OnFiber Rolls With the Changes
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!