Two-thousand and one was an ugly year for service providers. Competitive local exchange carriers (CLECs) continued to crash and burn, while well-funded global carriers also found their way to bankruptcy court. Big carriers cut their spending way back as the United States economy entered its first recession of the new millennium.

But there was some good news to be had. Some carriers managed to introduce new services like Ethernet and wavelength services. Data and wireless services proved indispensible in the wake of the Sept. 11 terrorist attacks in the U.S., and many local services were quickly restored.

Going into 2002, carriers are still clutching their wallets tightly, promising more capital spending cuts are on the way. But optimists say that carriers will sink what little money they have into new optical and next-generation gear. Metro and access network builds will likely be hot, while long-haul builds will not. But expect plenty of fighting over that last mile, as regulatory turf battles get pushed into next year.

Take a look at what Light Reading deems the ten most significant developments in the service provider market in 2001.



No. 10: Metro Ethernet Market Develops

It may have only been a set of baby steps, but this year several carriers both old and new announced plans to provide Ethernet services either wholesale or directly to end users. Among these were BellSouth Corp. (NYSE: BLS), Broadwing Communications Inc. (NYSE: BRW), Level 3 Communications Inc. (Nasdaq: LVLT), and Qwest Communications International Corp. (NYSE: Q). The venture capital world also still seems jazzed up about Ethernet services, pumping money into startups such as Cogent Communications Inc., Telseon Inc., and Yipes Communications Inc. Check out these stories:

No. 9: Service providers respond to September 11th atrocities

Not only was the World Trade Center a center of commerce, but it was also one of the largest telecommunication switching centers on the East Coast, providing telephone and data services to thousands of residential and business customers including large brokerage firms like Merrill Lynch & Co. Inc. and the New York Stock Exchange.

The events of Sept. 11 at first proved how invaluable Internet data and wireless services had become, as many in the affected areas relied on cell phones and email to communicate. In New York, Verizon Communications Inc. (NYSE: VZ), which had nearly 300,000 phone lines running through the WTC before Sept. 11, labored to restore communications in the area. By September 25, field workers had nearly two thirds of those lines up and running again (see Service Providers Persevere).

No. 8: Comcast Acquires AT&T Broadband Assets

After almost a year on the block, in December AT&T Corp. (NYSE: T)finally sold its cable division for $72 billion to competitor Comcast Corp. (Nasdaq: CMCSA, CMCSK). The combined new network will serve 22 million subscribers, making it by far the largest cable network in the country. Investors hope that the newly combined company will begin desperately needed upgrades to the existing AT&T network, spurring a flurry of cable equipment sales (see AT&T Cable Deal: Good for Gearmakers?).

No. 7: Wavelength Services Launched

In April, Broadwing Communications Inc. (NYSE: BRW) unveiled its all-optical switched network, the first in the communications world (see Broadwing Takes Off). With it, Broadwing offered next-generation wavelength services that it claims are more efficient and cost effective than Sonet and private line services (see On the Crest of a Wave).

After Broadwing’s breakthrough, other wavelength services soon followed. Global Crossing Ltd. (NYSE: GX) and Level 3 also offered long-haul wavelength services, along with America's Fiber Network (AFN), Genuity Inc. (Nasdaq: GENU), and Williams Communications Group (NYSE: WCG) (see Wavelength Services Catch On and Williams Makes Waves for Progress). Qwest Communications International Inc. (NYSE: Q) has pledged offerings, too.

Metro players, like Sigma Networks Inc., Sphera Optical Networks Inc., Telseon Inc., and XO Communications Inc. (Nasdaq: OTC: XOXO), are also getting into the act (see Sigma Intros Metro Services).

No. 6: Enron Collapses

Energy company Enron Corp. (NYSE: ENE) canned its bandwidth services business, proving that trading bandwidth isn’t as easy as it sounds (see Enron's Empty Bandwidth).

No. 5: Bandwidth Glut: Fact or Fiction?In June, Merrill Lynch analyst Michael Ching unleashed a firestorm of controversy when his figures were cited in a Wall Street Journal article supporting the argument that there is a bandwidth glut. CEOs Joseph Nacchio of Qwest and David Huber of Corvis Corp. (Nasdaq: CORV) lashed out publicly, denying the notion of a glut and defending their belief that the Internet and demand for services are still growing. Light Reading took a stab at determining carrier utilization levels, only to find that utilization rates at major carriers ran the gamut between 2 percent and 80 percent, depending on how it was measured. In short, such measurements vary widely, depending how services are deployed and the way in which data is collected. Bottom line: There is a lot of excess capacity on the market that carriers have been unable to sell – and many competitors offering the same services.

See the following stories:

No. 4: High Speed Access Services Leave Customers Stranded

2001 was not a good year for many high-speed data subscribers as services like ION from Sprint Corp. (NYSE: FON) and Internet cable provider Excite@Home (Nasdaq: ATHM) both disappeared, leaving some customers without services at all.

In October, after announcing heavy third quarter losses, Sprint discontinued its ION service (see Whatever Happened to Sprint’s ION?). ION was the first truly converged access service that put both voice and data over a single network. This service combined very high-speed ADSL with a block of long-distance and local service. While Sprint promised customers a smooth transition to other services, many were left without service at all.

Excite@Home, the combination content provider/cable Internet provider was supposed to revolutionize broadband delivery – merging the two worlds of content and telecom. Now, almost four years after portal Excite and cable operator @Home merged, the company is preparing to officially shut off its services as of February 28, 2002.

In October, AT&T, which owned 20 percent of the company, offered to buy the Excite@Home’s assets for $307 million (see AT&T Acquires Excite Assets). But the deal was called off after ATT’s cable unit refused to sign an agreement for interim service at higher rates. Excite@Home then shut off service on December 1, stranding some 850,000 AT&T Broadband subscribers. With the rest of the cable providers now building out their own Internet infrastructures, no one is left to save Excite@Home from its eventual close.

No. 3: Tauzin-Dingell Debate

Carriers certainly did their share of lobbying in Washington this past year. The hot topic of 2001: the controversial Tauzin-Dingell bill in the U.S. House of Representatives. The bill, if passed, would essentially rewrite a portion of the 1996 Telecom Act by allowing regional Bell operators to build out new data networks without granting access to competitors. Opponents of the bill, namely big long-distance providers like AT&T and Sprint, say that this would strengthen the local access monopolies and stifle competition. But the RBOCs argue that building the network for others to use is too much of a financial burden.

The vote, which was expected to take place by the end of the year, has been postponed until March 2002 (see Last Mile Political Battle Heats Up and Politics Take Center Stage).

No. 2 Carrier Crashes

The CLEC sob story of 2000 continued into 2001. The most intriguing collapse of a CLEC covered by Light Reading was that of the Kleiner Perkins Caufield & Byers startup Broadband Office. The company fell into trouble in late 2000 and by the spring of 2001 it had filed for bankruptcy and closed its doors for good. Even BBO’s spinoff Zephion, an Internet backbone provider, which was supposed to help save some of BBO’s assets, has since failed (see Zephion: Anatomy of a Debacle).

For the unfolding story of Broadband Office:

But carrier woes were not confined to just CLECs. Larger global providers also suffered. Publicly traded 360networks Inc. (Toronto: TSX) made a 180 degree turn within six months. The company went from trading at around $20 per share in January to bankruptcy in June.

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This story likely won’t end with 2001. Other global carriers, like Level 3, Global Crossing, and XO Communications are also in precarious financial straits. According to an Optical Oracle report published this summer, which predicted 360networks’ demise, all of these providers were in need of further funding and cost-cutting measures to meet their long-range business plans (see Carriers at Risk). All of them have been beaten up in the market, with their stocks trading for either pennies or in the single digits.

No 1: Capex Cuts

The ongoing saga of the capital spending crunch was the biggest story of 2001. Carriers large and small slashed capital spending, and, according to the Optical Oracle, they’ll continue to slash spending by as much as 35 percent in 2002 (see Optical Oracle: More Carrier Cutbacks ), leaving many equipment companies floundering to find sales. One of the more serious blows to optical networking companies came this month when Qwest, one of the most technologically progressive carriers on the market, announced it would be cutting its 2002 capital spending budget by more than a billion dollars. Companies like Ciena Corp. (Nasdaq: CIEN), Corvis, Nortel Networks Corp. (NYSE/Toronto: NT), and Tellium Inc. (Nasdaq: TELM) could all be hit hard as Qwest re-evaluates established contracts and puts a hold on new ones.

More on the Capex Crunch:

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com

Editor's Note: Light Reading is not affiliated with Oracle Corporation.