ooking at telecom trends in North America has been a draining experience over the past year, as equipment manufacturers of every stripe have reduced their workforce and their real estate needs, serving as the unwilling bellwether of the economic downturn. Getting caught in the torrent of scrutiny spilling over from the Enron debacle has done nothing to cushion the blow, as both internal and external probes seek to lay bare the books, including how the companies handle their real estate assets.
        For instance, Cisco Systems has begun to provide quarterly updates in its financial reporting on the synthetic leases it employs for office buildings, whereas that information was formerly an annual disclosure. Maryland-based Ciena, Canada's Nortel, and New Jersey-based Lucent Technologies, to name a very small handful, have all been hurt by lagging orders from major carriers like Sprint, Qwest, WorldCom and AT&T. Lucent does not expect to make a profit in fiscal 2002. Nortel has left over 200 buildings and had its debt downgraded to just above junk status. Fiberoptic firm Williams Communications is facing bankruptcy. Even Germany's Siemens, Finnish firm Nokia and American phone maker Motorola have seen a weakening of their long-surging mobile phone sales trends, forecasting between 400 million and 420 million handsets sold this year, down by around 50 million from previous projections.

        The sector is full of yin and yang: while so many firms seek to placate, consolidate, or just plain vacate, others have found a fortunate niche in which to flourish. For instance, Nokia, which indeed has seen sales plateau and has held off on new model releases, has also won a three-year deal worth $300 million to expand the GSM network of U.S. telecom operator VoiceStream, a unit of Deutsche Telekom, meaning a significant upsurge in network equipment sales.
        The duality extends to how the sector interacts with the rest of the real estate world: how corporate campuses and office buildings use telecom technology in a very real way dictates what those telecom companies are going to do with their own real estate holdings.

Fiber and Space Both
Wait to Be Filled

A capacity glut in fiber has also been cited for the slowdown. There it sits, waiting in the ground, hoping to be filled with the proverbial next generation of activity. The same phenomenon rings true for the telecom real estate from which it emanates.
        There are about 40 million miles of fiberoptic cable in the U.S. alone, and about 80 percent of its capacity is going unused. While some raise the alarm, others say such a load of fiber is the sign of great planning, since you might as well lay ten strands as one when the ditch is dug and the conduit laid.
        San Antonio is pushing its telecom infrastructure as a selling point, especially when that infrastructure's usage took double hits during 2001 from defections by AT&T and SBC Communications. Due to the needs of the military and major companies, San Antonio was ahead of the curve in establishing a high-speed, citywide communications network. There are currently more than 4,000 fiberoptic cable sheath miles in place in San Antonio, with more than 60 SONET-based inter-office fiber rings, and over 360 local loop rings.
        A report from the Yankee Group states that service providers in the metro network arena have pushed vendors to create new SONET-based equipment to take advantage of these rings. The market is estimated to be $2.7 billion and with a compound annual growth rate of 34 percent, worldwide revenues are expected to reach close to $12 billion dollars in 2006. In San Antonio, total broadband investment is projected at $2 billion over the next decade. Time Warner Cable alone has spent $180 million on a fiber optic upgrade of the cable system throughout its San Antonio metropolitan service area.
        In Columbus, Ohio, the same contrasting dynamic is at work. Even as local telecom companies Winstar and Spata fold their tents -- and after original project client Metromedia Fiber Network began its own downward spiral -- the Fishel Co. has completed work on a 70-mile (112-km.), $36-million fiber telecom network called the Columbus FiberNet, which uses 20 ducts to link seven suburban business parks and the downtown business district. The cost is $12 per foot around the city's beltway and $25 per foot in the center city.
        Such initiatives have helped Ohio's capital city to bring in $273 million in new business investment dollars. That includes the $60 million invested at West Edge Business Park, where new businesses and around 1,000 jobs are taking the place of a blighted housing project.
        While many city budgets will not allow such projects in the near term, around two-thirds of companies interviewed are planning significant bandwidth increases. Meanwhile, the Yankee Group reports that the buildout is doing just what it is supposed to be doing: extending such networked bandwidth to Tier 2 and Tier 3 markets like St. Petersburg, Fla. or Richmond, Va., through regional carriers. Last year, while overall wholesale bandwidth demand in the U.S. grew in the 11-20 percent range, in Tier 2 and Tier 3 markets, demand increases of 26-30 percent were reported. Even better for the companies involved, their profit margins were not yet being chipped away by frenzied competition, with price declines in those smaller markets hovering between 6 percent and 15 percent, not the 26 percent to 30 percent dropoffs experienced in the Tier 1 markets.
        So the end result of telecom and networking real estate fallout is big bargains for the space they used to inhabit. The 105,000-sq.-ft. (32,000-sq. m.) data center in Herndon, Virginia that Exodus Communications (now wholly owned by global communications concern Cable & Wireless) had developed at a cost of $45 million was recently sold to Federal Home Loan Mortgage Corp. for $25 million. The company experienced a similar sinking feeling with its sale of an Austin, Tex. data center to Dell Computer.
        TeleGeography's "Colocation 2002" report found that out of 287 colocation facilities surveyed, 55 percent of space in U.S. carrier-neutral sites was empty as of mid-year 2001. (Compare that to an industrial vacancy rate of 6 percent.) The report concludes that many colocation firms are retooling in order to offer value-added services, in some cases moving into the Internet Data Center arena, where the client base is larger. But their basic function may hold more sway now than one year ago: providing secure space for telecom equipment and connections.
        Witness the recent $40-million acquisition of major telecom facilities in Dallas and Miami by Los Angeles-based Global Innovation Partners, whose first round of funding last year included $526 million from CalPERS and CB Richard Ellis Investors. One building, the 464,000-sq.-ft. (141,420-sq.-m.) Univision Tower in Dallas, serves not only as home to Hispanic broadcaster Univision, but to network nodes belonging to dozens of regional telecommunications companies. The same can be said for the 162,000-sq.-ft. (49.375-sq.-m.) Miami facility, which among other things is home to the BellSouth Multimedia Internet eXchange
        "These properties are critical to the network operations of the major, Tier-1 telecom carriers," said Michael Foust, Director, Global Innovation Partners, when the purchases closed in February. "They fit well into our long-term strategy of acquiring key network assets globally."

Getting Out and Getting In

Product shutdowns by major players do not mean all the dominoes are falling.
        FiberCore Inc. will locate a $30-million facility at Auburn Technology Park North in Auburn, Alabama, scheduled to begin making optical fiber products for telecom and data communications beginning in 2004. FiberCore will finance one third of the cost of the Lee County plant, while the remaining funding will be provided as a 15-year, 8-percent loan by The Retirement Systems of Alabama, the Alabama State pension scheme for public employees. The City of Auburn has contributed the site property, valued at approximately $1.1 billion, to the project and the loan will be secured against that land and the plant's equipment. FiberCore will also receive a package of financial incentives estimated to be worth more than $10 million over the next 20 years, from the City of Auburn and the state. Megan McGowen, assistant economic development official in Auburn, says almost all the sites are now due to be occupied in the 150-acre park.
        "We are very pleased to have entered into this agreement with the RSA, which will allow us to expand our presence in the US market for multimode fiber," said Mohd Aslami, president and CEO of FiberCore. "The addition of a facility in the U.S. is key to our being better able to serve our U.S. customer base and provide them with faster delivery times...we expect that our existing U.S. customer base would take the majority of the new fiber supply." The company also operates facilities in Jena, Germany and Campinas, Brazil.
        Cerxon Microtechnologies is moving its operation from Camden, South Carolina, to Henry County, in the southside area of Virginia, investing $6.5 million and hiring 250 people over the next two and a half years. The operation, which will be the anchor for the new Henry County Technology Campus, will first function as a prototyping facility for the manufacturing of hybrid microelectronics, vital to telecom equipment like cell phones. An additional manufacturing facility will allow expansion of activities ranging from thin film manufacturing to electronic assembly.
        "Henry County, Virginia knew they could offer us what we needed," said Michael Nixon, Vice President of Cerxon. "A workforce highly qualified for the technology industry, an infrastructure customized to our needs and most importantly, a shared long-term vision for our growth and the growth of the community."
        Among the incentives offered to lure the company from the Palmetto State were a $200,000 grant from the Governor's Opportunity Fund to assist Henry County with the project. The county in turn obtained $100,000 in Tobacco Region Opportunity Funds to assist with the expansion, which will be further aided by training assistance offered by the state, as well as its location in an enterprise zone.
        "We have a 200-acre (81-ha.) campus that is being converted to a tech campus," says Ray Sterling of Henry County Economic Development of the former DuPont site, once the home of the largest nylon plant in the world. "We anticipate putting in at least one, possibly two more buildings for Cerxon, as well as bringing in additional firms with similar backgrounds."
        About a half-million sq. ft (46,450 sq. m.) have been demolished to make way for the new campus, with the balance of the property due to come into Henry County hands by the end of the year. Sterling says the mix will include some build-to-suits and some multi-tenant properties for leasing.
        "We anticipate expanding the incubator we have up in Martinsville into our park, and putting some high-tech incubating companies in there too," he says. Helping the site is its access to State Highway 220, future route of Interstate 73, for which federal approval is expected later this year.
        "They were looking for a place they could expand and grow, and be in a cluster of high-tech activity," Sterling says of Cerxon. "We have had a number of companies already in town considering the site, and it is moving along even faster than I anticipated."

Some Rise, Some Fall, But They
All Want To Be Connected

So there seems to be no fixed set of coordinates by which to navigate the high seas of telecom in the new millennium so far. While some flounder or capitulate, others sail on.
        A sign of hope for equipment makers and service providers alike comes from a survey of 811 IT professionals by Yipes Communications, which uses Ethernet technology to enable broadband access on college and corporate campuses alike. The survey found that 64 percent felt that access to fast, fiber-based data communications networks was either "extremely" or "very" important to their work. Even more telling, 62 percent said they will or might consider leaving already-leased space if their infrastructure is not upgraded, and 58 percent said they would pay 1-5% more for their office space for that upgrade. That same percentage reflected the proportion of respondents who already have fiber, revealing an opportunity waiting to be grabbed.
        "In today's networked economy, the old real estate saw 'location, location, location' must be amended to 'location, bandwidth, location," said Eric Yopes, principal of Foursquare Capital and former vice chairman of Shorenstein Co., a premier national real estate company. "Access to fast flexible data networks has become as essential to many businesses as proximity to customers, transportation and skilled labor."
        Telecom manufacturers and landlords alike hope that view continues to be as widely shared as their phone lines.

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