Q&A: Optimum Lightpath
Ethernet Exposed Stan Hubbard, Director, Communications & Research, MEF 9/7/2010
Optimum Lightpath is an award-winning Ethernet services innovator serving the New York City metropolitan region. The operator reported that its total sales grew 18 percent year-over-year to $70.8 million in the second quarter of 2010, and the company also saw double-digit increases in adjusted operating cashflow and operating income.
Below are highlights of my interview with John and Julia.
Heavy Reading: Optimum Lightpath had an impressive revenue performance in 2Q10, despite the fact that you are in one of the most competitive Ethernet services markets in the world and the economy remains in the tank. What is the key to your success?
Optimum Lightpath: Our performance is related, first and foremost, to the uniqueness of our network. We have the most ubiquitous fiber network in the New York City metro area, and a large number of on-network buildings. We crossed the 4,000 lit building mark a couple of months ago. The number of end-points on the network exponentially increases the value of the network.
Our ability to deliver very cost-effective voice, data, and managed services over the fiber network is particularly appealing to customers. New York City is a competitive market, but there is only a limited number of providers that can offer a whole array of Ethernet, optical, and voice solutions.
Also, we're in a market with a strong demand for Ethernet across multiple industry verticals like education, healthcare, financial, media, and local government. We're tuning our product set for their needs.
HR: Can you elaborate on some trends that you are seeing among industry verticals?
OL: The demand for Ethernet is broad-based. We're a hub for the media and financial industries. Both have increasing bandwidth requirements, and a significant amount of bandwidth is needed inside our footprint.
Media is shifting from satellite transmission toward – at least as a backup – a terrestrial transport model. They have production facilities in the metro region and are looking to move uncompressed video files between facilities within our footprint. Ethernet offers a significant cost reduction for the media vertical because up-linking and down-linking with satellite is expensive. A lot of MSOs are moving toward terrestrial transport. They're seeing good quality with Ethernet.
On the education front, we have many school districts switching over to Ethernet and putting voice over that to drive down their costs. We're continuing our work with municipal government and healthcare customers. Integrated voice minutes over Ethernet is selling robustly in all these verticals because we're able to deliver more bandwidth and voice minutes at competitive, flat-rate prices.
HR: How are you selling voice alongside Ethernet?
OL: We sell a bundle that combines voice with dedicated Internet access, with speeds starting at 5 Mbit/s and going up to 1 Gbit/s. Our most popular product includes 20,000 voice minutes plus 20-Mbit/s dedicated Internet access. This resonates well with mid-market customers who traditionally have bought a couple of T1s plus voice. Our Internet Voice Bundle has flat-rate pricing that does not change, and it can deliver savings of 30 percent to 50 percent versus the competition.
HR: How do you see customer demands changing when you move up from the midmarket?
OL: Midmarket customers typically spend between $1,500 and $10,000 per month. Midmarket requirements are straightforward. They need voice and a connection to the Internet. Once you get above the $10,000 or more spending mark per month, you begin to see the landscape dominated by Ethernet connectivity services with speeds like 50 Mbit/s and 100 Mbit/s, and you also have the use of VLANs. As you continue to go up, you have rationalization and "verticalization" of the market.
HR: Earlier, you mentioned growing bandwidth demand in the financial sector. Can you provide more color on your business as it relates to the financial vertical?
OL: Financial services is an incredibly important market, and the applications there are very different. When we launched our 1-Gbit/s Optical Transport Service [OTS] years ago, about 95 percent of sales were with financial customers. Today, about 65 percent of 1-Gbit/s OTS sales are in the financial vertical. When we launched the 10-Gbit/s OTS service, about 95 percent of customers were financial, and that's still a high percentage.
Financial traders want the lowest latency possible to move trade requests from trading platforms to an exchange. The faster they can do trades, the better they can beat the competition. When choosing their suppliers, financial companies are putting a strong emphasis on low latency, rapid service provisioning, and price competitiveness. Financial customers are as hard on vendors when it comes to service pricing as any industry vertical I have sold to.
HR: You have a low-latency service. How is that being received in the market?
OL: That is correct. We launched our low-latency OTS in Spring 2010. We offer 1-Gbit/s and 10-Gbit/s wavelengths with an SLA installation interval that ranges between 20 and 40 days, depending on the specific route. No one touches us on that 20-day interval, and the worst case is 40 days.
In the metro area, there are about 20 or 30 key financial buildings, including data centers, exchanges, etc. Much of what the financial firms buy, in terms of services, connect those buildings to each other. Earlier this year, we introduced the low-latency OTS on 10 routes connecting a number of these buildings, and that's sold well. We have optimized routes for low-latency, and in many cases we have the shortest distance between sites. We are delivering latency specs down to the tens of microseconds.
HR: I hear a lot about the need for low-latency solutions between NYC and Chicago. Do you have a way to address that?
OL: Customers ask about low-latency connections to Chicago all the time. We are using network-to-network interface arrangements with other operators for low-latency optical connectivity between NYC and Chicago. When we deliver Ethernet services out of region, we’ll use CENX Inc. and other exchange players.
HR: What are some of the other significant enhancements you have made to your service portfolio over the past year?
OL: Among other things, we launched our 40-Gbit/s OTS in February 2010 and an Ethernet-based Virtual Private Ring Service (VPRS) last August.
The VPRS was targeted primarily toward meeting the increased bandwidth demands of financial firms. The need for bandwidth is dynamic, not necessarily in terms of the total amount consumed, but more in terms of the placement of bandwidth across facilities. In the past, companies may have been forced to decommission a service in one location and buy a new service in another location when bandwidth demand shifted among sites. With VPRS, customers can now buy a set amount of bandwidth – up to 10 Gbit/s – and distribute that across multiple locations and dynamically allocate bandwidth as required at each site. The enterprise market is absolutely seeking the most flexibility, visibility, and control, and VPRS aims to address these requirements.
HR: Since the last Ethernet Expo, there has been quite a bit of industry activity related to the development of Ethernet services exchanges. Do you see the potential for Optimum Lightpath to play a significant role as both a buyer and a seller within an exchange?
OL: We are a buyer on the exchange. This is a positive step, particularly for a metro provider, to have an exchange so that we know that our SLAs can be matched. In the past, we would negotiate an ENNI with a long-haul provider. The exchange has made the connection with an SLA more viable. As a buyer, it allows us to shop cost-competitively and adhere to our own standards.
HR: John and Julia, thank you for taking the time to chat. I look forward to meeting up with you at the Ethernet Expo in November.
— Stan "EtherMan" Hubbard, Senior Analyst, Heavy Reading, and Chairman, Ethernet Expo Americas 2010
Interested in learning more on this topic? Then come to Ethernet Americas 2010, Light Reading's eleventh Ethernet event, designed to meet the information needs of service providers and enterprises that are working out what next-generation services and applications to deploy, and what infrastructures will help them do this in the most cost-effective and productive manner. To be staged in New York, Nov. 2 & 3, admission is free for attendees meeting our prequalification criteria. For more information, or to register, click here.