A Thousand Points of Light?
by David J. Wilson

A state-of-the-art control room at Progress Telecom Corp. traces every fiber optic line in the company's system. It can instantly locate problems. Robin Donina Serne

Just as few great actors simply "appear"- that is, they usually have honed their skills for years in little publicized venues- St. Petersburg's Progress Telecom Corp. may find itself in the spotlight as its parent vanishes under the rubric of Carolina Power & Light Co. If it happens, those who look behind the curtain will find that the 1998 creation of Florida Progress Corp. can trace its corporate history back several decades.

What's more, it's a part of the Florida Progress story that won't disappear into North Carolina, because CP&L's fiber optics unit, Carinet, is being merged into Progress Telecom, which will remain headquartered in downtown St. Petersburg. That move, together with the company's cooperative agreements and alliances with NorthEast Optic Network Inc. (NEON; Nasdaq:NOPT) and FPL Group's FPL FiberNet, will give Progress Telecom reach of the entire eastern seaboard, a network of more than 3,000 route miles. And, then, there's Latin America.

But before Progress Telecom's president and CEO Ron Mudry goes into detail about how many billions of gigabits of data can be moved in one second through fiber optic cable, it's worth stepping back to a slower time, when it took an entire room full of IBM computers to crunch a few numbers.

In the 1950s Florida Power Company, like many other utilities, began developing an internal communications infrastructure for the simple purpose of establishing a reliable independent telecommunications network. Over the years, that included setting up its own microwave towers. By the mid-1980s, the utility was leasing space on those towers to government entities and wireless companies. In time, fiber routes were developed, and in 1990 FPC leased its first dark (unlit equals unused) fiber route. By the mid-'90s more than 25 government and business carriers were leasing fiber and/or structure attachment space. Looking for a chance to diversify, FPC formed Progress Telecom, and the rest is history at Internet speed.

Today, says Mudry, "we're a carrier's carrier. Basically, our primary product is to sell broadband capacity to other carriers." Customers include MCI WorldCom, Level (3) Communications Inc., various ISPs (Internet service providers), and CLECs (competitive local exchange carriers) such as New South Communications and Verizon Wireless, among many others.

What Progress Telecom is selling would amaze any of those computer scientists of the 1950s. Its installations of OC192 units (various numbers indicate the rate at which data can be transmitted through fiber) "can transmit up to 10 gigabits, or 10 billion bits of data, per second." To get a perspective on that, Mudry says, "your typical motion picture is about five gigabits. So you could download a typical movie in about half a second." He also points out what many forget in this era of flashing graphics and downloadable music: The rates of transmission really refer to the number of times you can send pulses of light through fiber. "You're just sending a series of zeros and ones."

While these speeds seem astounding enough, we're at the early development stages of fiber optics technology, Mudry says.

Newspeak in the Telecommunications World Every new technology or aspect of it either throws up new terminology or twists old definitions into new shapes. Frequently heard around telecommunications companies are terms such as these. "Peering" is an arrangement under which large ISPs (Internet service providers) with backbone networks agree to allow traffic from smaller ISPs to use those backbones in return for the smaller networks' carrying backbone network traffic to their end points. If that's still confusing, imagine that a large company owns Interstate 4, but dozens of smaller companies own the local roads that surround it. Peering is essentially the series of on and off ramps that allow traffic to move freely to its own particular destination. Thus, the Internet. The "last mile" often referred to by telecommunications companies is the connection that must exist between the broader network and your home or office. Commercially, it's much more profitable to carry huge volumes of corporate traffic around the country than it is to carry your e-mails or photos or jokes to your mother in Des Moines. Hence, broadband networks of great capacity may exist nearby, but who is going to connect you to it? In highway terms, here's the I-4 and your connection to it is a narrow, one-lane, two-way road. Who wants to finance making that into a six-lane highway? - D.J. Wilson

We now have "the ability to transmit multiple signals through the same fiber by using different colors. Before, if you wanted to increase your capacity, say increase your 10-gigabit channel, you would have to use another pair of fibers. But with DWDM (dense wave division multiplexing), you can transmit multiple colors of light through the same fiber. We're deploying DWDM throughout the system now. It has the capability of 32 different colors, upgradable to 128 colors through a single fiber. And that's not the limit. It's just the current box. Lucent [Technologies Inc.] is experimenting with 1,000 colors of light."

No matter how much data can theoretically be transmitted through specs of light, Progress Telecom's job is installing and maintaining the fiber lines that facilitate the process. From its rudimentary beginnings, it has grown exponentially. It began selling broadband services to other carriers within the 32-county area of Florida Power Company's franchise. "But it's growing rapidly," Mudry says. "We currently provide services as far north as Atlanta on our own network and via a leased network, which will soon be ours." With the Carinet merger, "we'll go all the way to Washington, D.C., through the Carolinas, Raleigh, Charlotte, and so on, into Atlanta. We'll reach basically from Miami to Washington, D.C." After the merger dust has settled, Progress Telecom will be a wholly-owned subsidiary of CP&L.

Mudry doesn't appear worried that many others are scrambling to become players in the building and maintenance of fiber optics networks. "We do both long-haul services, inter-city and local loop access, so we're building out metropolitan fiber networks. Many are building and have built national long-haul fiber networks, and there's a lot of capacity. One of the things that differentiates us is that we have a very strong presence and reach into second- and third-tier cities in addition to primary markets. Part of our strategy is to be able to provide long-haul services from primary markets into second- and third-tier cities that are currently underserved.

"In addition, we're building local loops in order to connect buildings within a city back to those long-haul backbone networks. We'll be building out to the central offices of telephone companies like Verizon, as well as BellSouth and SprintFlorida ... and we'll go to places called carrier hotels, places where many carriers will come together and interconnect their networks."

There's unlikely soon to be a cessation in the demand for greater capacity, i.e., greater bandwidth. "Users are requiring it. Just like on your computer and your applications.

Applications continue to grow, and the backbone networks ... have been upgraded tremendously over the past couple of years, but getting [that capacity] down to the end user, there's the problem."

Progress Telecom is not an end-user provider, of course. "But we're building closer to the end user by fanning out within the city to these major peering points."

Florida and the Southeast generally is "a very attractive market," says Mudry. "Twenty percent of the [national] telecom market is in the Southeast, and it's the second-fastest-growing area after California. The wholesale market segment that we're in is expected to grow at a rate of 20 percent a year nationally. If the Southeast is one of the faster-growing segments, we expect that our market would grow even faster."

There's also a prize for being in Florida, Mudry says. "Florida is essentially the gateway to Latin America. We have all this undersea fiber optic cable that comes in from South America, landing generally in Southeast Florida. That traffic, once it arrives here, has got to travel right through our state to Atlanta or Washington, the two nearest peering points on the Internet." That runs right through Progress Telecom's territory.

"Part of our strategy is to build out to those undersea fiber optic cables to be able to pick up and distribute that traffic within the United States. We physically lay cable or buy it from somebody else, and then we will get it into the buildings that house the electronics that transmit and receive the data." In Miami, Mudry says, Progress Telecom will either receive from or carry data to other telecommunications company. "We're building a local loop in Miami right now." For this to work, the company has to be a designated provider for various South American carriers or be considered a preferred provider, because access to the connection points is "very limited," he says.

Nevertheless, it's worth courting that market, Mudry maintains. "I've seen various reports, but the Internet market within Latin America is projected to grow from about $600 million last year to $35 billion 10 years from now. That's a growth rate of over 100 percent a year for the next five years. It's phenomenal." One of the new cables being laid will have a capacity of "192 OC192s, or 1.9 terabits [1.9 trillion binary digits] per second," he says. "That's an indication of how explosive people believe the demand is going to be over the next three, five and 10 years."

In Progress Telecom's relatively short existence, there's been a lot of strategizing. Mudry works down a list that includes continuing to build out local loop access networks to connect with, in effect shortening the "last mile." "We'll get closer to the customer, bringing the bandwidth as far downstream as we can, then interconnecting it with the long-haul backbone network." That will help expand the "reach of national companies into second- and third-tier cities. We think we'll have a very attractive footprint once we complete our combination with Carinet, and are connected with the entire Southeast. Between us, we have more than 100,000 fiber miles of network. And after we complete our own expansion between Florida and Atlanta, including Jacksonville and other routes we've identified, we'll have close to 6,000 route miles and, I think, more than 140,000 fiber miles."

All this takes highly trained people, and Progress Telecom is growing. Mudry says that while there were about 130 employees in August, he expects to have between 150 and 170 by year's end. The Carinet staff in Raleigh stands at about 50, but he expects that to grow to about 65 in six months.

Mudry says he believes wireless is going to be "an important technology in serving the last mile needs of the customers. It's cost prohibitive to build fiber into every single [commercial] building, just as it is to build fiber into every single home. Other technologies such as digital service lines and cable modems are alternatives, but I think fixed wireless will also play a role in that."

The Progress Telecom chief isn't as ready as some to say with certainty that data transmission has become a commodity business, at least not in smaller markets. "If you're talking about transmitting data from New York to Los Angeles, a lot of people can do that, and it's pretty commoditized. But as you look at second- and third-tier cities, there's not enough people providing service to these markets, and demand is far outstripping supply. We see that even in the primary markets from Miami to Atlanta. It's far from a commodity in my view." A bay area example, he says, could be contrasting downtown Tampa, where there are many providers, with St. Petersburg or Clearwater, where there are fewer. "I think the long-haul business will be commoditized before the local loop business."

No matter what the time frames are, success in the telecommunications business is going to come down to customer service and system reliability, Mudry says, adding that "provisioning intervals is one of the most critical issues facing the industry today: How fast can you turn the service up?" Some can't meet commitment dates, he says, commenting that Progress Telecom has made it a point of pride to "be able to turn circuits up much faster than our competitors and to meet our dates. That can be much more important than price in many cases. There's a lot of fiber in the ground, but a lot of it's not lit today." (That is, it's not yet attached to the electronic switches needed to receive and transmit data.)

Mudry is reticent with figures, but says that the combined revenues of Progress Telecom and the CP&L company Carinet in 1999 were about $30 million. He anticipates more strategic alliances will solidify the company's leading role in telecommunications along the East Coast. If he's right, Florida Progress Corp. will have left behind the seeds of an important corporate presence.

Copyright ©  Maddux Report L.C. 2000