FiberNet Plans to Expand
In New York, FiberNet plans to add 40 gigabits of network capacity and 36 optical wavelengths to the core network. In Los Angeles, it will add 10 gigabits of core network capacity and in Chicago, San Francisco, and Miami, it will add 2.5-gigabit wavelengths to extend its network reach.
FiberNet is also adding 68 gigabits in core switching capacity to its metro Ethernet network. The project is expected to be completed by the fourth quarter of this year and will be funded mostly with FiberNet’s existing cash on hand. President and CEO Jon DeLuca said on a conference call that the project will cost around $2 million.
FiberNet had announced an expansion of its collocation facilities last year and recently completed a successful expansion that connected its New York and Los Angeles markets. It was the success of these projects that influenced it to begin this latest network build -- and take on the extra $500,000 in incremental operating expenses it will result in.
But DeLuca expects the investment to pay immediate dividends and generate revenue as soon as this year and become profitable next year. “In 2009, we expect these projects to create EBITDA with incremental revenues more than offsetting incremental operating expenses,” said DeLuca. “Over the long term, we expect to generate gross margins of at least 40 percent on the new network city extensions.” Margins on the metro network as a result of the expansion are expected to be well in excess of the 55 percent that FiberNet has typically enjoyed on its on-net network.
DeLuca says that the on-net expansion will be designed around areas in which FiberNet has density in its off-net circuits. The company plans to move these circuits on net and sell into that customer base. “We’ve been in the off-net business for five years now. We have what we think is a pretty extensive database of buying patterns of long haul and local network capacity. We’ve spent months analyzing where we’ve had business and that’s how we came up with where the expansion will be,” said DeLuca.
DeLuca said that FiberNet will continue to use Nortel Networks Ltd. equipment for TDM, Sonet, and SDH switching, and Cisco Systems Inc. (Nasdaq: CSCO) gear for the core switching in the Ethernet network when it begins the build out.
FiberNet also reported its first quarter 2008 earnings today. For the quarter it lost $0.6 million, or 8 cents per share, on revenues of $13.6 million. The losses narrowed from the same quarter last year when it lost 17 cents per share on revenues of $11.6 million. (See FiberNet Reports Q1.)
— Raymond McConville, Reporter, Light Reading