Competition Flocks to the Mile High City

Posted: 10/1999

Competition Flocks to the Mile High City
Competitors Set Up Camp in Denver
By Gail Lawyer

Denver was born when gold was discovered in 1858. The Pikes Peak or Bust Gold Rush drew hundreds of speculators to the area and Denver was established as the campsite near the South Platte River and Cherry Creek.

Now, almost 150 years later, a new breed of frontiersmen are flocking to Denver. These pioneers are seeking their fortunes in the highly competitive world of high-tech and telecommunications.

"Denver is ground zero for infrastructure for the digital economy," says Brian Gast, president and CEO of Denver-based digital subscriber line (DSL) provider Jato Communications Inc.

For years, cable companies have called the Denver area home. Competitive local exchange carriers (CLECs), data CLECs that provide DSL service, next-generation network providers and high-tech giants such as Mountain View, Calif.-based Sun Microsystems Inc. have now begun setting up their camps around the area. Headquarters and regional offices have popped up from downtown Denver, north to Boulder and south through the Denver Technology Center (DTC), which straddles I-25 in Englewood.

The attractiveness of Denver as a business Mecca is understandable. It's the best-educated city in the country, according to the U.S. Census Bureau. More than 92 percent of the area's residents have a high school diploma, about 10 percent higher than the national average, and 35 percent of the people have bachelor's degrees.

Then there's the lifestyle. Denver sits in the foothills of the Rockies and offers opportunities for skiing, hiking and mountain biking within an hour's drive. Plus, there's an average of 300 days of sunshine a year.

The combination of weather, outdoor activities and job opportunities created by the telecom and high-tech industries has resulted in a population boom. Denver's population has more than doubled since 1960, with more than 700,000 people moving in during the last decade.

"We're all transplants," says Philip Allen, executive vice president of corporate communications at Convergent Communications Inc., an enterprise network carrier. "The attractiveness is the quality of life for people who want to live here."

Headquarter Town, USA

It seems that not only people want to settle in Denver--businesses do too. Several telecom companies, both old and new, have chosen the Denver area as their base camps. Incumbent telco US West Inc. is the largest employer in Denver. From there, the telco directs operations throughout its 14-state Western territory.

During the past several years, many new telecom companies have sprung up. These include next-generation network providers Qwest Communications International Inc. and Level 3 Communications Inc.

For Qwest, the decision to locate in Denver was easy--the city was home to company chairman Philip Anschutz. Qwest is building its national long-haul Internet protocol (IP) network, as well as fiber rings in metro areas. In addition, it will offer DSL services in partnership with data CLECs and broadband wireless through Advanced Radio Telecom Corp., according to Michael Gold, Qwest's senior vice president of IP and multimedia product management.

Table: List of CLECs in Denver Market

For Level 3, it was a more analytical approach. The company had consultants poll the types of employees it was seeking to hire. In the end, Denver was where most of those polled would choose to live and work. Level 3 kicked off its Denver operations in April 1998. In addition to its long-haul IP network, Level 3 is offering private line and local services.

But its hottest offering in Denver is collocation. Level 3 started with 7,700 square feet of collocation space, which lasted only four months, says Jack Kirk, Level 3's city director. Now the company is moving its sales office to put in another 3,780 square feet. In its collocation facility, Level 3 provides disaster recovery facilities and IP Crossroads, a service that allows web content providers and Internet service providers (ISPs) to directly connect their servers.

There's a slew of CLECs with headquarters in Denver, too. A long-time resident is ICG Communications Inc., which is located in a year-old building that rises at an 8 degree angle and looks as if it's about to tumble down on I-25 in Englewood. "We wanted to make a statement," says Hank Carabelli, ICG's senior vice president of investor relations and corporate communications, about the company's headquarter building.

ICG started as a competitive access provider (CAP), and has evolved into a local telecom carrier. In addition to providing switched local services and a national data network, ICG provides wholesale network services to ISPs. The company's strong suit is providing basic local services to small and mid-sized a businesses.

Other competitors headquartered in Denver include data CLECs Rhythms NetConnections Inc. and Jato. Rhythms chose Denver at its June 1997 inception because its venture capitalists, and Catherine Hapka, the company's chairman, CEO and founder lived there. "We talked about California, but decided on Colorado because of the time zone, and the airport, which has direct flights to almost every other major city," says James Greenberg, Rhythms' chief network officer.

Initially Rhythms concentrated in bringing DSL services and applications to the largest cities in the United States during its first two years in operation. Service in Denver was initiated this June. (For more about data CLECs and DSL services, see "DSL, Denver's Speedy Links," below).

Another Denver-based telecom concern is Convergent, which owns, manages, maintains and monitors clients' data and voice networks. "We start inside and go out," says Allen. Convergent has more than 33,000 active customers nationwide, with another 100,000 in the hopper. Allen estimates more than 1,000 of those customers are in the Denver area.

FirstWorld Communications Inc., an Internet communications and telecom provider with a data-centric focus, recently relocated its headquarters to Denver. Local millionaire and FirstWorld majority owner Donald Sturm opted to move the company's headquarters from San Diego when former ICG executive and Denver resident Sheldon Ohringer was appointed FirstWorld's president and CEO.

FirstWorld, which just applied to become a CLEC in Denver, bought Internet Express, a Colorado Springs, Colo.-based ISP with more than 5,000 customers in the area. In addition, the company is building a 21,000 square foot technology center, which will have 15,000 square feet for collocation and another 3,000 for a network operations center (NOC).

Another large national CLEC is headquartered in Denver, but doesn't provide any services there. Time Warner Telecom has no network in Denver because it was born out of a partnership with MediaOne, which was owned by US West. For that reason, Time Warner Telecom could not provide competitive telecom services in US West territory.

Those restrictions are no longer in place, but Time Warner Telecom has opted to not build a network in its hometown. "We've considered Denver, but we want to stick with markets where we have clustering and Time Warner [cable] rights of way," says Larissa Herda, Time Warner Telecom's president and CEO.

From the Outside

Denver-based companies aren't the only ones vying for marketshare there. Several companies have ridden into town to grab a piece of the local pie.

Teleport Communications Group, now the Local Services division of AT&T Corp., began its operations in March 1995, providing long distance access to business customers. By December 1996, the company installed a local switch and was offering everything from basic dialtone to advanced primary-rate interface (PRI), says Desmond Molloy, AT&T Local Services' district sales director. AT&T focuses on providing service to businesses with 10 lines or more, and carries more than 75 percent of its services on its own fiber network.

AT&T is in expansion mode in Denver. By the end of the year, it will be collocated in nine local serving offices (LSOs). The company also is putting in a new switch and upgrading the electronics on its fiber network.

MCImetro, now owned by MCI WorldCom Inc., was another one of the original competitors in Denver. The company has its own fiber network in and around Denver, as well as a local switch. Adding another switch is in the plans, according to J. Scot Oslund, MCI WorldCom's regional sales director for local services.

MCI WorldCom's primary offering in Denver is an integrated T1, which it debuted in 1996. Customers can get local and long distance voice, data and video over one line. The company also has a variety of products and services it offers nationally and internationally. "We have a local-to-global-to-local product," says Oslund. "We own the facilities from here to the end. We're priced competitively. And another advantage is that all the finger pointing goes away."

Since the Long Distance Days

A couple of companies got their start as long distance companies in Denver, and have since branched out to local and Internet services.

Frontier Communications, a division of Frontier Corp., is going after the single T1 market, like MCI WorldCom. "We go after mid-sized businesses. We bring them one pipe and give them Internet access, data and voice from one provider," says Steve Seymour, Frontier's regional director. What makes Frontier unique, according to Seymour, is the company's billing platform. All services are included on one bill and can be managed from the Internet using Frontier's Ucommand system.

In addition to local and long distance services, Frontier has teleconferencing and videoconferencing operations based in the city.

NEXTLINK Colorado also began in Denver as a long distance provider, and then launched its switched local services at the end of 1998. "We had a [long distance] customer base in which we had built up a reputation. We went from long distance to local dialtone and progressed into the Internet," says Louise Atkinson, NEXTLINK Colorado's vice president and general manager. Next on its radar screen is broadband services, including DSL and possibly frame relay and asynchronous transfer mode (ATM).

Over the Air

Teligent Inc., a wireless broadband provider, got its start in Denver when it bought its switch site from a financially ailing provider. For Teligent, the wild growth in Denver makes it an ideal market. Teligent focuses on the clusters of business customers in Boulder, downtown Denver and the DTC. Many new multitenant buildings are springing up, including almost three dozen in various stages of completion in the DTC alone.

"Customers find that it's hard to get capacity now. We're focusing on getting services out quickly. That's our competitive advantage in Denver," says Mike Henderson, Teligent's city director. "And it comes up that it's hard to cut a radio wave with a backhoe."

Fiber and copper network cuts have become quite a problem in the Denver area, as construction of new office buildings, residential developments and the associated gas and water infrastructure takes place.

In the last year or so, US West had six of the largest cable cuts in its history, including one that effected 9,000 people for 12 days. The cut-related outages, as well as some troubles provisioning services to the rapidly growing population, have further hurt US West's already poor reputation, and possibly given competitors an advantage.

"There's a crack in the armor of US West. That's an opportunity for us," says ICG's Carabelli.

However, competitors admit that US West's efforts on behalf of end users and the CLECs are improving. "US West is getting its act together a little bit better than it had been. And for provisioning, I believe they're more responsive," says Convergent's Allen.

Facts back that up. During the first six months of 1999, US West completed 1.6 million orders--98.5 percent--within two days, according to Kevin R. Smith, the telco's Colorado vice president. Smith notes that about 72 percent of the access lines were additional lines to homes and businesses, and more than half of those orders were in mature communities where US West had to add copper lines.

To US West's credit, it has come up with some interesting offerings for customers. "We've tried to create a full complement of services," says Smith. In addition to being one of the leaders in consumer DSL service, US West offers Internet access and a product called Custom Choice. With Custom Choice, users can select an unlimited amount of enhanced calling features, such as Caller ID or voice mail, for $29.95 a month. US West also is the only telco using a patented one number service. Customers can have one phone number that rings both their landline and wireless phones.

DSL, Denver's Speedy Links
A City at the Forefront of the DSL Revolution
By Gail Lawyer

The revolution began in Denver in May 1998. That's when US West, the city's incumbent telco, debuted digital subscriber line (DSL) services as part of a mass market roll out of the high-speed Internet access technology.

In the last year and a half, DSL has become a household word, or more aptly, household acronym. US West has honed its offering and expanded its service areas.

US West has been charging full steam ahead with its MegaBit Services DSL Internet access. Throughout its entire 14-state territory, US West serves 60,000 DSL customers, including 12,000 businesses. This accounts for about 40 percent of all DSL lines in service nationwide, according to a recent report. The summer brought a significant upswing in the number of DSL lines US West was provisioning. During June and July, the company exceeded 10,000 subscribers a month.

In addition to offering speeds ranging from 256 kilobits per second (kbps) to 7 megabits per second (mbps) for prices between $30 to $900 a month, US West recently debuted a low-cost option. For $19.95 a month, customers who don't need an "always on" connection can subscribe to MegaBit Select, which uses modem pooling for 256kbps access.

"We'd be a bad phone company if we weren't deploying this," says Kevin R. Smith, US West's Colorado vice president.

Competitive providers have begun to introduce their own brand of DSL for both businesses and consumers, and several other national competitive local exchange carriers (CLECs) have recently begun taking on US West. Among the other providers are two Denver-grown data CLECs, Jato Communications Inc. and Rhythms NetConnections Inc.

Jato, which was founded in the spring of 1998, launched its first four cities, including Denver, at the beginning of June. The company focuses on both residential and business DSL offerings. "We like to think of it as going after the businessperson. We'll sell it as a remote access LAN (local area network) to the house," says Brian Gast, Jato's president and CEO.

Jato markets its services through Internet service providers (ISPs) and CLEC partners, as well as putting a strong focus on its direct sales channels. "We've heavily invested in database marketing," says Gast. "We have to use predictive modeling to prequalify customers who have the propensity to buy our services."

Rhythms also entered its hometown in June, following launches in 18 other markets over the last year or so. Rhythms solely focuses on selling value-added applications that run over DSL to business customers. "We're not just a links provider," says James Greenberg, Rhythms chief network officer. "We've gone from having a high-speed pipe you can do something with to 'here's an interesting application you can use.'"

The applications Rhythms is developing include video streaming services and packages for banks that want to move their automated teller machine networks from frame relay to DSL, says Greenberg.

Around the same time as Jato's and Rhythm's launches, other providers were coming to town. Covad Communications Co., Santa Clara, Calif., is blanketing the Denver metro area, from Boulder in the north to Castle Rock in the south. By the end of August, Covad expects to be able to provide some flavor of DSL services to 88 percent of consumers and 92 percent of Denver area small businesses, says Robert E. Grant, president and general manager for Covad's Central region.

Denver-based Qwest Communications International Inc. began offering its own DSL service in August, in partnership with Covad and Rhythms. "We're focusing on the telecommuter attached to a big company," says Michael Gold, Qwest's senior vice president of Internet protocol (IP) and multimedia product management.

That should be an interesting alliance to watch. Qwest is in the process of acquiring US West, the archenemy of data CLECs such as Covad and Rhythms. Gold however, would not speculate on what may happen in the future. "We don't own US West yet. That won't close until next year," Gold says. "At this point, we're with Rhythms and Covad. We want the most efficient cost structure."

NorthPoint Communications Inc., San Francisco, also joined the party when it debuted DSL service in early July. NorthPoint is offering service through a variety of partners from 20 central offices (COs) around the Denver area. Partners include Denver-based companies ICG Communications Inc., Level 3 Communications Inc. and ISP Verio.

US West's early entry into DSL and the proliferation of choices now available seems to have made Denver one of the hottest markets for souped-up copper in the nation. "US West in DSL helps inform the market," says Covad's Grant.

For this reason, selling to potential customers is a lot easier, say providers. "This market is more mature because of peoples' understanding of DSL. We don't have to sell DSL as a technology, we come in bringing solutions," says Jon Hambidge, NorthPoint's director of market development.

Many other providers are poised to take advantage of the DSL demand in Denver. "DSL is going to be very attractive for us," says J. Scot Oslund, regional sales director for local service at MCI WorldCom Inc.

MCI has a minority interest in Rhythms, and is working with it through its subsidiary, UUNet Technologies Inc., Fairfax, Va., to expand the DSL footprint. Currently MCI is beta testing DSL services in Chicago and San Francisco. Once all the bugs are worked out, Oslund says he expects to have DSL service in Denver.

Before the end of the year, Sprint plans to debut its highly publicized Integrated On-Demand Network (ION) in Denver, as well as Kansas City, Mo., and Seattle.

ION consists of local and long distance calling, advanced calling features such as call waiting and voice mail, multiple phone lines, high-speed Internet access, and the ability to add enhanced applications such as videoconferencing, distance learning and interactive games over one line from a single provider. The full-featured Sprint ION service is expected to cost $100 to $150 a month.

Sprint plans to use DSL and fixed wireless technologies to get services to consumers throughout the Denver metro area. According to a Sprint spokesman, the DSL service will not be offered from every CO, just the ones where it can reach the highest concentration of end users.

Other competitive providers, such as Denver-based FirstWorld Communications and Bellevue, Wash.-based NEXTLINK Communications Inc. are still considering their own DSL strategy, but have not hammered out the final plans for the Denver area.

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