Startup to Pipe $275M Into SewerStartup to Pipe $275M Into Sewer

At a time when most startups are struggling to squeeze another round of funding from venture capitalists, a startup has just raised $275 million to feed fiber optic cable through sewers.

CityNet Telecommunications Inc., a 77-employee startup headquartered in Silver Spring, Md., this week scored $175 million in equity and $100 in debt financing from a series of investors, including Berkshire Partners, The Carlyle Group, Crescendo Ventures, Great Hill Partners, Telecom Partners III LP, Trimaran Capital Partners (no Website), and Fay Richwhite (no site).

The round brings CityNet's total funding to $375 million. Crescendo and Telecom Partners also participated in the first round of $100 million, finalized in April 2000, along with CIBC Capital Partners.

CityNet will use the money to run fiber into buildings through municipal sewer pipes worldwide. "We supply the last mile of fiber," CEO Robert G. Berger told Light Reading in an interview earlier this year. "And we don't cut up the streets or snarl traffic doing it."

CityNet's pitch is to pump bandwidth through the sewer system -- literally. The company uses specialized miniature robots called "cable runners" supplied by Ka-Te System AG, a Zurich-based manufacturer, to string fiber optic cable through the sewer system, where it can be run directly from carrier points of presence (POPs) into customer buildings.

Inside a building, typically in the basement, the fiber is separated from the sewer main by a special pipe, run through a specially designed housing to be washed off, then forwarded to a patch panel for CPE connectivity.

CityNet installs at least three conduits of fiber, 144 strands per conduit, in ring configurations that link the sewer pipes with patch panels colocated in central offices or telco hotels. It then sells the dark fiber to carriers who sell services to business customers. Typically, about 30 buildings are served per ring, and it's up to the carrier to choose the switching equipment for the POP.

CityNet's backers say they're impressed with the company's take on the last-mile access problem. "These are tough times, but we think this company can make a unique contribution by supplying a missing piece in the telecom infrastructure," says Bruce Rosenblum, managing director at Carlyle Group, which contributed $60 million to the round. "We think there's a huge need and opportunity."

Other CityNet partners agree with this proposition. Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which supplies the conduit, fiber, and termination gear for CityNet's projects, says CityNet offers an alternative to other last-mile access methods. "It does save customers money," an Alcatel spokesperson told Light Reading in an interview last year. "CityNet's technique runs about 30 to 40 percent faster than conventional digs."

CityNet says it uses just three people plus one robot to outfit a city's sewers with telecom fiber. Besides Alcatel and Ka-Te, it's contracted with Carter & Burgess, a construction project management firm, and CableRunner North America LLC, an Austria-based company that specializes in sewer installation of fiber.

CityNet's already begun work in three U.S. cities (Minneapolis/St. Paul; Omaha, Neb.; and Albuquerque, N.M.) and one European city, which it hasn't revealed. It claims to have more than 12 carrier contracts in "late stage" negotiations and says official news of these will be released within the next 60 days.

CityNet CEO Bob Berger says his main challenge is getting out the message that sewers are viable places for fiber. "We need to educate cities about the potential of their sewer rights of way," he says.

That entails convincing municipal governments that fiber optic cable represents no risk to the existing sewers. In reality, he notes, fiber takes up less than 2 percent of the pipe, and is laid along the topside of the pipe, ensuring no obstruction.

"We flush and drain the sewers as part of the service we provide," he notes.

Yes, but do they trap alligators?

- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com