Customer-Owned Networks: Have Your Fibre – and Eat It Too

Why rent if you can buy? This common piece of real estate wisdom can also apply to fibre-optic networks. Economics is economics: making the upfront investment to own your pipes is becoming a potent option for many organizations. Major Canadian companies such as the Royal Bank of Canada, McCain Foods Ltd., and CGI Group Inc. are installing their own fibre-optic networks, says Bill St. Arnaud, senior director of advanced networks at Ottawa-based CANARIE. "The trend started in the education sector, migrated to the health sector, and now business is the biggest purchaser." A new service area is developing around the installation and management of fibre for customer-owned networks. "This is sleeper technology that is growing through osmosis," he says.Organizations with increasing data volumes or headcounts that need to interconnect multiple sites are primary candidates. St. Arnaud claims reductions in telecom costs can be an eye-popping 1,000% once the ROI kicks in, typically after two to three years, depending on traffic flow and other factors. So how can this blissful state of telecom nirvana be achieved?The Traditional ModelIn the traditional model, telcos install and own the dark fibre for fibre-optic networks, and are responsible for "lighting" it and providing managed services to customers. This is essentially a rental model. Customers have no control over the infrastructure, use of the pipes or fees charged for services. With customer-owned networks, the customer controls the fibre, and selects the provider of his preference for Internet, telephony and other services. Specialized fibre-optic providers handle the installation, which can involve complex agreements with municipalities for rights-of-way, and maintenance on behalf of customers. Technically, these providers own the actual fibre, but ownership is transferred via Indefeasible Rights of Use (IRU) agreements, typically for about 20 years. Customers enjoy unlimited use of the fibre for the duration.As in real estate, there are many variations of ownership models. In the condominium fibre approach, several organizations may band together to install and share fibre. Individual organizations will own strands within shared fibre-optic cables. Organizations may also negotiate leasing deals with carriers for existing fibre, but the service provider community’s reaction to this new trend has been mixed. "So far, incumbents are not thrilled by it," says St. Arnaud. "Interestingly, Bell Canada has been active in selling fibre in Western Canada, where it is not the incumbent, and Telus is doing the same in Eastern Canada. So they aren’t doing it in their own backyards." The ‘if we do it for you, we have to do it for everyone’ syndrome is probably at play here, says Ron Dallmeier, director at Fibre.ca, a fibre-optics provider based in Winnipeg. "If incumbents offer it to their customers, then they must also offer it to their competitors too."There are many advantages in customer-controlled fibre, says St. Arnaud. By far the greatest is the ability to expand and contract bandwidth as required. "Companies can increase their bandwidth without charge by just lighting up another wavelength," he says. Network management is also simplified, as services are consolidated at a central hub. "It makes managing a network across multiple sites the same as managing a LAN out of one site," says Dallmeier. It also increases competition among service providers and levels the playing field, says St. Arnaud. Customers can build networks to carriers instead of the other way around. This is particularly advantageous for interconnection with new innovative communications providers that can’t afford to build expensive network infrastructure. A business operating outside Toronto, for example, may only have two carriers offering services in its area. But if it buys fibre to the downtown core, it can shop for the best price among hundreds of providers, and connect directly to them.A customer-owned network is not a solution for everyone, warns St. Arnaud. "There are advantages if companies occupy sites for five or more years. But if you are a business that relocates frequently, or your data volumes are fairly flat, then it’s probably best to get a managed service," he says. But the economics are compelling for organizations that have stable locations and expect growth.There has been little fanfare about this trend, partly because fibre installation is a construction-type market with many small players plying their trade below Wall Street analysts’ radars, explains St. Arnaud. Dallmeier agrees. "We’re basically at the start of the market," he says, attributing the lack of awareness in Canada to the relatively small number of large implementations and case studies. But a recent major project is becoming the poster child for this emerging area.Happy Pembina TrailsIn October 2006, the Pembina Trails School Division fired up its new fibre-optic network, lighting 47 kilometres connecting 33 schools across a large region of Winnipeg. The first phase of the $3 million project to install the infrastructure, designed and built by Fibre.ca, was completed in less than a year, says Don Reece, Pembina’s director of IT, adding that the school division is currently implementing a VoIP and unified messaging system. The school board’s short-term goal was to create parity between two networks, one wireless and one leased, when two school districts were amalgamated into one in 2003. But the long-term goals were more ambitious. "We began with the end in mind as we didn’t want to be redoing it again in five years," says Reece.The board wanted a future-proof network that could support unified communications – VoIP, email, video conferencing and any communications it would want to do. "The whole vision was to have a network that was an asset instead of a cost," he says. "And we didn’t want to pay service costs."Reece did his homework, spending about two years exploring all the options before settling on a customer-owned network. "It had the shortest payback period with the greatest functionality," he says, pointing to a three-year ROI by factoring in consolidated savings from the VoIP rollout, increased productivity from centralized print and other services, and unconstrained bandwidth expansion. "We could have had the project paid for before it was completed," he says. "We have 48 strands but only need two, so we can lease the surplus." He explains the school board is restricted by law to leasing at cost recovery to other not-for-profits. But if there were no restrictions on leasing to business, the payback period could have been eliminated, he says.There are other benefits. With unlimited bandwidth, quality of service is a non-issue for VoIP, he says. There is little risk, as Pembina has a completely secure private network that doesn’t go through anyone else’s switches. Time spent by in-house technical support staff on the project and training was minimal, and no additional network management is required now that services have been centralized and consolidated. "Basically, if you can do active directories and Ethernet, then you can manage fibre," says Reece.He says the only downside of ownership is managing the physical network: set-up, back-up and maintenance. "People said the biggest threat might be getting the permits from the city, but this wasn’t a problem," he says, adding that Fibre.ca looked after obtaining them and contracting the local utility to push the fibre. According to industry statistics, there will be a $25,000 break in the fibre about every five years, so these costs were factored into the project, says Reece. "There will always be someone digging where they shouldn’t or a break in the water main, so network patch-up has to be considered." To handle such emergencies, Pembina contracted a vendor willing to respond on short notice, he says. In addition, redundant wireless links are in place as network back-up. "No matter where it’s cut, we will never lose the whole network."Worth the TroubleTaking on the responsibility for the physical network is worth the trouble, as there are benefits in owning the fibre outright instead of leasing it from carriers, says Reece. "Most IRUs say you can’t sublet the fibre to others in a leasing arrangement," he warns. Leasing may also raise security concerns, as some of the switches and fibre going across a city may be shared at certain points, beyond a customer’s control. Also, bandwidth is typically charged incrementally when fibre is leased. "So if you go from 10 to 100, carriers will charge three times the fees, even though only a single line of code is changed in the switch and there are no hardware changes." Although half the school board already had fibre in place installed by GT Bell in the past, it was nevertheless more economical to rewire it to gain ownership of the entire network, he says.Reece says he spoke with many organizations that believed they owned their fibre, but close scrutiny of the IRUs revealed they actually had leasing arrangements. "During two years of research in our due diligence, I couldn’t find anyone else who actually owned their fibre," he says. "If someone is thinking of doing this, they should come and talk to us, as we can help."He says IT budgets are getting extremely tight everywhere, and organizations that put the time and effort into looking at the total cost of ownership (TCO) will find a customer-owned network is significantly cheaper. "Our perspective isn’t that we’re given money to spend. Instead, we ask, ‘How much will it cost to purchase an asset, and how much is that asset going to save us over time?’"

Customer-Owned Networks: Have Your Fibre – and Eat It Too

News | February 1, 2007

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