The arrival of bandwidth in urban areas has been slow, meaning that business customers cannot receive all the services such as videoconferencing and other high-bandwidth applications that they desire, which presents both an obstacle and an opportunity to service providers.
"The metro area is basically strangled because of lack of infrastructure," said Marian Stasney, an analyst at market research firm The Yankee Group. "There are a lot of customers that are being left in the dust because there's no access to higher broadband."
Carriers such as AT&T, Qwest Communications International, Global Crossing and Williams Communications have spent billions of dollars building long-haul networks, or networks that transmit data over long distances between cities. But they are only partially using these long-haul networks because there isn't enough traffic to send through the cables they installed. Partly as a result of this so-called "fiber glut," companies have reduced their spending on equipment, cut prices and seen profits plunge.
But life is different in the cities.
"There is nothing even approaching a glut of...fiber in city streets," said Jerry Parrick, chief executive of Yipes Communications, which provides bandwidth in urban areas.
In recent years, spending on long-haul networks has outpaced metro spending. Shin Umeda, an analyst at the Dell'Oro Group, an optical market research firm, estimates that carriers spent roughly $15 billion on long-haul optical communications equipment in 2000 compared to about $7.5 billion for metropolitan equipment.
However, research released Tuesday by technology research firm Cahners In-Stat Group concludes that spending on advanced optical communications equipment that increases the capacity of networks will increase nearly eight times from 2000 to 2005, which suggests that carriers still see the need to expand and upgrade city networks.
"Demand exceeds supply (in cities) as evidenced by the fact that prices are still strong," said Michael Liss, CEO of FiberNet, a company that supplies and maintains connections between carrier facilities in New York City.
Information from various sources seems to indicate that the price for leasing long-haul bandwidth continues to fall while bandwidth for urban networks has remained constant.
According to RateXchange, an electronic broker that helps carriers trade bandwidth capacity, a connection running at 155 mbps (megabits per second) from Los Angeles to New York cost about $45,000 a month last October. That price fell to $35,000 in March and is expected to slip to $2,450 in January 2002.
By comparison, Yipes spokesperson Jonathan Marshall says that the company's price for 155 mbps connection between two points in the same city has remained constant over the past few months at about $7,810, depending on the type of connection.
Some analysts also say carriers will begin to spend more in urban areas to upgrade their metropolitan networks.
John Mazur, a principle analyst at Gartner Dataquest, is one of many analysts who say that carriers must spend more in big U.S. cities. Carriers need to build new optical networks that are capable of delivering more bandwidth than current networks that include DSL (digital subscriber line) technology.
"If we're going to have an Internet economy, we're not going to do it through DSL lines," Mazur said.
But despite the strong demand, the growth of metro networks face some obstacles.
Why so slow?
Some analysts suggest that federal and local government interference has slowed the process of building urban networks.
The Telecommunications Act of 1996 requires local phone companies to open their networks to rival carriers in an effort to spur competition.
Mazur thinks this mandate decreases the motivation for phone companies to build in urban areas since they will have to offer low-cost access to rivals who did not navigate through city government regulations or incur the significant costs related to digging up city streets in the first place.
Gartner analyst John Mazur predicts high growth rates for these next-generation optical networking products.
One recent battle occurred between Qwest and the City of Berkeley, Calif. Qwest persuaded the courts to strike down a local telecom ordinance that the company believed singled-out carriers and levied fees not related to the direct costs of construction. Berkeley is appealing the decision.
Larger cities like Atlanta, Boston and Washington, D.C., have also laid down guidelines to deal with the flood of carriers requesting to dig up their streets.
It appears that the issue will not go away soon because many cities view their streets as a resource that should be protected and regulated, and say construction decreases the life span of the street and inconveniences citizens with traffic congestion.
On the other hand, communications industry analyst Courtney Munroe of IDC believes that the weakening market conditions has left few challengers to prod the Baby Bell local phone companies to install faster city networks.
"If there is no one pushing the (Bells), they are going to take their time," Munroe said.
But demand for high-speed services will also continue to increase as people feel the need to use the Internet for bandwidth-heavy applications like videoconferencing, streaming media, and MP3 files.
Many analysts believe that once fiber becomes available in cities so will more service options, which will also help increase demand. This might provide more tributaries to feed data traffic onto long-haul networks, thus using the extra capacity in the long-haul networks.
But no matter what happens, the opportunities for revenue in the metro market are likely to reward carriers and equipment makers that can give customers what they want--and do it fast.
As Yankee Group analyst Seth Libby puts it: "When you're going into the metro market, it really pays to do your homework."