Equinix is one of a group of firms that aims to eliminate Internet congestion with new technology. The contract will give the company momentum in its goal to change the way the Internet's various networks connect, analysts said.
The deal is also good news for Bechtel, which is capturing an increasing share of the Internet's financial boom itself. The construction company won another $1 billion contract from online grocer Webvan in July to build a nationwide series of automated grocery warehouses.
The investment will help establish Equinix's name and credibility around the world, company executives said.
"It's really key for us to open facilities with all the same look and feel and quality of service," said Al Avery, Equinix's CEO. "When customers walk into one of these [data exchanges] in the U.S., they're going to want to see the same thing in Hong Kong and everywhere else."
Equinix joins a group of firms taking advantage of the Net's current congestion and turning the solution to this problem into a lucrative business.
The company plans to build 30 high-security network hubs around the world where Internet service providers, telephone companies, Internet content companies, or any other firm involved in the distribution of Net traffic can locate their servers and connect to each other.
The hubs largely will compete with the data exchange points now owned by big telephone companies like MCI WorldCom and Sprint, which analysts say are badly overloaded.
But where the original exchanges simply allowed one company's network to hand off traffic to another, Equinix aims to facilitate a more complex series of exchanges within its centers.
The idea is to allow virtually any Net firm to swap data within a network hub, without having to send traffic out onto the slower Internet. Thus, a company like eBay could set its servers next to Yahoo's, use Yahoo's search engines to find results, and then send information onto the Internet much faster than if all of the companies were located in different areas, connected by traditional networks.
The idea is still relatively new, but has attracted enough attention from the likes of Microsoft and Cisco Systems to win the company more than $12 million in an initial round of funding. Another round of cash is on its way, but the company has not said how much or who is contributing this time around.
Even if the second round of funding is considerably larger than the first, there will still be a big gap between the company's cash on hand and the $1.2 billion needed to pay Bechtel for its network services. The company plans to finance the deal through debt, a spokeswoman said.
That's a large overhang of red ink for a start-up--but it's what the company needed to do to establish itself as a solid player in the communications market, analysts said.
"It's a real estate play," said Probe Research telecommunications analyst Hilary Mine. "You've got to pay to play. But I think they'll have the demand to fill the space."
Others agreed. "It's the sumo syndrome," said John Coons, analyst with market researcher Dataquest. "The bigger they get early on, the harder they're going to be to throw out of the ring. I wouldn't worry about them having the business to pay back the debt."
Equinix has opened one exchange facility near Washington, with another in New Jersey slated to open in a few weeks. A third in the Silicon Valley area will open early next year, with the rest of the 30 centers being built and deployed over the next three years, Avery said.