably don’t even know that they are sitting on a major opportunity and what the options are. Even if they did, they would need help with the implementation and with the related support issues (Provisioning, backbone bandwidth, NOC, etc). Newco can be the change agent to activate this latent distributed local opportunities by offering near turn-key options to allow a Local Entity to become a fiber/wireless last mile broadband access service provider. Bootstrapping a Renaissance: Newco Newco would operate as a national profit making corporation whose business is to promote, bootstrap and facilitate independent Local Entities (LEs) as broadband access service providers in their communities. These LEs would capitalize, build and operate the local 4CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  5. 5. . . . . A Way Out of the Telecom Dark Ages . . infrastructure and services with Newco’s help. Newco will not capitalize or own the last mile infrastructure and would not sell directly to end users. Thus the capitalization of Newco will fit into traditional VC models, yet it will be able to participate in both upfront and recurring revenues from the construction and operation of new last mile infrastructure. Newco would evangelize the concept to potential LEs as part of Newco’s marketing and sales effort. As entities “sign up”, Newco would help them plan, design, implement and operate the local service. This would include contract services for the planning and design phase as well as ongoing backbone, NOC, OSS services for the operation phase. Evangelize the startup of local public or private service providers The initial phase will be to evangelize and educate the potential LEs. A single region would be the starting point, but would then expand as a successful track record is built. In the early stages of Newco’s existence, evangelism will be a major activity until a critical mass of LEs are up and running. Then evangelism will be more institutionalize and part of overall marketing for Newco. Template based startup plans and organization Newco would offer a small number of different services and packages for the planning, promotion, organization and operation of the LEs. This would include: • Business models • Legal issues • Community education • Marketing campaigns • Construction options • Equipment selection • Network designs • Provisioning and OSS A small set of templates can be used as the basis of a near turn-key process so that there is leverage as more and more LEs take advantage of Newco’s consulting services. Training & People Certification at all levels In previous waves of networking technology change, Novell, Cisco, Sun and Microsoft Certified Engineering and Training programs acted both as a major profit center and helped grow the overall businesses for these companies and the industry in general. There is currently a lack of people that would be capable of running the Newco and LE operations. The Newco Training and Certification program would be set up to insure that there is a solid pool of skilled personnel for this new industry. Training and certification will be a major component of Newco’s revenue and one way that Newco can profitably scale its overall business without having and explosion of direct hires for the consulting side of the operation. This process can be amplified through a “Training of Trainers” program and certified partnerships with established consulting firms that have gone through Newco training. The Training for Trainers infrastructure would be in-house and be used for developing Newco internal personnel, consulting partners and top tier outside trainers. Outside certified 5CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  6. 6. . . . . A Way Out of the Telecom Dark Ages . . . trainers would then be able to train specific positions that would be suitable for employment in or contracting with the LE companies. Some of the certified positions may include: • Initial Organizers of the LEs • Business and Network Planners • Network Operators • Customer Service • Plant Deployment • Customer Deployment • Evangelists, Sales and Marketing • New Trainers Infrastructure Construction Newco will partner with select construction firms experienced in building the types of last mile broadband access infrastructure appropriate for these markets. Newco would then offer turnkey build solutions to the LEs for their particular situations. You can think of Newco as the “Prime Contractor” for the LEs and the various construction firms as the sub-contractors, not requiring the LEs to become expert in the construction phase. Supported infrastructure would include Fiber to the Neighborhood (FTTN), Fiber to the Home (FTTH), as well as various Fiber/Coax, Fiber/UTP-Ethernet, Fiber/Wireless hybrids. Backbone Procurement and Management Since the LEs are locally focused, they will still need ways to connect to the larger Internet and broadband backbones. Newco will offer backbone services by running some core services and partnering with existing broadband backbone service providers. Newco will be able to offer these services to the LEs at rates lower than they could get individually. These backbone services will be groomed to be “plug compatible” with the local infrastructure configurations that come with the Newco LE Business Templates. This minimizes the hassle and potential problems that a LE may have if they tried to do it themselves. Newco can support LEs that want to be the complete service provider (all the way up the stack to Internet services) or open access models where the LE builds and runs wholesale Layer 1 (Dark Fiber) and/or Layer 2 (Ethernet) infrastructure and allows 3rd party ISPs to have the end user customer relationship. Regional NOCs Newco would operate regional Network Operation Centers (NOCs) that would coordinate and manage Newco’s backbone built with wholesale carrier networks and the handoffs to the LEs that are utilizing Newco’s backbone services. It will also act as backup NOC and trouble ticket escalation operations for the LEs. 6CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  7. 7. . . . . A Way Out of the Telecom Dark Ages . . Legal, Governmental and Regulatory Another area where Newco can have an economy of scale compared to individual Local Entities is in having the legal expertise and resources to deal with the FCC, PUCs, ILECs and other regulatory or competitive legal issues. This can be made available as part of service bundles, specific retainers or on-call time/material basis. It can be expected that this will be a key enabler and differentiator as the legal and regulatory environment is a major influence on the success or failure of telecom activities. Equipment and Services Purchasing Aggregation Newco bundled services would come with equipment. Newco can also act as an aggregator to offer its customers better price points and support than they could get on their own. Facilitate order processes from 3rd parties Newco will have an IT infrastructure including Order Entry, Provisioning, OSS, Billing, etc. that can be private labeled for its LE customers. It can be offered as an outsource “ASP” or licensed for in-house use by the LE. IT is a major stumbling block for most new service providers so this would greatly accelerate their time to market and quality of their customer experience. Newco Labs This would be the in-house R&D, engineering group for Newco. Would integrate, test, and certify equipment, software and services that would be used by Newco and its LE customers. • Equipment Specification & Selection • OSS and NOC refinement • Best Practices Development Local Entities (LEs) The LE’s would be the entity that would own and pay for the building and operation of their local last mile broadband access infrastructure. They will generally outsource the construction and some aspects of operation to Newco. Newco will partner with the appropriate construction firms, wholesale carriers, and other suppliers to deliver an integrated solution to the LEs. Generate their own funding It will be up to the LEs to come up with their own funding for the construction and operation until profitability. It is expected that the LEs will have a variety of ways to put together the initial capital: • Private Local Funding from local interests • VCs / “Wall Street” investors that want to fund specific local projects • Municipal Bonds • Other local, regional and national public or governmental funding 7CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  8. 8. . . . . A Way Out of the Telecom Dark Ages . . . Open Access Generally expected that the Local Entities would be a form of utility and so would support open access to various higher layer operators and 3rd party service providers. It is not required, but would probably have the most synergy. In some cases, the LE may be only operating wholesale services at the layer 1 (conduit / dark fiber). Others may offer layer 2 (Ethernet most likely) or even layer 3 (IP). • Focus on the best, most cost effective Layer 1 & 2 connectivity • Procedures for integrating alternative layer 3 & above service providers • Only support service providers with inter-OSS / Flow through order entry • Could have its own ISP division Build the Local Infrastructure The ultimate responsibility for building the local infrastructure lies with the LE since they will have to pay for it and will end up owning it. But they will be able to contract with Newco or other construction contractors to do the actual construction. In some cases (such as power utilities) they may have their own ability to do the build. Some of the possible local infrastructure components or connectivity options include: Metro Fiber Backbone This is the local backbone for the LE. It is a metro area fiber infrastructure that is used to act as the backhaul interconnect for all of the neighborhood Points of Presence (PoPs) as well as the larger connections to high rises or ultra-high bandwidth customers. It may be built as a ring or star configuration depending on the eventual technology selection and local conditions. This may or may not be owned by the LE. In some cases it may make more sense to lease this from another service provider. Fiber to the Neighborhood (FTTN) If FTTN is to be used, there would be spokes going out to all the neighborhoods to be served from the Metro Backbone. This would most probably be Gigabit Ethernet. Wireless to the Neighborhood (WTTN) In some cases, particularly smaller LEs, fixed wireless point to point or point to multipoint would be used to connect the Metro Backbone to the Neighborhood. Options to the Home It may be a few hundred to several thousand feet from the FTTN or the WTTN Point of Presence to the home. A variety of options could be selected to cover that last distance: • Wireless • Ethernet over Fiber • Ethernet over Twisted Pair • Coax 8CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  9. 9. . . . . A Way Out of the Telecom Dark Ages . . Options to the Business Depending on the size of the business or the facilities its in, the LE would connect to them ether directly from their Metro Backbone or via neighborhood PoPs. The options include: • Fiber to the Building • Ethernet over Fiber • Ethernet over Twisted Pair • Wireless Manage the Local Infrastructure The LE would have the responsibility for the 1st level network management (including the local NOC), tech support and customer service. It is expected that the LEs will outsource their 2nd level network management, tech support to Newco. There may be the option to outsource the 1st level as well for those LEs that just want to capitalize and own the service but not operate it. Revenue Streams for Newco There will be a rich set of streams of revenue for Newco. These include consulting, outsourcing, construction management, backbone services, network operations, IT, etc. These can be roughly broken up into two classes; Bootstrapping and Ongoing. Bootstrap Phase This is the initial phase for a LE where they have to figure out what they are going to do, how they are going to do it and all the related support issues for getting their business up and running. For Newco this will mainly be a consulting service, but would have an economy of scale based on having a set of templates for a relatively small set of possible organizations from doing it all before. Planning and Design consulting will be the bulk of the work during the bootstrap phase. Training and Certification revenues for training the LE’s team as well as for any of the outside consultants that Newco may bring in. Legal and regulatory work will also be a significant need by the LEs during the initial phases. Cash and / or Equity in Local Entity Newco will have the option to negotiate cash and/or equity in the LE. Ongoing Full Service Contracts It is possible that the LE will work with Newco only for the Bootstrap phase and that should be a profitable situation for Newco. But it is expected that there will be an ongoing relationship between Newco and the LEs as Newco can offer many services that will make life easier for the LEs as they sign up and retain customers. Closely coupled with Newco for Operation Phase This would be the preferred way. The Local Entity would focus on the local issues and Newco can continue to assist with Backbone, Regional NOC, legal, backup support, etc. 9CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  10. 10. . . . . A Way Out of the Telecom Dark Ages . . . Ongoing relationship • Backbone Services • Regional NOC • Equipment and Services discounts / aggregate purchases • Legal / Regulatory • Training and Certification • Access to Newco Labs • Backup Tech/Customer support • Inter ISP / Local Entity OSS and Flow thru provisioning • Advertising and PR Bundled or unbundled payment • Branding would require bundled packages. • Pricing based on services + branding. • Could still include equity participation. Training and Certification Training and Certification could be unbundled as well and should be its own profit center. Potential Partners / Initial Funding Sources for Newco Newco will require traditional initial and subsequent rounds of financing before it can reach profitability. The amount of funding and the time to profitability would vary depending on how fast it was decided that the business should grow. It is expected that the levels of funding necessary will be in line with traditional VC investments and not the huge investment before return style of the Internet Bubble. It is critical that first tier funding of an adequate amount be raised in order to gain the interest and attention of the first several Local Entity customers as well as to attract the top tier management team and strategic partners. Besides the traditional VC investor, there are many possible strategic investors that would like to bootstrap new network construction and deployment since the general market has stagnated. Energy / Carrier / Construction • Williams • Enron • Level 3 • Other Power Utilities • Bechtel • Mastec • Other construction firms Equipment Companies It will be in the interest of some of the larger network equipment companies to ether invest or (if they are still able) do vendor financing. VCs and Investment Bankers The investment levels are on the order that would be a natural fit for VCs in the beginning and Investment Bankers in later rounds. Newco has the opportunity to be a very solid investment on its own and will also help to insure that there is a solid market for earlier investments in 10CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger
  11. 11. . . . . A Way Out of the Telecom Dark Ages . . optical and other networking equipment, businesses that depend on broadband services and so on. Conclusion The Telecom Dark Ages is indeed upon us. All the current trends are reinforcing the downward spiral that is sucking out the investment capital and the will to innovate across entire industry segments beyond just Telecom. This Newco proposal shows a way out. It is a call to action and not yet a business plan, but identifies many of the issues and opportunities that a business plan can be built upon. It would not only help end the Telecom Dark Ages and reinvigorate the network equipment market, but can be an extremely successful and profitable business in itself. 11CONFIDENTIAL Draft 1.1 8/10/2001 Copyright 2001 Robert J. Berger

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