By David S. Isenberg
From America's Network, December 1, 1999
Stephen Garofalos life suddenly synched to the communications age when he read George Gilders "The Coming of the Fibersphere," (Forbes ASAP, Dec. 7, 1992). At the time, Garofalo had spent 25 years at the head of his familys electrical contracting business, but he saw his future in Gilders vision of dark fiber, dumb bandwidth, all-optical networks and virtually free communications. He realized that he could use his electrical contractors experience with cables, ducts, risers and rights-of-way to build the infrastructure of the communications revolution.
So Garofalo founded National Fiber Network in 1993 to bring dark fiber to the local loop. In 1997, it became Metromedia Fiber Network (MMFN) when media giant Metromedia bought two-thirds of the company. The deal catapulted Garofalo into the ranks of the Forbes 400 richest Americans.
Garofalos idea was to install massive quantities of fiber-to-the-basement in cities. He would sell rights to use this dark fiber by the fiber-mile to all comers on 5-, 10- and 20-year contracts. He would not light the fiber. He would not meter minutes or traffic. He would let his customers decide how to light it and what to carry on it.
Garofalo explains the economics of dark fiber in a street-wise voice shaped more by his Brooklyn upbringing than by his recent riches. "Selling dark fiber is like selling customers a fifty-story building for the price of the first floor," he says. Then, referring to recent dramatic advances in optical transmission technologies, he says "If you need more room, you add more lights and switches and move upstairs."
The economics hinge on the fact that glass is not a precious commodity. Almost all of the costs of laying fiber are in acquiring right-of-way and doing construction. Bottom-line costs hardly change whether MMFN pulls two fibers or a dozen 864-fiber cables.
Once MMFN figures out its initial routing plan in a city, it pulls an irrationally exuberant number of fibers. Plus, it installs more empty conduits for future fibers than it can imagine ever needing. Once this infrastructure is in the ground, the cost of each fiber is close to zero. Customers are delighted to buy fibers that are priced far below their cost of new construction.
MMFNs ultimate goal is to eliminate
the tariff system so the newly
abundant marketplace determines
the price of communications.
MMFNs business model is simple; it must sell as many fibers as it can. MMFN wants its customers to run out of capacity so they have to buy more. Dark fibers, like airline seats, wont make money if theyre left empty.
Some 70% of MMFNs customers are telecom carriers. The more carriers there are in a given market, the better. Thus, MMFN favors unrestricted competition, low end-user prices and widespread broadband access. Its ultimate goal is to eliminate the tariff system so the positive elasticities of the newly abundant marketplace determine the price of communications.
Garofalo denies that MMFNs recent deal with Bell Atlantic, worth about 20% of MMFN, will change the model. "It is not exclusive. We are going to remain carrier-neutral," says Garofalo. "If [another large carrier] wants to partner with us tomorrow, we can do that too." MMFN will use the infusion of Bell Atlantic capital to double its previously announced expansion plans so it can be a first-mover in more cities.
Data-intensive enterprises are MMFNs other big customer segment. These include financial service firms, the medical sector, and increasingly manufacturing, government and the public sector. Nick Tanzi, a senior MMFN VP, observes that unmetered bandwidth changes enterprise traffic patterns. "There used to be an 80-20 rule of networking; 80% on the LAN and 20% on the WAN. Thats blown away," Tanzi says.
The change can surprise even the most experienced network managers. An amazing 70% of MMFNs enterprise customers come back for more fibers in their first year of service. (Note that the original contract is based on the IT staffs most educated long-term traffic projections.) "Stuff gets put on the net that used to stay on peoples hard drives," Tanzi explains.
Howard Finkelstein, MMFNs president, explains that a
DS3 from the telco costs $3,000 a month, and a comparable MMFN
fiber costs about $5,000. But the fiber can be lit at OC-12
14 times faster than DS3 for $500 more per month (assuming
10-year depreciation). This works out to about $400 per DS3 per
month. But OC-12 is already yesterdays technology
OC-48, OC-192 and OC-768 will drop the cost of a DS3 equivalent
to a few bucks a month. With prices like these, and the addictive
positive elasticities that they engender, it wont be too
long before DS3 seems unbearably slow.
Copyright 1999 Advanstar Communications.