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New-age carriers take to the stage

As Qwest, Level 3, and others edge closer to completing their expensive network construction projects, they'll need to switch gears quick to get digital services on those networks rolling.

    As new telecommunications carriers edge closer to completing their expensive network construction projects, they'll soon have to switch gears and finally make money by providing digital services over those high-speed networks.

    The completion of these multimillion-dollar projects could result in one of two things: either these new-age carriers will move one step closer to taking a bite out of Ringing in the new year AT&T's and MCI WorldCom's market share, or the companies will simply be swallowed whole by these larger players.

    Qwest Communications International and IXC Communications are slated to shelve their backhoes and shovels and complete the construction of their networks in the first half of 1999. Using hair-like fiber optic strands that send data as pulses of light, these new packet-switched networks are being touted as the successors to circuit-switched telephone networks based on copper wires.

    Williams Communications and Level 3 Communications will continue their ambitious build-outs through next year, while Frontier Communications and energy giant Enron also are building new fiber networks.

    Once the high-speed networks are done, these companies will then need to turn their attention to providing IP telephony, Internet access, and high-speed data traffic services.

    But that's easier said than done. With little name recognition in the consumer voice markets, and increasing competition from long distance carriers, cable companies, and Baby Bells for the lucrative high-speed data market, the new network builders have their work cut out for them in 1999.

    By most industry accounts, data traffic will soon surpass voice traffic on the nation's pipes. Investment bank Merrill Lynch predicts data traffic will account for 80 percent of the capacity on the nation's bandwidth by 2003.

    Analysts say the imminent data explosion has telecommunications carriers well positioned to capitalize on the growing need for bandwidth. A few large corporate contracts could potentially push the new generation of carriers to the forefront of the newly deregulated telecommunications industry.

    Fiber optic swap
    But until many of those big deals are inked, the companies are earning their keep by leasing or swapping network capacity to competitors.

    In a $700 million July deal with Internext, owned by Nextlink Communications and Nextel Communications, Level 3 split the costs of constructing its network by adding fiber and giving additional capacity to its partners.

    Williams said in August that its fiber deals, like its $450 million contract to provide capacity to competitive local exchange carrier Intermedia Communications, would net the company $220 million in revenue.

    Earlier this month Level 3, with plans to offer service in 25 markets within three years, struck a deal to lease capacity on 7,300 miles of fiber from IXC.

    And Williams recently signed a deal with WinStar Communications, a wireless local loop provider, to swap capacity on WinStar's local microwave-based metropolitan networks for long distance capacity on William's packet-switched backbone.

    The cooperative spirit has allowed the emerging carriers to offer services in areas where their networks don't reach or are as yet incomplete. Such deals recently led to the formation of a new group called the Packet Multimedia Carrier Coalition. The coalition hopes that by working together, the companies will have role in shaping the protocols that will govern the future of the communications industry.

    But sooner or later the back-scratching will end, and these companies will have to make money--not by building networks and selling capacity to others, but by offering profitable data services to businesses and consumers alike.

    Marketing voice
    Qwest, one of the most visible of the new network builders, is working on an 18,449-mile stretch of fiber in the United States. The network is slated for completion during the second quarter of 1999.

    In March, the company--which went public in 1997--bought LCI International in a $4.4 billion stock deal. The move helped bolster Qwest's long distance voice offering and made the company the sixth-largest long distance carrier, according to The Yankee Group.

    After the LCI deal, Qwest teamed with local phone companies US West and Ameritech to market Qwest's long distance services. The alliance was nixed by the Federal Communications Commission, but analysts viewed the deal as a sign of industry confidence in Qwest.

    The FCC denial, however, means the new generation of carriers will have to spend more than a bundle marketing their services to small and medium-sized businesses without the deep pockets of some of the larger players--more in the case of Qwest, which aims to reach out to retail consumers.

    Dialing for dollars
    Analysts say the key for the new carriers, and telecommunications companies in general, is to tap the lucrative data market before the wave crests.

    Earlier this month software giant Microsoft invested $200 million in Qwest. The move is expected to help Qwest deliver data services using Microsoft's Windows 2000 operating system.

    The deal is an example of the efforts telecommunications companies, and other high-tech firms, have made to tap into the huge data market.

    Exit stage left?
    Some experts expect all the construction to lead to a glut of bandwidth, which will force the new network builders, the Baby Bells, and long distance companies, to fight over less-profitable voice market and compete for higher-profit digital services.

    Many analysts question whether the new network builders are just working on their "exit" strategies in order to be bought out by larger telecommunications companies.

    Williams' strategy as a wholesale bandwidth provider has led some in the industry to question the company's long-term commitment.

    Williams' former WilTel communications unit once operated 11,000 miles of fiber, playing in the wholesale data market in the late 1980s and early 1990s. The company then sold the bulk of the capacity to WorldCom in 1995. A three-year non-compete clause expired earlier this year.

    Williams, which is building out 32,000 miles of fiber in 125 cities, re-entered the market in January, as soon as its non-compete clause had expired, with a five-year deal as a network provider for US West. At the time retail-shy Williams described its strategy as a plan to be the "carrier's carrier," underscoring its commitment to the wholesale market.

    Installation of more than 18,000 miles of fiber in 63 cities has been completed to date, according to the company.