Dozens of companies are taking advantage of cheap fiber and equipment costs to build their own high-speed campus networks, instead of buying services from carriers.
Staff Writer, CNET News.com
When Ford Motor Co. decided to upgrade its corporate network in Dearborn, Mich., it sent in the backhoes.
The automotive giant sells cars, not telecommunications services. But, in a move that experts say increasingly makes sense for bandwidth-intensive business operations, Ford found that it would cost less to lay its own optical fiber lines than to subscribe to a service from the local phone company.
"I think it's a strategy that companies need to look at," said George Surdu, director of infrastructure at Ford. "They need to work through the business case themselves. But I don't believe we are the first ones to think of doing this, and I'm sure we won't be the last."
He's right. Bank of America, Bausch ' Lomb and Gannett Co., the publisher of USA Today and dozens of other newspapers across the country, are some of the big names that have built out their own fiber optic infrastructure in the past few years. Google is also supposedly looking for fiber to build its own network.
Analysts say that most companies still find it easier and cheaper to simply rent "lit," activated fiber—and all the networking equipment behind it—from carriers. But falling prices on unlit or dark fiber and newer, cheaper optical equipment mean even many midsize companies can afford to take out long-term leases on dark fiber and buy the equipment to run their own network on it.
The excess of "dark fiber"—fiber-optic cables deployed underground but not put into use—makes it possible. During the 1990s, everyone and his brother laid fiber optic lines. Local phone companies, electric companies, municipalities and water utilities dug up city streets to put fiber in cities and towns. And because they never wanted to dig up the ground again, they jammed the conduits with thousands more strands of fiber than were needed.
When the drunken spending of the dot-com era screeched to a halt in 2000, the telecom industry couldn't find a market for all the fiber it had spent billions of dollars placing.
Oversupply sent prices plummeting. Some industries, such as investment banking, built their own fiber networks even when costs were high because they needed them for stock trading. But the falling fiber prices have made building a fiber network cheap enough even for cost-conscious fields such as education and health care.
"Analysts have long said it's too expensive and requires specially trained optics engineers to build and run these networks," said Gary Gunnerson, IT architect at Gannett, which has already built metro fiber networks in three cities where it has newspapers. "I've found just the opposite to be true. The fiber and the equipment are so cheap now, and anyone who is familiar with IP networking gear can handle a short-distance optical network. I could teach them how in half a day."
Flexing bandwidth muscle
Companies that build their own networks are likely to be technology innovators. Their need to jack up bandwidth is a direct result of ambitious technology initiatives that include converging voice, data, and video onto an Internet protocol backbone, expanding storage area networks or consolidating data centers.
Ford's George Surdu said his company knew it needed a flexible, high-capacity network as it started to move its network toward IP convergence.
"We are definitely saving money by doing it ourselves," he said. "But owning the fiber ourselves also fits in well with our overall telecom strategy. We needed more bandwidth, but we also wanted to be able to deliver additional capacity on demand for whatever new technology initiatives came up in the future."
After Bank of America merged with Nations Bank in the late 1990s, the company started thinking about building a high-speed storage area network and consolidating its data centers. But to accomplish its goals, it needed more capacity. At the time the company was operating an OC-3, or 155 Mbps, asynchronous transfer mode network.
"We could have gone to a local service provider to lease an OC48 (2.5 Gbps) ATM or a Gigabit Ethernet service," said Larry Schaeffer, senior vice president of network services at Bank of America. "But we would have gotten less bandwidth for more money. And the infrastructure would have been shared with the provider's other customers. It made more sense to build it ourselves."
The new network, completed in 2002, gave Bank of America a lot more flexibility to adapt to industry changes. When the federal government enacted stricture data storage and replication requirements following the Sept. 11, 2001, terrorist attacks, Bank of America was ready to meet the new demands.
Schaeffer said that relying on a carrier would have been difficult, especially since many of them were laying off staff and cutting budgets at the time.
"Probably the most beneficial aspect of owning the network ourselves is the flexibility we have," he said. "We can turn up new services in a matter of hours or days instead of waiting months for a carrier to do it. All we have to do to add more capacity is change out the electronics."
Counter to what IT executives at Ford, Bank of America and Gannett have said, Sterling Perrin, an analyst at IDC said he sees more companies turning to local service providers for a fully managed service rather than building their own optical networks.
"There will always be a few who choose to do it themselves," he said. "But it won't be a big migration. I think the ones building their own networks will really be limited to very large companies. Most companies don't even need that kind of bandwidth."How low can prices go?
The decision to build a network from scratch or lease a service from a carrier comes down to price. Gunnerson said companies that spend between $7,000 and $10,000 per month on telecommunication services should consider building their own fiber networks. He estimates that his company saves at least 30 percent on its total network costs.
Equipment companies that make the gear that lights this fiber say the argument for building a fiber network has gotten more realistic in recent years.
"Five years ago, it wouldn't have been feasible for most companies to lease fiber and build their own networks," said Gary Southwell, vice president of segment marketing for optical-equipment maker Ciena. "But prices have come down so dramatically that it really makes sense. It's not a huge market for us, but we see it growing."
"Managed bandwidth services can be expensive," noted Bruce Miller, vice president of Alcatel's optical networks division. "And if a company has enough traffic, then they really have to look at the trade-off between the reoccurring costs of a service and the upfront cost of the equipment and fiber."
Miller gave an example of one customer that had been leasing five DS3 (44.736 Mbps) circuits for its voice and data traffic. These five circuits, which had an aggregate capacity of 223.65 Mbps, cost $2,500 per circuit per month for a total cost of $12,500.
The company was able to negotiate a long-term lease on dark fiber for $7,000 per month. With $50,000 worth of optical equipment, the company built its own gigabit network, increasing capacity over the DS3 service at least 20 fold. The company began seeing savings over the DS3 service in about 10 months.
Building a fiber network is not for everyone. Much of the cost comes down to fiber accessibility. Ford Motor, which actually had to dig the trenches to lay new lines, is more the exception than the rule.
Most companies would not find it cost-effective to undertake such a huge fiber construction project. Companies usually save money when they get a great deal on a 10- or 20-year lease on unused fiber already deployed by someone else. Considering that some experts estimate that roughly 70 percent of fiber-optic lines already in the ground is unused, this should not be a difficult task for companies in urban areas, Gunnerson said.
There's little question that cheap prices on dark fiber have encouraged build-it-yourself networking, but an equally important piece of the puzzle is the equipment used to light the fiber. Prices on optical equipment have also fallen in the past five years. Dense wave division multiplexing (DWDM) equipment, used to split light transmitted over a fiber into different wavelengths so that each strand can carry more data, is now in its fourth generation. A new, cheaper class of such products has also come on the scene.
Coarse wave division multiplexing or CWDM, a technology first introduced in the 1980s, works like DWDM. The difference is that CWDM allows for a smaller number of channels—typically eight to 16—as compared to DWDM, but at a 40 percent cost reduction. It also runs at shorter distances. DWDM provides a higher number of channels—usually 16 to 32—but at a higher cost. It is also able to run longer distances.
Because CWDM splits the light into wider channels, it doesn't require lasers as precise as ones used in DWDM gear. As a result, products are cheaper. They also consume less power, which means products are also smaller and can be deployed just about anywhere by almost anyone.
All of this adds up to favorable pricing on equipment for companies that want to build their own fiber networks.
" It's definitely gotten easier and cheaper for companies to deploy and operate their own fiber networks," Southwell said. "We're starting to see a trend, but it's still very early days."