Energy Providers Join Fiber-Optics Race

SAN FRANCISCO (04/14/2000) - After sitting on their pipes at the start of the Internet explosion, some energy companies have finally decided to jump in.

Twelve petroleum and natural gas companies announced Wednesday that they would buy a combined 30 percent stake in a new telecommunications company, Aerie Networks. The new company plans to build a fiber optic network with the highest capacity in the U.S. Along with the $150 million equity stake, Aerie gets the right to piggyback its fiber on the energy firms' pipelines.

Following energy pipelines gives telecom companies an incalculable advantage.

Obtaining and developing the necessary rights of way is almost impossible today, and piggybacking is much cheaper than digging fresh trenches. Aerie is entering a crowded market. Williams, a pipeline and energy service company based in Tulsa, Okla., was the first to use its gas-pipeline assets to develop a telecommunications network.

Enron and Duke Energy soon followed. Six other energy companies formed America's Fiber Network in March to create a network similar to the one Aerie is forming. Montana Power is even divesting itself of its electricity and energy-related holdings to focus exclusively on its fiber-optic network business. None of those networks has capacity that is comparable to what Aerie has planned.

Denver-based Aerie plans to build a 20,000-mile network with 8.9 million miles of fiber-optic capacity. Nearly 15,000 miles of the network would follow rights of way of consortium members including BP Amoco, PG&E, Kinder Morgan and Marathon Ashland Pipe Line. The network, which is designed to handle voice and data, would cover 90 percent of the U.S. business market in 194 metropolitan areas. Construction is expected to begin this summer, and the target date for completion is 2003.

Aerie plans to lease capacity or offer services to ISPs, telephone and cable companies, competitive local exchange companies, wireless providers, and content and application service providers. Aerie is more than a latecomer to the piggyback-fiber market, says President and COO Mort Aaronson. Unlike other network providers, Aerie would "mass-produce bandwidth," creating a platform on which customers can define their own networks. "This is a new category. We're the first network host specifically built as a platform for others," Aaronson says.

"We're building the new infrastructure for the application economy. It's not about e-commerce, telephones or data. It's about connecting applications to applications going forward, which is where all the new goods and services are coming from." Williams pioneered the energy-to-fiber move 15 years ago. In 1995, it sold its first telecom wholesale venture, WilTel, to LDDS WorldCom for $2.5 billion. After a three-year noncompete agreement expired, Williams got back into the game. It plans to finish building a 33,000-mile fiber network by the year end. The company's network division generated $404 million in revenues last year.

The new build-out left it with an operating loss of $134.5 million. Some observers wonder why those involved in the Aerie consortium waited so long.

"There is such a demand for bandwidth that a number of new entrants may be needed to service it," says Gil Broyles, spokesman for Williams Communications Group. But the announcement, he says, "does raise the question of time-to-market." San Francisco-based PG&E said it wanted to participate in a national telecommunications network rather than create its own regional network.

BP Amoco had made smaller deals with fiber network providers before latching on to the comprehensive Aerie model. Still, Aerie's biggest challenge will be to catch up. The company has overcome one significant hurdle - obtaining rights of way to the energy companies' easements - but it still must obtain new-digging rights from individual landowners.

Williams and other energy-cum-fiber providers are already up and running, and new technologies enable them and other backbone providers, such as Qwest and Global Crossing, to increase their capacity rapidly while Aerie spends time digging trenches and laying fiber. "Who's not trenching and throwing fiber into the ground?" says Robert Rosenberg, president of Insight Research, a telecom market-research firm in Parsippany, N.J. "Took them long enough to figure it out."

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