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Qwest, Level 3 look local to boost revenue

Communications companies are looking to build local networks to connect to their long-haul national grids as a way to combat shrinking profit margins in the competitive business.

As competition in the networking market increases, communications companies are looking at local networks as a way to mine alternative revenue sources.

Voice and data communications carriers Qwest Communications International and Level 3 Communications are two among many firms that are building long-haul fiber-optic networks nationwide. Exploding demand for data services and low-cost voice communications has led to the construction of dozens of new high-speed networks over the past few years.

Yet as profit margins shrink and competition increases, companies are pursuing other revenue opportunities. Firms such as Qwest and Level 3 are increasingly building smaller networks in cities and business parks that link to their national networks. Those new networks essentially represent the surface streets that will complement the firms' new network superhighways.

"The closer you can get to the end customer the more value you can extract," said Blaik Kirby, vice president at Renaissance Worldwide, a technology consulting firm.

Although there are many new long distance networks in the works, few cities will have more than a couple of local networks that can provide access to those long distance grids, analysts say.

By controlling all connections from the local to national network, companies can offer more services and guarantee consumers higher service quality. Alternative carriers are also looking to tap new revenue sources, such as wholesaling local capacity to other carriers and competitive local phone companies. Also, by building out local networks, companies can avoid access charges levied by telecommunications firms--like the Baby Bells--for using their local networks, analysts say.

Industry leaders touted extending fiber into neighborhoods for communications and interactive services a few years back. At the time, however, the high costs involved killed most plans. Yet since network technology has improved, those fiscal constraints do not apply today, according to Hilary Mine, analyst with industry consultants Probe Research.

And as the fiber companies rake in new revenue from their new network strategies, network equipment providers are only too eager to jump in. A new start-up, Quantum Bridge Communications, this week announced it too will dive into the new market for local networks.

"They really need some way of getting out to those customers," said Rosemary Cochran, principal analyst with industry consultants the Vertical Systems Group.

Another small equipment company, Optical Networks, has pegged the need for metropolitan area fiber-optic networks as the source for its growth. "This is where the industry is going," said Rohit Sharma, co-founder and vice president of the company.

Nearly 50 percent of service providers surveyed in a recent Forrester Research study said their use of optical technology is predicated on their customers' demands for more bandwidth.

Inner city construction
QwestLink, the local access division of Qwest, is building local metro networks in 25 cities across the nation. The company recently announced it would soon offer local phone access in four large cities in California.

"We want to be able to offer an end-to-end network of bundled services from Qwest, not one that's pieced together like other networks," said Augie Cruciotti, senior vice president at QwestLink.

Essentially, Qwest wants to own a continuous high-speed link from a business user to its national network. Firms like Qwest also are looking to undercut costs of current high-speed connections, like T1 lines, which can cost a business more than $1,000 per month.

Qwest plans to use one of three technologies to reach metropolitan business customers. The company's primary strategy will be to run a fiber-optic line directly to its large business customers.

"Our main focus will be on direct fiber access," Cruciotti said.

Qwest also plans to use fixed wireless systems to serve medium-sized businesses, which is often less expensive than building out fiber links. The company also plans to incorporate digital subscriber line (DSL) service, a high-speed phone-based technology, for small companies and telecommuters.

Level 3 is building metropolitan fiber networks in 56 cities in the United States and Europe, and is expected to complete its networks in 2001. Level 3, which also is building a 16,000-mile backbone network, is currently able to offer service in 17 U.S. cities and in London.

"It's important for us to own our own networks. We want to be able to control the reliability and be the masters of our own destiny," said David Powers, director of marketing for Level 3. "We're interested in being able to provide an end-to-end solution for our customers."

News.com's Ben Heskett contributed to this report.