New kids on the long-distance block

If the Great Bandwidth Crunch of 1997 is long forgotten by the end of this year, it will be thanks to three little-known companies hustling to build the nation's first new national telecom networks in a decade.

A race is under way among Qwest Communications International, Inc., IXC Communications, Inc. and Williams Communications Group to complete networks along their unique railroad, pipeline and microwave rights of way.

With tens of thousands of new circuit miles about to become available, the three companies could end the nationwide bandwidth shortage that caused big carriers to repeatedly raise T-1, T-3 and high-speed frame relay port prices last year.

The three long-distance newbies, stocked mostly with former top executives from AT&T and WorldCom, Inc., each have different strategies for delivering the benefits of their vast new bandwidth to users. And analysts caution that it could be a while before the new carriers' billing and customer service systems catch up to those of their more established brethren.

But for bulk point-to-point bandwidth, the new carriers are determined to be players. 'Today there is still an extreme fiber and capacity shortage,' said Dave Thomas, IXC's executive vice president for business operations. 'As soon as you can get [fiber and capacity] into the marketplace, it will be absorbed.'

Already about a hundred corporations, as well as carriers and Internet service providers, have signed up for circuits with IXC, despite the company's low profile. And Qwest President Joe Nacchio, a former top AT&T executive, has been pitching his company's planned IP, fast-packet and point-to-point services, emphasizing Qwest's lack of existing, costly to maintain non-Synchronous Optical Network (SONET) architectures.

'[Nacchio] will be able to deliver his products at a cost far less than anyone else in the market because he doesn't have all that overhead,' said Ronald West, immediate past president of the Communications Managers Association and manager of telecommunications at New York law firm Shearman & Sterling.

Guaranteed dollars

To get up and running, the new carriers have taken a methodical approach. In the past, many new local carriers have built metropolitan fiber rings on spec, taking financial hits up front while hoping to sign up customers once the rings were operational. In contrast, the new long-distance carriers have presold their capacity in gigantic chunks to second-tier retail operators and ISPs.

For example, IXC last February sold 3,100 route miles of capacity from Chicago to Los Angeles to LCI International, Inc. for a cool $100 million. In October, it added a deal with LCI for 1,925 miles of cable from Washington, D.C. to Dallas. In addition, Internet provider PSINet, Inc. agreed to buy 10,000 OC-48 route fiber miles in exchange for PSINet stock valued at $240 million.

Williams, a unit of The Williams Cos. gas-pipeline company that sold its WilTel network to WorldCom three years ago, last week leapt back into the telecom market with an announcement that it was offering capacity to US WEST, Inc. and Intermedia Communications, Inc.

For its part, Qwest last year got commitments from GTE Corp. and Frontier Corp., then inked a $260 million deal with Apex Global Internet Services, Inc., a Dearborn, Mich.-based ISP.

But like all new entrants into the long-distance market, the new carriers face a daunting hurdle: Many users are locked into long-term contracts with the Big Three carriers. To build a user base, Qwest and IXC have signed agreements to buy various regional long-distance companies. But most of those deals give the new carriers little leverage in enterprise networks because the purchased companies have few if any switches and concentrate on traditional circuit-switched voice. That is why Qwest is devoted to developing its own user services. Qwest recently announced a phone-to-phone voice service over its native IP network, charging a flat 7.5 cents per minute. The service begins Feb. 1 for customers in nine western cities, with service in 25 cities planned by midyear. Virtual private network, IP fax and other data services will follow.

Though its sales efforts so far have focused squarely on resellers, IXC is moving to offer its own business services as well. The IXC network can support frame relay and ATM user-to-network interfaces. Last month, IXC inked a deal to link its frame net with Infonet Services Corp.'s global frame overlay network via network-to-network interfaces in New York and Los Angeles. For its part, Williams plans to act principally as a carrier's carrier and not compete with its own customers for users' business.

Senior Writer Denise Pappalardo contributed to this story.