Wholesale: Super-regional Wholesaler Empowers Underserved

By Khali Henderson

Posted: 12/2000

Super-regional Wholesaler Empowers
Underserved
By Khali Henderson

Super-regional carrier America’s Fiber Network LLC (AFN, www.afncommunications.com)
has sprung fully formed from the heads of its parents with 7,000 route miles of
network serving the eastern and central United States. Unlike the armored Greek
goddess Athena, who suffered a similar birth, AFN did not emerge in fighting
form–a disadvantage its parents were quick to remedy, outfitting the company
with a fully operational headquarters and more than 60 wholesale telephony pros
in less than six months.

This fall AFN rolled out its first wholesale services, testing its partners’
theory of strength in numbers.

AFN was formed in March by six energy and telecommunications companies. Among
them are the communications subsidiaries of American Electric Power (www.aep.com),
FirstEnergy Corp. (www.firstenergycorp.com),
GPU Inc. (www.gpu.com) and Allegheny Energy
Inc. (www.alleghenyenergy.com). AEP
Communications owns 47 percent. FirstEnergy and GPU announced a merger Aug. 8,
bringing the survivor FirstEnergy Telecom’s share to 31 percent. Allegheny
Communications Connect (www.acconnect.com)
owns 17 percent. In addition, ILECs CFW Communications Co. (www.cfw.com)
and R&B Communications Inc. (www.rbnet.com),
which agreed to merge on May 18, hold a combined 4 percent.

Graphic: America’s Fiber Network’s Regional Coverage Map

Like most communications companies with roots in the energy business, AFN
plans to capitalize on the depth of its owner’s network, which reaches into
secondary and tertiary markets, to sell network services to carriers and ISPs.
Where AFN differs from most is that it also will offer breadth, covering 11
states with more than 100,000 fiber miles.

AFN’s network includes the rights of way and long- haul fiber assets–present
and future–of the four remaining communications companies that have joined
together in a venture they expect will give them the best chance to leverage
those assets in a crowded market.

Analysts at the Yankee Group (www.yankeegroup.com)
agree, saying that "creating a collaborative carrier’s carrier network
reflects member companies’ recognition that there is significant value added by
consolidating the competitive environment over a wider geographic area."

The analysts also say this will be an increasingly common strategy as
deregulation compels energy companies to evaluate merger or acquisition
opportunities. As a result, they expect to see developed communications
infrastructures becoming consolidated in managerial terms yet extended in
geographic territory.

"We expect that combined financial resources will offer newly merged
companies the opportunity to invest in network expansion as well as the ability
to explore enhanced product and service sets for overall strengthened market
positions," they say.

After combining their networks and eliminating the short-term business model
of selling dark fiber, AFN’s partners tapped a management team with experience,
not only in telecommunications, but also in leveraging energy company assets. In
July they hired CEO Gordon Martin, the former president of carrier services for
Williams Communications (www.williamscommunications.com).
Except for a brief stint building the first Oklahoma ISP after WilTel was sold
to WorldCom Inc. (www.wcom.com) in 1995,
Martin had been with Williams since 1984, living through the company’s
communications spinoffs parts one and two.

He set up shop for AFN in Tulsa in space owned by parent AEP, leveraging its
physical and operational infrastructure to quickly assemble and ready his team.
Martin easily recruited telecom veterans hailing not only from Williams, but
WorldCom, McLeodUSA Inc. (www.mcleodusa.com)
and Aerie Networks Inc. (www.aerienetworks.com)–each
of which has a presence in the city.

Not surprisingly, Williams’ alum dominate AFN’s management team in part
because of their trust in their former colleague and in part because their
experience is the most relevant to the new project. Only CFO Brian Cantrell,
former founder and CFO of Brighton Energy LLC, is not from the energy company’s
communications subsidiary.

AFN COO Gary Watson was vice president of service delivery and assurance at
Williams. CTO Bunker Sessions was vice president of technology. Executive vice
president of sales and marketing Bill Hampton was vice president of carrier
sales. From Williams network unit, AFN recruited three top executives, including
its vice president of administration Kathy Case, formerly Williams’ vice
president of customer care; vice president of strategic planning and
communications David Cordeiro, formerly Williams’ vice president of planning and
business development; and vice president of business development J.B. Manley,
formerly Williams’ director of business development and business planning for
the network unit.

Martin is unapologetic about saying that for him AFN represents an
opportunity to be the CEO, to create a company culture based on his learned
experience in the telecom business. "I was part of three startups–WilTel,
an ISP I founded [Digital Frontiers, which was later acquired by Williams] and
Williams Communications. This job leverages my skill set. I have been outspoken
particularly on the issue of creating value within the utility
environment."

Speaking for him and some of his new hires, Martin says AFN also represents a
chance to be part of a startup without the expected risk.

"I am excited about the opportunity to light and operate–operate being
the key word–with year 2000 optronics and operational support systems,"
Martin says. The company is using fiber from Corning Inc. (www.corning.com)
and Lucent Technologies Inc. (www.lucent.com);
optical networking. DWDM and OSS vendors have not been named publicly.

The new CEO says the company is on track to add 3,000 route miles to its
network by year’s end based on previous commitments made by its parents (see
map). When finished, the initial footprint will include 55 PoPs, and is
expected to be completed by August 2001.

AFN also will be looking for opportunities to expand further through mergers,
acquisitions or contributed (for equity) assets of other network service
providers. A priority will be to look at contiguous networks. No deals were
disclosed, however. AFN also will seek to close the gap between the AFN network
and the C-3 network operated in Oklahoma and Texas by Central and Southwest
Corp., which is in the midst of combining assets with AFN parent AEP following
their merger in December 1997. AEP would not disclose whether the C-3 network
would be contributed for additional equity in AFN.

While none of AFN’s partners maintain retail telecom entities, AFN is
exclusively wholesale for the time being. Martin says that the company will
first focus on building additional infrastructure and working with its partners
to "solve the commercial needs of their customers," which number more
than 10 million. For now that solution seems to be wholesaling to ICPs in the
region, but "whether we pursue those customers directly is a strategic
decision," he says.

Indeed, AFN’s initial footprint serves 13 Tier 1 markets, five Tier 2 markets
and 21 Tier 3 markets.

The company currently is hawking private lines service at speeds of DS-3 to
OC-48 in some areas. In second quarter 2001, it will offer AFN Optical Waves at
OC-192 and OC-48 speeds as well as collocation space.