The combination of ubiquitous broadband and cloud computing are behind the birth of massive data centers, ever smarter (and larger) mobile devices and fatter networks. And when it comes to building fatter networks a new generation of companies has arisen that are using fiber to deliver Ethernet capacity to Internet Exchange points in a way that’s more flexible and cheaper than older copper-based or point-to-point fiber networks. We are moving into the terabit age, and in the last few years, several new companies building out fiber networks have started and received private equity investments, including Sidera, Lightower, Allied Fiber, Zayo and others.

Craig Plunkett, managing director of CEDX Corporation, wrote a post for GigaOM last year describing the change in connectivity that is behind this deal:

Ethernet exchanges open options for subscribers and publishers that didn’t exist in the time of point-to-point provisioning. Combine the growth of MetroE footprint, the increases in carrier Ethernet capacity to 40 and 100 Gigabit and new long- and short-haul dark fiber providers coming online with connections to Ethernet exchanges, and the world sees the rise of a new international communications platform being built on an Ethernet backbone that’s cheaper and more flexible than legacy copper. This is a repeat of the revolution that took place over a hundred years ago with the rise of the Bell system. In this case, it’s being built on a packet switched fiber infrastructure, and with central offices that are carrier-neutral from their inception. This new platform will give rise to revolutionary capabilities and efficiencies in the way we communicate, produce and consume content, store data and use compute cycles.

M/C Partners and Pamlico Capital acquired Lightower from National Grid plc in August 2007 and also has an investment in Zayo. M/C will exit Lightower with this deal, while Pamlico Capital, a Lightower investor, and ABRY Partners, a significant Sidera investor, will remain as investors in the new company. The combined company will be led by current Lightower CEO, Rob Shanahan. The merger is pending regulatory approval and is expected to close in the second quarter of 2013.

Following the merger, the combined company will have a 20,000-mile fiber-based network throughout the Northeast, Mid-Atlantic and Midwest, with connections to critical landing sites and exchanges internationally. The combined network will provide access to more than 6,600 on-net locations, including commercial buildings, data centers, financial exchanges, content hubs and other critical interconnection facilities.

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Mark Ansboury, the president of Gigabit Squared, chatted with me on Wednesday morning about the company and its plans to lower the cost of deploying and operating a broadband network. His goal is to bring gigabit speeds to as many places as possible, and along the way he may join firms like Google, Sonic.Net, Allied Fiber and several municipalities in changing the way broadband is deployed and operated in the U.S.

Bypassing red tape keeps projects in the black

For the Gig.U project, Ansboury is offering to spend up to $200 million helping build broadband in six selected communities. The money comes from a combination of vendor financing provided by companies such as Alcatel-Lucent, Ericsson, Corning and others who are working with Gigabit Squared as well as Chicago investment bank Stern Brothers. Communities that apply are expected to contribute too, but instead of cash they will have to make commitments that will lower the cost and headache of deployment.

Communities should work to offer easy-access utility poles, making right-of-way access discussions fast and painless, and may even commit to becoming primary customers for broadband or helping Gigabit Squared sign up new customers. Google has said the municipality’s willingness to help lower its deployment costs as well as smooth the political process was one of the reasons Kansas City, Kan., was chosen as the place where it would deploy fiber.

So in that way, Gigabit Squared is taking a page from the search giant. However, it also plans to work with cities to develop programs that will take advantage of the network, which is something Chattanooga, the nation’s first gigabit network, is trying to do. Creating programs that use the network will help drive residents to use it and engender support among different members of the community, from teachers to public safety officials.

Ansboury is even happy to bring on local ISPs if they want to come to the table to help build networks, although he does expect the first six projects done with Gig.U will be owned and operated by Gigabit Squared. But he’s not averse to a municipality or other network provider taking over, he said. “We think of ourselves like a developer. We have a road map we’ve created to help deploy these networks. We lay out a path for communities to follow,” Ansboury said.

Can this new model work?

Currently Gigabit Squared employees have experience consulting on gigabit networks, but the company doesn’t operate one. For example, Ansboury was the former SVP and Chief Technology Officer of One Community, which helped build high-speed broadband networks in Ohio. Other executives at the company have a variety of roles in infrastructure development and finance, but not everyone has broadband experience, according to their bios.

Ansboury says the company is involved in some broadband stimulus grant efforts and may even make some investments in those networks, providing the private equity for those public-private partnerships. Like someone who has somehow managed to discover an entirely new way to lose weight, he seems excited to bring his models and theories to smaller cities around the country and put them to the test. Unlike Google or even Sonic.net, an ISP in California that’s deploying fiber on top of its existing DSL network, Ansboury is going big and getting there fast.

But, its unclear how much a city can promise under a model like this (or how much it will matter in the end for Gigabit’s Squared’s ROI). Google’s fiber project hit some delays while the city’s utility and Google came to terms on how and where Google would string its fiber on the poles. There is also always the possibility of messy citizen battles over ugly equipment or rights-of-way the city can’t really ignore. For example, residents in San Francisco have sued to stop the placement of AT&T’s fiber-to-the-curb termination cabinets.

An open network means anyone can access that gig

Ansboury says city involvement is just one element of cutting costs, although he declined to get into the specifics of the cost per home passed or the details of how GB2 would build its networks. He did say there are several elements that will enable Gigabit Squared to not only deploy a network for less but also sign customers and achieve a penetration rate that offers a return on Gigabit Squared’s investment. Part of that return might come from Gigabit Squared’s commitment to running “open” networks, by which Ansboury means he will resell capacity on the network to others.

“We realize that if we want to get high take rates and be hyperlocal, we have to think differently and part of that means you have to change that paradigm,” Ansboury said. “You have to be a triple-play provider with broadband video and voice but that’s not only it. With the emergence of over the top services and big bandwidth sucking applications we are creating an open access strategy that allows for a town to have a something like a digital economic development service model.”

He used the example of Netflix coming in and buying capacity to deliver its service to customers directly and confirmed that other ISPs could buy capacity on its fiber. The model looks like a last-mile network that might be as innovative as what Allied Fiber is trying to do nationally for the middle mile. Ansboury expects we will see the first network in the early part of next year as part of the Gig.U program. The Gig.U project communities have two application windows; one closes in July and the other in November, so interested communities should check it out.

As for why this effort matters, Blair Levin, the executive director of the Gig.U project, summed it up nicely in a chat with me on Wednesday. “The problem isn’t that we don’t have a gigabit everywhere. The problem is we don’t have it anywhere,” he said. “And if we need it, we’ll need it in university towns first so let’s get on with it. It’s too late when we discover we need it everywhere because then we are pure consumers of what everyone else [namely places with existing gigabit networks like the Netherlands, Hong Kong or North Korea] else is producing.”

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However, extreme poverty in a number of rural and urban communities presents special challenges to some of today’s solutions being offered. As those with the highest hurdles grapple with and [hopefully] overcome their challenges, more fortunate communities should pay attention to what solutions bubble up. There could be lessons in innovation worth copying by everyone.

When you can’t get there from here

Danville, Va., one of the communities represented on a Summit panel yesterday, was at 19 percent unemployment when the city began pursuing broadband. There are areas seeking broadband deliverance in much worse shape. Forty percent of the population in one such county in the southeast U.S. lives below the poverty line. Everything resembling an industry has left or gone bust. High school dropout rates are off the charts and college is merely a dream for many.

When this far gone, a community should stop trying to save what’s left of a dying economy, and instead create a completely new economy in which broadband is the local industry. Hunter Newby, CEO of infrastructure builder Allied Fiber, states, “this approach is more than valid, it’s a necessity.”

So how does a community get there? Three main factors contribute to growing a local economy: 1) better education of future workers while enhancing skills of current workers; 2) improving existing companies’ ability to grow; and 3) maintaining and improving the health of the workforce.

Grants can build a network. But to financially sustain it so a community can tackle these factors that impact the economy demands sizable on-going revenue from individuals, businesses and other subscribers buying broadband services. That’s hard to do if half of your population lives below the poverty line. Here is where you create a broadband economy.

When broadband becomes the industry

This is a radical concept, but if a town is dying and the schools are merely holding pens until students fade away, replace much of the education system with programs that train future workers to become a digital workforce. Though more challenging, refine this training for unemployed adults. Some will drop out of such programs, but others will stay the courses if designed and presented effectively.

Broadband makes people's homes their offices.

Broadband can entice new businesses to town, but even the best results require time to cultivate. Focus initial broadband efforts on current constituents, while leveraging high-speed access to recruit future companies. As recruitment succeeds, use broadband to spawn new local companies to support incoming companies. Russ Brethower, Fiber Optic OSP Manager for Grant County (WA) Public Utilities Division and a Summit speaker told the audience how Quincy, Wash used their network to attract seven data centers to town. Besides construction jobs as well as sizable tax revenue, he expects a tech ecosystem of maintenance and service workers and companies to spring up.

Aggressively train small business owners with the goal of getting every business in town online. As much as possible, transform local regular and home-based businesses to support larger tech industry companies remotely and then locally. Corrie Teague, Marketing and Research Manager for Danville’s Office of Economic Development observes that “their network enticed technology companies to start up here or move to the area. This in turn created a positive spiral effect as this high-tech presence grew. Organizations such as Noblis, which is a nonprofit science, technology and strategy consulting organization is bringing a supercomputer to the office it opened in Danville.”

Addressing medical and healthcare, one of Danville’s largest employers is the Danville Regional Medical Center. It has several clinics around town that use broadband to move a lot of data among the facilities. This results in a quality and quantity of medical services that make Danville Regional a major draw for businesses looking to re-locate to the town.

The final word from the Summit is, if they talk the talk of broadband and economic development, communities have to walk the walk. If there’s no path, make one.

Craig Settles is a consultant who helps organizations develop broadband strategies, host of radio talk show Gigabit Nation and a broadband industry analyst. Follow him on Twitter (@cjsettles) or via his blog.

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Verizon is putting fat Cisco CRS-3 routers in Atlanta, Boston, Chicago, Dallas, Los Angeles, New York and Seattle. The new gear, which will be deployed in the first half of 2012, can move up to 322 terabits per second — enough to download the entire printed collection of the Library of Congress in one second. These mammoth machines will be part of Verizon’s upgrade to its core FiOS network and will help deliver more bandwidth to homes, for data centers in the respective cities, to cell towers for mobile backhaul and wherever else Verizon needs it. It will also play a role in Verizon’s network evolution strategy to IPv6, the new Internet addressing system.

This represents an opportunity for players such as Ciena, which is providing equipment for the D.C. network as well as for ADTRAN and private companies such as Zayo and Allied Fiber. Unlike the telecommunications boom of the late ’90s, the investment here seems to be matching up with real demand. Of course, I doubt we would have made it this far without all of that investment and dark fiber to kick things off in terms of building bandwidth-heavy applications.

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To do that, Allied Fiber is building a new kind of fiber network that combines not just network materials, but also data centers, to bring connectivity at competitive places over more and more of the country. Within the next three weeks, Allied Fiber will order its fiber cable, and six months later, the network will begin taking traffic. The premise is radical in that founder Hunter Newby has envisioned a way to bring terabyte connections across a certain swath of America by building out a new type of infrastructure, and leasing it out to other providers.

Here are the details:

• It will connect New York City, Chicago and Ashburn, Va. and cost $140 million to build the first phase.
• There will be 19 data centers spaced every 60 miles along the fiber pipe.
• The eventual network will cover more than 11,000 miles across the country.
• The long portion contains 528-fiber cable with a 216-fiber short-haul cable.
• Allied Fiber will interconnect its long-haul assets with partners such as Sidera Networks, which offers metro fiber networks.

Newby helped build out Telex, which changed the way the original web companies connected to the old-school copper access network. Now he’s trying to change connections again. Not only is his network going to bring competition; it’s also going to be custom-built for early customers. Newby told me last May that construction would begin by the end of 2010, but he said customers have moved more slowly than he anticipated.

Because Allied Fiber is building out custom networks for the first few customers, getting the details right and approvals in place took time. However, until everything is done, Newby declined to name the customers.

Those customers that got in early dictated some of the design elements, such as the type of backup power in the data centers and exactly how many threads of fiber they would need. For their early buy-in to the project, they get cheaper rates as well as what amounts to a custom network, kind of like being able to add your personal finishes to a new home in a planned community as it’s being built out.

The network will still have room for newcomers to lease the dark fiber then use their own equipment in the data centers to light it up. Allied Fiber isn’t a carrier. It only wants to serve carriers by providing the physical infrastructure, which means it’s really out to bring infrastructure to areas that will compete with networks currently owned by companies such as Verizon Communications, Level 3 and others. Instead of contracting with Verizon for getting fiber backhaul closer to its cellular towers, for example, a mobile operator such as Sprint could work with Allied Fiber, or even an Allied Fiber customer.

Given that we’ve written about the coming terabit age and the bandwidth-intensive nature of providing backhaul access for wireless networks as well as capacity to support cloud computing, Allied’s Model is pretty exciting. Newby says, “We have enough in committed contracts that will generate revenue that exceeds what we need in our financial models. This thing is building momentum, and if you read anything in the news you know the need for fiber for not going away it’s only increasing.”

Newby hopes that by bringing the infrastructure for fiber networks to more places it will help lower the costs for rural and regional Internet service providers (wired or wireless) to provide cheaper and better services to their customers. He compares what wholesale providers charge for access — about 50 cents per megabit — to the up to $300 per megabit some rural carriers have to pay to get circuits that will eventually bring their traffic out to a large backhaul provider and sees an opportunity.

And because the benefits of interconnection are still more than the benefits of building out a network to cover the entire country for each operator, Newby is confident that he will entice most of the large players, including the big fish such as Verizon or AT&T to see the advantage of connecting into Allied Fiber’s data center and network. After all, it will lower their costs for interconnection even as it makes the environment more competitive.

This should help keep carriers honest, or at least the national broadband market more competitive, Newby suggests. “This idea isn’t new and radical and it’s completely and totally necessary. To date there is no one that is responsible for the physical fiber and colo infrastructure for the country.” Maybe Allied Fiber is about to do what the Federal Communication Commission can’t seem to figure out: help make American broadband just a bit more competitive.

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Equipment and network companies such as Ciena and Adtran are reaping the rewards in their stock prices: Ciena’s stock has risen more than $14.74, or 117 percent in the last six months, while Adtran’s has risen by $14.46 — or 47 percent. Other industry players such as Infinera and Tellabs, however, have seen their stock prices fall. But Infinera is about to announce new products aimed at ushering in “The Terabit Age,” which may offer a boost. Corning, which provides the actual glass that goes into the ground for fiber networks, has seen its share prices rise by $6.70, or almost 42 percent, in the last six months.

Meanwhile, cloud computing and connecting data centers to faster and fatter networks has led to a new round of investment in fiber providers. From Allied Fiber –which launched last year — building a new type of network that combines the pipe with the processing capacity at data centers along the fiber pathways, to GE Capital providing $230 million in available credit to Lightower Fiber Networks, a dark fiber provider that has purchased three different fiber companies in the last six months.

Jimmy Yu, Sr., director of optical transport research at Dell’Oro Group, said in a report released earlier this month that:

“[T]here is a need to increase deployments of higher speed optical wavelengths such as 40 and 100 gigabit. We, therefore, raised our forecast and now project that in the total WDM market, which includes both metro and long haul, 40 gigabit wavelength shipments will grow at a CAGR of over 40 percent and the recently available 100 gigabit wavelengths will grow at a CAGR over 200 percent. By 2015, the combined 40 and 100 gigabit wavelengths may contribute up to $4.7 billion of optical revenue.”

Fiber Inside the Cloud

As fiber between data centers makes wired networks faster, the onus is on the networking providers inside data centers to boost their speeds. This means innovations such as Fujitsu’s creating of an all-optical switch that will keep packets that come into the network at light speed in their optical format as long as possible before converting them to electronic signals. This keeps the packets whizzing around the network faster and saves on energy because the signals aren’t converted.

Obviously, as interconnect technologies such as Intel’s Light Peak and all-optical chips advance, the future computing and web world will be based on light as opposed to circuits, but that’s further out than I’m willing to go here. For now, the rise of fiber is occurring in the ground and will soon reach the switches inside data centers.

Fiber will also play a role in wired broadband for municipalities. Last week, the FCC issued a National Broadband Map that showed how lacking many hospitals, schools and libraries are in the U.S., with two-thirds of schools not having access to 25 Mbps or higher connections. Joe Freddoso, president and CEO of the North Carolina MCNC, a non-profit fiber network serving universities, told me demand at universities increases by up to 20 percent a year. Right now, his network “is barely scratching the surface” of its 40 Gbps capacity, but he estimates that by the end of this decade, the network will need 200 Gbps capacity.

The Mobile Ecosystem: Fiber on the Run

Wired communities aren’t the only consumer demand driving faster fiber (also known as more wavelengths). Mobile operators are seeking faster backhaul to support their 4G networks. Two weeks ago, I talked to Stefaan Vanhastel, director of product marketing from Alcatel-Lucent, who said the company’s 10 Gbps technology is aimed more at mobile operators than residential consumers. That makes sense given that LTE networks of today are seeking to provide speeds of up to 12 Gbps, while those of tomorrow may provide 10 times that amount. Once a bunch of individuals at a cell site are sharing those speeds, the pipe taking the traffic back to the larger web has to grow as well. From a DB research note issued this morning:

Carriers are looking to pull fiber to all of their base stations, and 1GB systems may not be sufficient. This is good news for Ciena who remains in the lead for supplying 100GB and OTN systems. More 1GB and above base stations means more traffic and this should be lead to solid demand for Cisco’s and Juniper’s carrier business.

Indeed, Cisco’s ASR-9000 router, introduced in 2009 to deliver terabytes of capacity at the edge, has seen a lot of success despite naysayers questioning the need for that much bandwidth. This latest fiber build out is showing how we’re taking advantage of connectivity to improve our products and our lives. As a platform for innovation we still have a long way to go with broadband and we’re going to need a lot more bandwidth to do it.

A New Model to Meet Broadband Demand

But Allied’s effort isn’t just aimed at boosting overall capacity — it’s aimed at changing the underlying business model of providing long-haul telecommunications networks. Hunter Newby, CEO of Allied Fiber, wants to connect the U.S. with an open fiber network comprised of the three disparate systems that essentially make up the backbone of the Internet, and is targeting data centers, high-bandwidth sites, rural ISPs, wireless companies and long-haul networks providers as customers. But it remains to be seen if Allied’s model will compete, not just with offerings from backbone providers such as Level 3 Communications, but also with colocation companies and the tower industry.

Newby, who was the chief strategy officer at colocation provider Telex, is pretty impassioned about his plan to bring wholesale fiber to places where existing backhaul providers may not go. It’s a plan similar to Google’s experimental fiber network for consumer broadband, but enacted on a much larger scale, and for businesses. Newby believes that in underserved areas where Allied Fiber will have a presence, the cost of bandwidth will be driven down significantly because Allied will be willing to sell access to the long haul network, at competitive rates, to anyone who wants them — something the incumbents aren’t inclined to do.

Competition Drives Costs Down

The construction of Allied’s network is a big deal for small ISPs, which can find themselves having to pay more than $100 a megabyte for bandwidth, and may mean they don’t have to implement bandwidth caps as a means to keep their own costs down. It’s also a big deal for cellular carriers like Sprint and T-Mobile, as it will give them access to less expensive backhaul without having to pay the likes of AT&T or Verizon.

As Newby explains, rural providers or cellular providers needing rural coverage will be able to buy transport at wholesale rates from a colocation provider in the middle of field somewhere along a railroad right of way (Allied has a deal with some railways companies for access to their ducts). Such an approach could provide access for a single provider near the colocation facility or other regional providers could build off the Allied network. It would also open up the opportunity to locate data centers in rural areas, perhaps near renewable energy projects.

“The incumbents have control and have made it quite clear they’re not willing to make any significant capital investments in rural areas and are selling off rural assets,” Newby told me. “But you need to change the economics, and if these buyers can buy at even $15 per megabyte…the number of gigs and terabytes will eclipse the current rate because right now it’s so expensive.”

Building a High-Fiber Network

The first phase of the Allied network will cost $140 million, will connect New York, Chicago and Ashburn, Va. and will be completed by the end of this year. Newby said the second phase (from Atlanta to Miami) will cost $180 million, and the third phase connecting Chicago to Seattle could cost as much as $350 million. However, he added that potential customers are willing to go in with him on the cost of the connection to Seattle because big bandwidth providers like NTT Corp. need a shorter route to get their traffic to Asia. The final three projects aren’t budgeted yet, nor is there a definitive time frame.

The first phase will provide a combined 648 dark fibers, 19 colocation facilities and 300 tower sites. From the press release:

Allied is deploying a 432-count, long haul cable coupled with the 216-count, short-haul cable that will be a composite of Single-Mode and Non-Zero Dispersion Shifted fibers. Allied Fiber has implemented a new, multi-duct design for intermediate access to the long-haul fiber duct through a parallel short-haul fiber duct all along the route. This enables all points between the major cities, including wireless towers and rural networks, to gain access to the dark fiber. In addition, the Allied Fiber neutral colocation facilities, located approximately every 60 miles along the route, accommodate and encourage a multi-tenant interconnection environment integrated with fiber that does not yet exist in the United States on this scale.

If Allied Fiber can build an open fiber network that spans the country and includes colocation and towers, it could provide a way for municipal fiber networks and rural ISPs to get online and connect to backhaul for less, while bypassing their potential competitors (for example, a muni fiber network might compete against AT&T but may also have to buy access back to the Internet backbone from AT&T because it’s the only provider in the area). We’ve long argued that open networks are the way to go when it comes to big infrastructure, something with which Newby agrees. “I believe in the power of open networks,” he said, “but instead of talking about it or writing, about I want to do it.”

He went on to say that: “I encourage other people to copy our model and philosophy of neutrality. It drives growth and it’s what drives the innovation and bridges the islands of broadband we have in this country.”

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