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Optical/IP

OnFiber Rolls With the Changes

Here's an oddity amongst telecom carriers: an acquisition that actually seems to be paying for itself.

That's what Austin, Texas-based OnFiber Communications Inc. is convinced it has, even as the carrier's carrier has changed its business to work around the declining telecom environment.

OnFiber says its monthly revenues jumped to nearly a million a month after it bought the assets of Sphera Optical Networks, an upstart carrier that went bankrupt (see OnFiber Scoops Up Sphera for $2.3M). But the venture-backed carrier has also changed in another interesting way: It now makes more money by connecting points-of-presence (POPs) for carriers than it does in providing businesses with dedicated fiber optic connections -- its original reason for being.

"I think the [bandwidth] demand and the [network's] edge didn't show up, for the most part," says OnFiber CEO Danny Bottoms. "We have a lot of medium to fairly large businesses still sitting on a T1 or multiple T1s. Our competitive product to that is [bandwidth connectivity via] Ethernet. And the Ethernet business, for various reasons, hasn't really materialized either."

Bottoms says the company's monthly revenues for June were $962,000, and 55 percent of its revenues came from connecting carrier POPs and other network traffic aggregation points.

OnFiber's original idea was to provide connections of 10 Mbit/s and above to Internet service providers and other businesses. In other words, it aimed to replace the copper-based access networks offered by incumbent carriers with new access "grids" of singlemode fiber.

However, prices for T1 (1.54 Mbit/s) connections sold by incumbents began to drop, and storage area networking and other high-bandwidth services didn’t catch on as quickly as industry pundits and venture capitalists imagined. Fortunately for OnFiber, it noticed that it could also make money by connecting carrier POPs, in much the same way it had linked together the metropolitan grids in its own networks.

Also, OnFiber does custom network construction for customers such as Cisco Systems Inc. (Nasdaq: CSCO), which needed to connect two of its Dallas area locations with its San Jose, Calif., headquarters. (OnFiber uses Cisco gear in its network and has received an undisclosed amount of vendor financing from Cisco.)

OnFiber brought in $2.4 million in revenues in 2001 and plans to quadruple that this year, according to Michael Rees, OnFiber's director of marketing. The company only spent $2.3 million on acquiring Sphera Optical's assets and contracts, but it claims the purchase boosted its monthly revenues by about 55 percent.

By connecting POPs in the metro core, OnFiber competes more closely with companies such as Telseon Inc. and Looking Glass Networks. It once was a crowded space, but recently companies such as Sphera and Sigma Networks, which closed earlier this year, have dropped out.

"It is a viable business to target, but it's not big enough to support five or six large competitors simultaneously," says Brian Van Steen, a senior analyst at PointEast Research LLC.

Meanwhile, OnFiber will have to go where the money is. "The demand in the metro core is getting stronger each quarter," says OnFiber's Bottoms. "We've been fortunate enough to collect Microsoft Corp. (Nasdaq: MSFT), Yahoo (Nasdaq: YHOO), and Google as clients on our network, and with those guys being huge content delivery businesses, they continue to buy more bandwidth."

OnFiber has raised $134 million in financing to date. Its most recent round was a $123 million chunk raised in September 2000. OnFiber's backers include Kleiner Perkins Caufield & Byers, Incepta, Bear Stearns & Co. Inc., Amerindo Investment Advisors Inc., Level 3 Communications Inc. (Nasdaq: LVLT), GE Capital, TeleSoft Partners, and others.

While OnFiber says its revenues are growing, the company has still cut its staff by some 44 percent in one year. It now employs 69 people, down from 125 a year ago.

Though its business is changing, Bottoms says he's still sure that someday businesses will want pure fiber optic connections instead of the alternatives they're buying today. "I'm confident that in two or three years the [metro optical access] grid is the way bandwidth is going to be delivered to the enterprise. But right now, it's not cost effective to do it off an optical infrastructure."

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com Want to know more? The big cheeses of the optical networking industry will be discussing this very topic at Opticon 2002, Light Reading’s annual conference, being held in San Jose, California, August 19-22. Check it out at Opticon 2002.

Register now and save $500 off the registration fee. Just use the VIP Code C2PT1LHT on your registration form, and deduct $500 from the published conference fee. It's that simple!

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crimsonman 12/4/2012 | 10:05:27 PM
re: OnFiber Rolls With the Changes This is what gets me about no-name analysts from no name firms: they don't know dog-doo about the what they are talking about. The optical market is broken down in thirds: long-haul, access, and metro core. The metro core players who serve enterprises and service providers with lit services are really narrowed down to three: Looking Glass (mostly dark fiber player), Telseon (gasping on their last nickel) and OnFiber. Level 3 and MFN are the big dark fiber providers in this space, but the lit services market is burgeoning and there aren't 5 or 6 players to compete with. From my view, having both core and access is a huge advantage, so my bet is with OnFiber.
optigirl 12/4/2012 | 10:05:26 PM
re: OnFiber Rolls With the Changes Actually, Mr. Van Steen was with RHK and was responsible for their Metro and LH Transport forecasting.....

Given his stellar results, I wonder why anyone would want him. Point East does a lot of work for VCs but given the way that RHK hosed them before, I would think that investment people would want nothing to do with someone with his track record.

Then again, maybe LR was doing Mr. Clavenna a favor and quoting one of his staff. They called Rick Thompson (recently let go from Sycamore) for a quote on Sycamore and he had nice things to say. However, there was no disclosure in the article as to whether or not he still owned stock in the company. But, Point East does accept stock in return for services (as stated by Mr. Clavenna some time ago) so I guess the conflict issue doesn't apply???
crimsonman 12/4/2012 | 10:05:24 PM
re: OnFiber Rolls With the Changes Any metro carrier who can boast these kinds of customers and numbers amid a telecom crisis is phenomenal - period. If they can keep debt to an absolute minimum and have enough cash in the bank to > cash flow positive, then we're looking at a winner here.
crimsonman 12/4/2012 | 10:05:24 PM
re: OnFiber Rolls With the Changes Any metro carrier who can boast these kinds of customers and numbers amid a telecom crisis is phenomenal - period. If they can keep debt to an absolute minimum and have enough cash in the bank to > cash flow positive, then we're looking a winner here.
bear 12/4/2012 | 10:05:24 PM
re: OnFiber Rolls With the Changes BigDaddy, I understand your defence, but I have to side with crimson and optigirl. For the past two years analysts like RHK have been giving *really* bad data to people who make important dollar decisions, which in turn affect attitudes about the market. Then this cycle begins, and before you know it we have a bunch of people with erroneous information on telecom spewing nonsense and further hindering much-needed optimism about the market.
bigdaddy 12/4/2012 | 10:05:24 PM
re: OnFiber Rolls With the Changes crimson man,
Blind insults do alot to show us your true colors.

Optigirl,

What is the obsession with RHK and their numbers? Since many of the carriers would not give RHK the time of day it never surprised me when their forecasts were wrong. Just like car salesmen and realtors, transacting business with either one is not a problem as long as you know the rules they are playing by.

The VCs and Startups that used and truely believed that the RHK numbers were without fault got burned. I feel bad about that, but not enough to insult someone that was doing the best possible with the information they had available.

Lighten up,

Big Daddy...
bigdaddy 12/4/2012 | 10:05:22 PM
re: OnFiber Rolls With the Changes For the past two years analysts like RHK have been giving *really* bad data to people who make important dollar decisions, which in turn affect attitudes about the market.

I agree with the first part of your above statement, but where do we put the blame? Seems to me there is plenty to go around. The people getting the RHK reports (making important dollar decissions) were either deceptive (knew the potential faults) or ignorant (did not know the potential faults), you pick.

I don't have any love for RHK the founders/owners or the sales folks that sold the info to those decision makers. With so much blame to go around, I see the insults to this one individual as out of context and un-deserved

before you know it we have a bunch of people with erroneous information on telecom spewing nonsense

If a message is said long enough and if a message is said by enough people it becomes accepted as the truth regardless of it's truth. We are a conformist society with a sad tendancy to behave as lemmings over the cliff.

further hindering much-needed optimism about the market.

What I think we need is reality about the market (optimistic or otherwise). I look forward to the end of the wild swings from the bubble and crash. I look forward to the measured growth that is sure to return.

Cheers,

Big Daddy...

Elvis Doesn't Live 12/4/2012 | 10:05:21 PM
re: OnFiber Rolls With the Changes Give it a rest, man. Analysts who were willing to tkae their cut of the cash when life was good need to hear the grief when it comes their way. This RHK dude was the numbers guy. If he's going to offer up quotes for some publicity then he should accept what comes his way.

Oh, and we should cut this guy some slack because carriers wouldn't talk to his company? He did the best he could with what he had??? It's one thing to be off in your estimates but his projections were outrageous. I also take umbrage with the thought that people should know better...

Tell that to the investors in:

Worldcom
Enron
Tyco
Global Crossing
Sycamore
Corvis

and any of the other companies who paid off analysts to say nice things about them in exchange for fat fees or stock options.
bigdaddy 12/4/2012 | 10:05:17 PM
re: OnFiber Rolls With the Changes
Analysts who were willing to tkae their cut of the cash when life was good need to hear the grief when it comes their way. This RHK dude was the numbers guy. If he's going to offer up quotes for some publicity then he should accept what comes his way.

It's a free world Elvis, Toss your stones. You must be the one without sin...

Oh, and we should cut this guy some slack because carriers wouldn't talk to his company?

Read my note again, S l o w l y.
"Since many of the carriers would not give RHK the time of day it never surprised me when their forecasts were wrong."

Your interpretation of the above to: "cut the guy some slack" is outrageous.

I also take umbrage with the thought that people should know better...

Tell that to the investors in:

Worldcom
Enron
Tyco
Global Crossing
Sycamore
Corvis

and any of the other companies who paid off analysts to say nice things about them in exchange for fat fees or stock options.


Your enmity is misplaced, you are preaching to the choir. I am the investor in 4 of the 6 companies you mentioned. I did not buy or sell because of the analysts and what they had to say. People should know better, especially when analysts are involved.

What I resent are the company officers that clearly and willfully break the law. Be careful not to imply guilt by association between the two.

Go OnFiber Go!

Cheers,

Big Daddy
Elvis Doesn't Live 12/4/2012 | 10:05:15 PM
re: OnFiber Rolls With the Changes You have done nothing in your previous posts 'cept for offer excuses for the ex-RHK cheerleader, his firm and the other folks who work in that job. It is their job to get the best information possible. And for your information, the name of the game at RHK and some of the other firms was to make the numbers look as good as possible so clients would buy. Accuracy and hence, ethics, never really mattered. A few people had the cajones to tell the truth like what's his name, Saragawa of Sanferd Bernstein.

For the life of me, why LR continues to call these idiots and ask for their opinion in support of stories is beyond me.

As an aside, I am glad to hear that a smaller firm is generating some cash. The BOCs are slowly dying and want to take everyone down the tubes with them.
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