Rack ‘Em Up

Posted: 5/2003

Rack ‘Em Up
Neutral Colos Repositioning as
Alternate Sales Channels

By Khali Henderson

Neutral colocation facilities have
long positioned themselves as "marketplaces" for carriers. However,
this role largely has been passive — facilitating bilateral cross-connects or
playing host to an IP peering exchange. This year, however, several neutral
colos have stepped up their efforts to match buyers and sellers — both on the
wholesale and retail levels — with products and programs that serve as an
alternate distribution channel for their the carrier tenants’ services. In late
February, General Telecom, for example, launched a new service called VoIPDirect,
which enables smaller VoIP carriers to tap into the TDM-based carrier customer
base predominant in General Telecom’s facilities.

"We are facilitating their
interconnection to a large established carrier that presumably has a lot of
minutes and is going to pay them," explains Randy Weinberger, manager of
business development, for General Telecom. To do this, the company has packaged
a service that includes T1 or E1 leased ports on its gateway switch, colocation
for VoIP equipment (or a leased VoIP box), NOC services, SS7 feed and an IP
link. General Telecom has developed unique CDR compilation software as well as a
proprietary network monitoring system to support the offer.

Weinberger says VoIPDirect opens up
the TDM market to both pure-IP carriers and also the many small IP carriers with
direct routes.

On the other side, VoIPDirect offers
a new supply of direct routes to the TDM carriers without having to infuse IP
into their own networks. "That’s the beauty of it from the large carrier
perspective," Weinberger says. "They still own the customer. They
still negotiate their own rates, payment schedules, etc. Even all their current
tools — reporting, billing, disputes, CDR reconciliation — that’s all handled
with their current toolset. They don’t have to invest in a whole new set of
tools that are IP based. They are looking at a switch, which is really their
comfort zone."

Weinberger explains large carriers
may have invested in IP for their own networks, but they are not using it to
connect to other carriers because of interoperability and reliability concerns.
"This is where we come in," he adds. "We have expertise in both
the TDM world as well as the IP world. We help to sort of bridge the gap for
large established carriers that are looking to extend their networks but don’t
want to invest in a whole bunch of [IP] equipment that in five years is going to
be obsolete."

Large carriers already connected to
the General Telecom switch don’t have to pay anything to General Telecom for the
service. IP carriers are charged a flat monthly fee for the package. Weinberger
declined to disclose the fee structure.

Two other neutral colos are taking a
similar approach to helping IP carriers tap end user customers. Equinix Inc.,
for example, just rolled out in April its Equinix Direct product. In development
and beta testing for about 18 months, the service automates multihoming for
enterprises by eliminating monthly usage minimums, long-term contracts,
expensive local loops with lengthy provisioning times, the installation of
complex router configurations for each network service provider, and the
administrative and technical requirements of establishing these relationships.
The service, accessed over a single connection, offers customers a choice of
bandwidth providers with short-term, 30-day, contracts and no bandwidth
commitments. Customers can automatically control the routing of their traffic to
multiple networks using a Web browser interface.

Underlying the product is the
proprietary Equinix Direct Routing Server, to which both the customer and the
provider peer to learn where to send the traffic. "They don’t pass traffic
through the device, but the device acts like a traffic cop and tells the
customers router where to send their next hop and where to send the
traffic," Equinix CTO and cofounder Jay Adelson.

While the product is being
positioned as "network insurance" for the end user, Adelson notes that
it doubles as a value-added service for Equinix’ IP carrier customers.
"From the carrier’s standpoint, it is a zero cost, no SG&A cost to gain
customers," he says. "It’s a very easy acquisition of revenue. Most of
the carriers we talk to see this as an additional channel."

In addition, Adelson says that a lot
of carriers have focused on selling larger bandwidth customers 100mbps and
above. "The reason is the cost of managing smaller players they can’t
afford or don’t want to afford," he says. "What this system does is
aggregate those smaller bandwidth consumers."

It also offers an opportunity for
what Adelson calls eyeball networks" (i.e. Earthlink Inc. and America
Online Inc.) that never have sold connectivity to their "eyeballs," or
subscribers, before. "Those broadband providers don’t have to lift a
finger. We measure all the traffic going to the providers. We do the settlement,
we collect for them and we send them a check," he says. Fifteen providers,
including at least one "eyeball network" were part of the beta

Equinix bills the end user a flat
fee for the port and aggregates the billing from the selected ISPs. End users
pay Equinix and Equinix pays the carriers. Equinix retains an 8 percent cut off
the top of each carrier’s total as well as the port charge of $250 per month.

Switch and Data also identified a
similar need in among end users resulting from the contraction in the market.
"Because of the correction in the marketplace that’s taking place, a lot of
ISPs have narrowed the markets that they offer Internet access to," says
Mario Galvez, vice president of marketing for Switch and Data, explaining that
this leaves many end users forced to pay for costly minimums or to go with a
lower quality service provider.

Switch and Data introduced in
January a new service called SingleCNXT-i to offer smaller bandwidth users
connectivity and to offload the management of those customers for its ISP
tenants. "What we are trying to do is help those ISPs improve their sales
channels and help those customers that want to come into our site to gain access
to that Internet connectivity that they needed," Galvez says.

SingleCNXT-i is a bundled product
that includes colo and bandwidth. It offers customers a choice to initiate
relationships directly with ISPs in the colocation site or to use Switch and
Data as a single point of contact to facilitate the transaction. Switch and Data
earns an undisclosed commission on the bandwidth sale and the relationship
remains between the customer and the ISP.

The program has been popular among
Switch and Data’s carrier customers. In March, the company was reselling 12
providers with details being finalized for an additional eight. The company
expected the number to triple by press time. Among the announced participants
are Accretive Networks, Limelight Networks, NTT/Verio and Aleron.

"Our focus continues to be on
the high-end carrier, hosting and content markets and SingleCNXT-i provides
Aleron and additional opportunity to address this customer set quickly and
effectively," says Bernie Stevens, CEO of Aleron in a press statement.

These three colos have competition
on their hands from two other facilities — Telx and eXchange Colocation LLC.
Executives at eXchange told PHONE+ they are working on an SMB offer that would
debut in late second quarter. The company already works with its carrier
customers to facilitate wholesale deals by introducing potential trading
partners based on their inventory.

Telx has taken that matchmaking role
one step further and has been holding mini tradeshows as part of its core colo
services. The program called the Customer Business Exchange (CBX) brings Telx
customers to the company’s Hudson facility to sell each other business. More
than 150 carrier reps were on hand for a February 2003 event. The company hopes
to bring CBX online by the end of the year.

Hunter Newby, chief strategist for
Telx, says he is also driving business for his tenants by bundling solutions for
end users and allowing his tenants to bid for the business, which they couldn’t
get on their own.

Neutral but Not Equal

Hunter Newby, chief strategist at
Telx, mentioned a pet project — albeit one in a very nascent stage — that may
be worth airing in a public forum: creating standards for neutral colocation.
It’s a lofty goal perhaps but one that could gain traction should carriers put
pressure on their vendors to get together on policies and procedures — things
like access to the building or cages, levels of support, turn up intervals, etc.
that vary from site to site.

Ultimately, Newby says that he wants
to "build an alliance between the sites and see if we can identify the
common elements between us that may become ‘standard.’ As a result, when someone
want to do business with two or more of us, they have a list of what they know
they can expect at each site."

In conversations PHONE+ had with
colos, there is some initial interest in exploring the idea. To further the
discussion, contact Newby at

General Telecom

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