RCN Metro Has "Nice Problems"

Here's a problem any service provider sales staff would like to have: trying to figure out why sales are running ahead of projections for four months in a row. But that's precisely the issue Phil Alvarez, RCN Metro Optical Networks president, says he has been "grappling" with over the last four months.

"Gven our sales across all markets, we were trying to figure out why we are doing so well," says Alvarez. "You

question yourself." When RCN Metro dug into the numbers, it found very strong activity in wireless, a result of wireless providers really shoring up their backbones to support wireless broadband services. Need for more route diversity and the ability to provision very quickly also were factors.

You might think any provider with exposure to the financial services industry might face some exposure. Sure, there's some churn, says Alvarez. But "our services address trading requirements, data center connectivity and connections to customers and trading partners," Alvarez says.

So they still are buying. The financial services industry is used to periodic downturns, Alvarez says. They know business will pick up again so they have to keep moving. Their core business plans require capacity investments.

That said, RCN has seen some minimal recession impact. Some customers say they might substitute new providers for some services, on some routes, in some areas, in part because, on some selected routes, and for some services, a great deal of very-aggressive pricing is going on, in areas such as transit services. What is more obvious is pricing pressure on high-traffic routes, though. In other areas, on a highly route dependent basis, prices are relatively firm, or firming.

Generally, on routes where there is pricing pressure, it is Ethernet capacity pricing that is most exposed, not SONET capacity, which Maura Mahoney, RCN VP, says is quite strong.

That isn't to say the recession is haivng no impact at all. It is reasonable to assume that, industrywide, customers are asking for, and might be getting, more capacity for any given level of payment, especially when contracts are renegotiated early, locked in for more years or when upgrades from 100 Mbps to 1 Gbps, or 1 Gbps to 10 Gbps services occur.

That does not seem to be the case for10-Gbps and wavelength purchases, though, says Alvarez.

To be sure, lower prices wouldn't be much unusual in the capacity business, which is used to virtually annual decreases in price-per-megabit-per-second pricing.

In some cases, customers are asking for shorter contract intervals. Where customers might have been buying contracts of five to seven years' length, they are in some cases making three-year commitments. Historically, longer commitments have been associated with a belief that prices would be climbing, shorter commitements with a belief that prices will be falling. That might not be the primary driver at the moment, but could be playing a factor.

Crowded routes are being hammered by low price competitors, though, and Alvarez believes that is not sustainable.

Still, Alvarez says he has been "surprised" at the levels of demand.

A nice problem to have, these days.