Business News - CityNet Raises $275 Million to Build Last Mile

Posted: 06/2001

Business News

CityNet Raises $275 Million to Build Last Mile
By Josh Long

CityNet Telecommunications Inc. (www.citynettelecom.com) raised in April $275 million in equity and debt financing to fund its last-mile broadband network rings in first- and second-tier markets.

The investments allow the Maryland-based wholesaler to develop rings in the cities where it has negotiating agreements to lay fiber optic cable, according to Deb Hoopes, CFO of CityNet.

She says the company would seek additional funds if it were to promote a more aggressive or expansive development plan.

The dark fiber supplier, which had not signed an official distribution agreement with a carrier as of early April, also raised $100 million in equity last year. The most recent investments represented $175 million in equity and $100 million in debt financing. The loans are repayable over six years, Hoopes says.

The new investors include The Carlyle Group (www.thecarlylegroup.com), Berkshire Partners LLC (www.berkshirepartners.com), Trimaran Capital Partners, Great Hill Partners LLC (www.greathillpartners.com) and Fay Richwhite and Co. Ltd.

In April 2000, Telecom Partners L.P. (www.telecompartners.com), Crescendo
Ventures Inc. (www.crescendoventures.com) and CIBC Capital Partners invested in CityNet.

A telecom business with a unique strategy to provision the last mile, CityNet sewer system robots connect fiber directly to commercial buildings. The rings are connected to aggregation points, such as a CO or carrier hotel. CityNet has 24-year agreements with city officials to lay fiber optic rings and lease fiber to carriers in Albuquerque, N.M., Indianapolis, Omaha, Neb., and an unnamed European city.

It is also negotiating in Charlotte, N.C.; Chicago; Dallas; St. Paul, Minn.; Washington, D.C.; and Dublin, Ireland.

Negotiating with more than a dozen service providers–ILECs, CLECs and cable companies–CityNet says it hopes to book sales agreements within the month.

The agreements will include 20-year indefeasible rights of use (IRUs), a CityNet spokesman says.

The company expects to complete a ring this summer in Albuquerque. The ring will link fiber optic cable to at least 30 high-rise buildings or a minimum of 75,000 square feet, a spokesman says.

CityNet plans to complete the first rings this fall in Indianapolis and Omaha.

The company lowers robots into the sewers at night during a period of “low-flow” to install the fiber optic equipment.

For each ring, CityNet’s robots introduce at least three sets of conduit, the empty tubes that enclose the cable. Each conduit pipe holds 144 fiber strands.

S.A.M.s (sewer access models) are seasoned professionals in the sewers. The robots have worked in Hamburg and Regensberg, Germany, deploying backbone fiber optic cable, Hoopes says.

Ka-Te System AG (www.ka-tesystem.com) of Switzerland manufactures the computer-controlled robots. CityNet has ordered 53 systems–consisting of a small and large robot, trucks, computer systems and other equipment. Each system costs about $750,000, a CityNet spokesman says.

In human-accessible sewers, where the pipe is at least 32 inches in diameter, CityNet deploys a different technology. Two people on a motorized sled, drill into the pipe and build a gutter system on the sewer wall. The cable is placed inside the gutters, which are sealed, a CityNet spokesman said.

CableRunner North America LLC (www.cablerunnerusa.com), a CityNet partner and subsidiary of the Vienna, Austria, Water & Sewer Agency, reportedly has used the technology for five years throughout Austria.

Building mini fiber optic rings through the sewers eliminates the need to tear up the streets, a proliferating trend that has spawned problems for commuters and city officials in urban centers across the nation.

Under terms of the recent agreements, CityNet will clean and maintain the public sewers for 24 years. The company also digitally maps out the architecture before developing a ring. Furthermore, city governments share 2.5 percent of the revenue CityNet generates.

Referring to CityNet’s strategy as a “fantastic business mfodel,” Yankee Group (www.yankeegroup.com) senior analyst Marina Stasney says the startup meets the needs of cities looking to attract high-tech businesses, while helping service providers reach more enterprises without owning all the infrastructure.

Analysts tout the company’s business model, pointing out that its strategy reaches the last mile, solving the bandwidth bottleneck in the business market, where only a minority of the 750,000 U.S. commercial buildings house fiber.