Open Range to Bring WiMAX to 6 Million Rural Homes

For those of you who might be wondering, high-speed broadband in rural America is not in as dire straights as you might think. There's a problem, but it is being solved. Consider that estimates of rural un-served or underserved households range from six million to 10 million.

Then consider that just one company--Open Range Communications--has raised enough money to bring fourth-generation wireless to about six million U.S. households in rural U.S. areas. And construction is about to begin.

Level 3 Communications has announced an agreement with Open Range Communications, which intends to deliver wireless broadband using WiMAX to 500 rural communities in 17 states, reaching an audience of six million potential subscribers.

Open Range will leverage Level 3’s extended on-net services to offer high-speed Internet and voice services to millions of previously un-served or underserved communities across North America.

Open Range has gotten a $100 million investment by One Equity Partners, the private equity arm of JPMorgan Chase and a loan provided by the United States Department of Agriculture's Rural Development Utilities Program (RDUP) for $267 million.

Personally, I'd argue Open Range is going to build more broadband facilities, reaching more potential customers, than every single project funded under the American Recovery and Reinvestment Act ("broadband stimulus"). And for a lot less money.

Level 3 Sues Limelight Networks

Level 3 Communications has filed a patent infringement suit against Limelight Networks, alleging that Limelight's content delivery network infringes four Level 3 patents.

The filing cits patents 6,185,598; 6,473,405; 6,654,807 and 7,054,935, according to Dan Rayburn, streamingmedia.com EVP. Level 3 says it notified Limelight of the potential violations in February 2007, but that Limelight did not redesign its network to avoid infringing.

Given the notification by Level 3 and lack of response by Limelight, one has to assume Limelight thinks it is not infringing.

These days, it does not seem to be enough to have the right assets, people, channels, partners and technology. One often has to own intellectual property as well, if only to use as bargaining chips for cross licensing.

Hardware and software suppliers have known this for years. What is new is that service providers have to do the same.

at&t Says It Will Provide CDN Services

Earlier this year Level 3 caused a stir when it said it would enter the content delivery network (CDN) market with a radical pricing model: essentially offering the quality of service features at no incremental cost to what customers expect to pay for simple IP transit. And if you think about it, that's precisely what a CDN does: provide QoS features on top of dumb pipe. All of which should have, and did, raise fears about the health of the CDN market.

After all, if a contestant says it will give customers for free, what they today pay for, that's disruptive. Most recently, at&t itself said it was getting into the CDN business as well. Which should have caused another shudder: remember Northpoint, Rhythms Netconnections and Covad? They were the three independent providers in the nascent Digital Subscriber Line broadband access market. Of course, when the incumbent telcos decided broadband access was a business they had to "own," they simply moved to do that.

So are Level 3 and at&t a threat to market-leader Akamai? Right now it's hard to say much, beyond the obvious fact that competition is increasing in the space. One issue could ultimately be the size of the market opportunity, the reason for that being that a smallish market will favor specialists, while a large market will favor the larger telcos.

And it is not necessarily simply because scale economies might kick in. It is more a matter that large telcos tend not to do well in market segments that are small. Small markets never get the attention they might deserve in a large organization. So unless the market gets fairly sizable, a large telco simply will not invest enough to keep pace with smaller specialists.

So how big is the market today? As it turns out, that's a guesstimate of sorts.

Some things are hard to count. Unified communications software is an example. People who track these things like concrete measures: ports, servers, licenses sold. So how do you track "presence" features that simply are embedded in the basic functionality of an IP PBX?

Other markets aren't quite that hard to track, but still are fuzzy because mutltiple revenue categories get lumped together in the reporting. Streaming media services, as distinct from application acceleration, provides an example of that sort.

Dan Rayburn,StreamingMedia.com EVP, provides a reasonable way of current approaching the U.S. market size, though. Working backwards from benchmarks, Rayburn suggests the market for CDN services (but not P2P apps) currently is less than $800 million.

Internap's 2007 revenue is about $24 million. Limelight Networks generated about $105 million for 2007 and about $95 million of that was earned in the U.S. market.

Akamai probably generates $400 million to $450 million of its $625 million total revenue comes from their CDN services. Rayburn further guesses that U.S. CDN revenues amount to $300 million.

Level 3 wasn't in the market for much of the year, but might have earned $2 million or so.

VeriSign might have earned about $8 million for the year in the U.S. market.

Mirror Image, CacheLogic, Panther Express, CacheFly and Advection.NET taken together will do about $20 million in the U.S. market.

EdgeCast, CDNetworks and BitGravity combined did about $5 million for the year. Again, these are new services that didn't have a full year of operation to measure.

PEER 1, NaviSite and Ignite Technologies together collectively generated about $8 million.

All other smaller regional service providers providing small and medium sized businesses outsourced video delivery services sold under $20 million in 2007.

Paetec Buys Allworx

Paetec is acquiring Allworx Corp., a provider of IP-based PBX and key systems aimed at the small and medium business user. The transaction makes more sense in light of Paetec's recent merger with McLeod, whose customer base is largely anchored on smaller businesses use a single T1 connection at most sites. Paetec's historic customer base is a mid-market firm. So Allworx will make sense as a favored solution for McLeod customers more than for Paetec's historic base.

Based in East Rochester, N.Y., Allworx primarily uses Value Added Resellers as its sales channel. Paetec says it will continue to use VARs, as well as its extensive agent network, to introduce both Allworx services to Paetec customers while cross-selling Paetec connectivity services into the Allworx base.

The acquisition, set at $25 million, is interesting as it is not common to see communications "footprint" providers buying "application" providers. But more providers seem to be putting their money where their views are, as "moving up the stack" now is seen as necessary.

Level 3 has been buying content delivery assets, not simply termination assets or access assets, for example. That isn't to say all providers think this is the right strategy. Some continue to launch or extend Layer 2 connectivity businesses that deiberately remain focused on access to end user sites and transport within a metro area or region.

Level 3 Provisioning Issues?

Level 3 Communications has made seven acquistions in the last 18 months, including Broadwing, part of the Savvis portfolio, TelCove, Looking Glass and ICG. Several of the buys related to its new content delivery network portfolio. But many of the sizable acquisitions are related to its core bandwidth business.

If you have been around the business long enough, you know what is happening in the back office. Disparate systems are running in parallel. Manual reports have to be built. Billing systems don't talk to each other. Inventory cannot be interrogated in real time. Provisioning backlogs are the inevitable result.

That is one possible reason Level 3 reported relatively light revenue and earnings growth in the most recent quarter. Demand for its services isn't the problem. If anything, in light of the back office issues, demand possibly is outstripping provisioning.

Any company would have at least some issues getting new customers provisioned efficiently were it to digest as many acquisitions as Level 3 has made recently. So we would not be surprised if the company is having issues getting the new customers onto the network.

In fact, it probably is safe to say that bandwidth in service has grown at an unprecedented level over the last year. If one looks at total in-service bandwidth provisioned by Level 3 in its entire history up to about 12 months ago, the amount of bandwidth in service probably has doubled again in the last 12 months.

That rate of growth would cause issues for any service provider. So we wouldn't be surprised if there was some hiccup in provisioning new orders. In fact, the backlog could be great enough that three months might have to pass before the provisioning teams can catch up. Level 3 wouldn't be the first company to have problems with too much success.

Level 3 Attacks CDN Pricing

Level 3 Communications has been gearing up for a major assault on the content delivery networks business and appears ready to price such services at a rate that basically offers caching and downloading services for no more than the cost of buying IP transport. If, as expected, Level 3 prices content delivery at the same price as Ip transit, it could disrupt much of the market.

It isn't so much the disruption of profit margins: that already is happening as several dozen contestants now are slugging it out for some share of the growing market.

The bigger issue is how participants in the media, hosted applications and enterprise end user markets are able to change the way they do things if enhanced quality becomes an integral part of the IP transport they buy.

Level 3 hopes to have its streaming services ready by mid-November. At that point it will have a wider shot at disrupting the market for transport of real time services. Right now much of the market is focused on video content. But there are other real time applications and services that really would benefit from lower-priced and more capable delivery over networks that eliminate jitter and latency over the global wide area network.

Access networks on each end still are issues, but tail circuits also keep improving. As more applications move to "cloud-based" processing and storage, they will have to start having the "feel" of local desktop apps. CDNs will be part of that experience. And that's where the major impact will lie.

Google to Build Own Trans-Pacific Cable Network?

Up to this point, it has been local telcos, mobile providers, newspaper publishers and others in the media business who have had to ponder what Google might be up to. Trans-oceanic fiber providers might be next. Google apparently is planning to lay its own multi-terabit undersea communications cable across the Pacific Ocean, to be lit in 2009, according to Communications Day.

The Unity cable has been under development for several months. As envisioned, Google will join with other carriers to build the new multi-terabit cable. Google would get access to a fiber pair at build cost.

Partners haven't been announced, but rumors indicate Telekom Malaysia and Verizon, each involved in rival new cables, won't be part of the Google consortium.

There's not necessarily any broader agenda beyond securing low cost bandwidth on a major and growing oceanic crossing. Aside from that, the new capacity helps Google peer directly with Internet Service Providers in Asia.

Google's move still could be disruptive to the capacity industry, though. Obviously, Google's new capacity will take some revenue out of the retail market place.

TeleGeography Research says existing trans-Pacific cables provide on average 3.3 tbps of capacity and that carriers have increasingly been upgrading their existing cables or planning new ones. Trans-Pacific bandwidth demand has increased 41 percent between mid-2006 and mid-2007.

Disruption? Maybe Not.

Lots of companies and lots of people have been at the "telecom disruption" game for quite some time, beginning way back with the Carterfone decision and MCI's assault on the long distance calling market. We have had Internet service providers, competitive local exchange carriers, hosted service providers, application providers, instant messaging providers, portals, VoIP providers, cable companies, satellite providers and others attacking one part or another of the global telecom value chain.

Through it all, global communications service revenue has kept climbing. In fact, you'd be hard pressed to find any year when that didn't happen. Perhaps the issue is not disruption at all, but rather transformation. There will be new spaces created, and a rearrangement of older spaces. But nothing has stopped global revenue from climbing, year after year.

Of course, all the analysts could be wrong. Some cataclysm could yet await. But it sure doesn't appear to be something you would build your company on.

TeleBlend Quietly Provides SunRocket Service

If you have been following the SunRocket transition story, you might not have wondered just how it was that SunRocket went dark July 16, but nearly all SunRocket customers were still able to call in and out and use voice mail until the SunRocket creditor hard stop of Aug. 5. As it turns out, TeleBlend has quietly been paying Global Crossing and Level 3 Communications, as well as some others, to maintain service to all former SunRocket customers while TeleBlend conducted its marketing activities.

And the only reason TeleBlend wanted to keep that quiet was to avoid its own customer backlash. How's that? Customers are mad at SunRocket. If they then learn they are getting service from TeleBlend, even if free, there's still the possibility of ill will when the lights finally do have to go out at SunRocket. So TeleBlend said nothing.

Joost Chooses Level 3

Level 3 Communications has been selected by Joost to provide content delivery services for the new Internet television service. Under the terms of the agreement, Level 3 will provide Joost with network solutions including high speed Internet access and colocation services in North America and Europe. Level 3 has made a big commitment to providing CDN services and can claim, by means of its (former Vyvx)broadcast video services unit, to be supplying top U.S. cable and over-the-air broadcasters with a significant part of their overall backhaul and studio feed operations. The Joost deal will not make or break Level 3's CDN business or strategy. But it is a nice customer to have.