Metromedia Fiber Network (MFN), established in 1993, is
building fibre-optic networks in 67 metropolitan areas
world-wide. The company aims to lease the fibre on a fibre/mile
monthly basis to telcos, companies and government users,
seeking to establish secure communications networks for the
transport of large amounts of voice, data and video.
The world-wide network will cost about $3-4 billion and cover
3.6 million miles. The company has targeted high usage business
markets and major economic centres in the US and Europe. MFN
will be able to maintain a low-cost base, by laying up to 864
fibres/trunk in these metropolitan areas, which should
dramatically reduce the company's cost/fibre mile.
The company has funded the cost of the network build in
different ways. In October 1999, MFN announced that Bell
Atlantic had bought a 19% stake in the company and agreed to
buy dark fibre infrastructure from MFN in a transaction worth
$2.2 billion. Under the terms of the deal, MFN will provide
dark fibre infrastructure to Bell Atlantic over a 20-year
period. Bell Atlantic is also investing $700 million to buy
about 9.9% of the equity of MFN through the purchase of newly
issued shares at $28 a share. As part of the deal Bell Atlantic
will buy $975 million in debt securities, convertible into
common stock at a conversion price of $34 a share.
In November 1999 MFN announced that it was extending its reach
to 16 major metropolitan areas in Europe, by adding a further
11 markets. These include Paris, Brussels, Hamburg, Dusseldorf,
Munich, Berlin, Hanover, Vienna, Zurich, Geneva and Milan. The
company is already operating in London, Amsterdam, Frankfurt,
Stuttgart and Cologne.
MFN is building a national ring in Germany, which links the
country's most important business and financial centres. Once
the pan-European network has been built, MFN will link its
European and US networks to create cross-border optical
In an interview with Global Telecoms Business, the chairman
and CEO of MFN Stephen Garofalo talks about the company's plans
to become one of the leading providers of fibre in the world's
major economic centres.
How far have you advanced with the build-out of
metropolitan networks in Stuttgart and Cologne? Which
opportunities do you perceive for MFN in the German
Garofalo: Our builds in both Stuttgart and Cologne
are on target with the announcement we made in June this year.
When complete, our Stuttgart network will encompass up to
32,400 fibre kilometres and cover more than 75 route
kilometres. In Cologne, the completed network will cover up to
34,560 fibre kilometres along 80 route kilometres.
The opportunity in Europe, and especially Germany, is
significant. Currently Europe as a whole represents the second
largest economy in the world. It is estimated to account for
more than $300 billion in telecoms services and equipment.
Germany is central to this community and is leading the way in
its deregulation drive and promotion of alternative network
infrastructures. Again we believe that there is a significant
opportunity for Metromedia Fibre Network.
Would you be interested in increasing your presence in
other European metropolitan areas? Are you targeting any other
European markets? Why did you initially decide to target the
Garofalo: Definitely. In fact we announced recently
continued expansion in Europe, naming our next eleven markets.
This brings our total planned European infrastructure to 16
markets. Pursuant to that announcement, we plan to deploy local
fibre-optic networks throughout the metropolitan areas of
Paris, Brussels, Hamburg, Dusseldorf, Munich, Berlin, Hanover,
Vienna, Zurich, Geneva and Milan, in addition to those
currently under construction in Stuttgart, Cologne, Frankfurt,
London and Amsterdam. We started our European expansion in
Germany, as we believe that the region is central to the
European community and currently represents the best
Who do you perceive to be your main competitors in
Europe? What do you believe to be your competitive advantage
over other operators in Europe? How do you view the regulatory
environment in Europe?
Garofalo: We do not believe that there are any other
communications companies doing what we do. While many new
carriers are entering the market, nobody is following the same
business model as Metromedia Fibre Network. We see many
emerging US and European operators build long-haul and
downtown-centric networks with limited capacity.
MFN is building high-bandwidth, high-capacity communications
networks throughout major metropolitan areas in the US and
abroad and is leasing the fibre strands to all carriers and
Our infrastructure utilizes a "meshed network" architecture,
containing up to 864 strands of fibre, that not only rings the
downtown areas, but also extends to the surrounding suburbs,
where many back office operation and technology centres are
What was the significance of your set of agreements
Garofalo: Our agreements with BCT.TELUS, announced in
May 1999, enable MFN to extend our North American reach through
a Canadian subsidiary into Toronto, Canada, mirroring the
intra-city fibre strategy that is being deployed throughout the
US and Europe.
Under the additional agreements, Metromedia Fibre Network will
lease dark fibre to BCT.TELUS on a transcontinental route that
it has received under a previously announced swap agreement.
BCT.TELUS will light and operate fibre and provide Metromedia
Fibre Network with the capacity to extend seamless connectivity
between customer locations in the US and Canada.
Why did you recently issue bonds through lead
underwriter, Salomon Smith & Barney?
Garofalo: Solomon Smith Barney had been our lead
underwriter since day one. These bonds, as well as the recent
equity investment by Bell Atlantic, will enable us to fully
fund our $3 billion expansion to 67 new markets. In addition,
this world-wide expansion will encompass more than 3.6 million
fibre miles covering both North America and Europe.
Why did you decide to acquire AboveNet Communications?
How does this acquisition accelerate your competitive
Garofalo: We viewed AboveNet as one of the leading
providers of data services in the IP business and to the World
Wide Web. As the architect of the global one-hop network,
AboveNet focused on facilitating the explosive growth of
E-commerce and media applications, by enabling service and
content providers to deliver mission-critical applications with
their one-hop global Internet Service Exchange.
With some very proprietary software and links to 100% of the
IP data world, we believed that the combination of our
virtually unlimited, pure photonic fibre networks and
AboveNet's high performance connectivity solutions would enable
Internet traffic to flow more predictably, reliably and at a
far lower cost for customers.
Together, the combined company is facilitating the explosive
growth of E-commerce and advanced Internet applications by
delivering secure, reliable and scalable optical networks to
Internet content and service providers, carriers and enterprise
Surely there is a risk of a conflict of interest
following Bell Atlantic's acquisition of a 19% stake in MFN in
October 1999 for $2.2 billion? What benefits do you derive from
having Bell Atlantic as a shareholder? How will the money be
Garofalo: There is absolutely no risk or conflict. As
a dark fibre customer, Bell Atlantic is a client like everyone
else. On the investment side, they have simply decided to
become a shareholder to take advantage of our success in the
stock market. Bell Atlantic has no representation other than
their equity position. This, in turn, allows us to continue
running our business in the most efficient and effective manner
and provide fibre-optic infrastructure through an open and
In other words, there is nothing in our agreement with Bell
Atlantic that restricts MFN from offering our dark fibre
infrastructure to other carriers, including RBOCs, CLECs, ILECs
and Internet service providers. This agreement enables Bell
Atlantic, to position themselves better as one of the top power
houses in the communications world, by entering new markets and
providing services outside their franchised territory.
Bell Atlantic has accepted our paradigm and plans to attack
the world-wide data business using our fibre. This money will
be channelled into the deployment of our metropolitan area
networks world-wide and the build-out of the 3.6 million fibre
miles in 67 cities that MFN had announced.
You claim to offer unlimited, unmetered bandwidth at a
fixed cost. How will these pricing plans provide you with a
competitive advantage over other high-tech operators in the US,
which are also targeting tier-one markets?
Garofalo: We feel that we are the only company to
offer the fundamental core of communications - the strand of
cable between two points. In our case that cable is no longer
copper: it is a strand of fibre. So in essence MFN has
eliminated the tariff structure within the local metropolitan
areas that companies have been charged for the past 125 years
and provided them with virtually unlimited bandwidth for less
money, enabling enterprises to transmit gigabits and terabits
of information at a fixed cost.
Who do you perceive to be your main competitors in the
US and Canada?
Garofalo: We do not see anybody in exactly the same
business that we are in. As a carrier, it is difficult to be in
both the retail and wholesale markets simultaneously.
Indirectly the retail sellers of large bandwidth would be in
What was the significance of the recent agreement with
Williams Communications in the US? How does this agreement
accelerate your competitive position in the US?
Garofalo: Williams enabled us to gain a national
coast-to-coast network overnight, thereby connecting our
current and future markets. Through this agreement Williams can
access dozens of cities with our fibre in our local loop,
taking our photonic distribution, not only in the backbone, but
right up into the buildings that connect to their clients.
Our alliance with Williams enables us to provide seamlessly
secure, reliable and fast building-to-building connections to
customers with multiple locations, irrespective of whether
those buildings are across the street or the country.
How much are you spending on network build? How have
you been funding this build? Will have you to return to the
financial markets soon to increase network funding?
Garofalo: To date our network builds have been funded
predominately through our IPO and the private placement of
notes completed in November 1998. In addition, a tremendous
amount of the build-out has been financed by pre-paid contracts
Moving forward, future builds will be funded through our
recent deal with Bell Atlantic, as well as the recent
high-yield offering that we have just completed. We anticipate
our current planned expansion to range between $3.5-4.0
billion, which should enable us to finish the 3.6 million fibre
miles and 67 cities, including data centres for AboveNet.
Do you think that it is possible to be only a builder
of operating fibre or is there a need to focus more on higher
telecoms traffic and become a carrier? In other words, can you
survive on the single sale of bandwidth?
Garofalo: We are absolutely convinced that we can
survive. We have been extremely successful, as the markets
indicate, at executing this business plan. We are a
carrier-neutral and open access provider of facilities-based
fibre-optic communications infrastructure. This is our only
business. We do not intend to go into the services business.
Would it be true to say that your network is
indicative of current theories about the convergence of
different technologies and changes to industry
Garofalo: We believe that all convergence will be
eventually linked to a photonic convergence. Everything will
travel on light as opposed to electricity, and all copper lines
will be replaced world-wide by fibre-optic lines.
How does your network facilitate the offering of the
latest data, video, Internet and multi-media applications? What
is unique about the MFN vision?
Garofalo: We are unique in that our infrastructure
facilitates competition, which in turn, allows providers to
deliver competitively priced services and applications to their
customers. The fibre enables the delivery of these advanced
services. For example, let us say that you represented a full
motion video reference company and had newsreels of information
that investment bankers wanted to download.
With our network, your company can take advantage of pure
fibre connectivity to transmit that information at terabits or
gigabits from your location to an investment banker in downtown
You would connect to our co-location data centre, which will
either house the service or connect you to our world-wide fibre
network and then to a server location, where you will then
download again at a terabit and gigabit level.
Through a seamless and point-to-point fibre network you can
download gigabits of full motion video for the first time ever
into a storage facility at your site and then play it back in
As so many new operators come on-line, surely there is
a danger that the amounts of bandwidth will not match
Garofalo: There is no glut in bandwidth. Newer and
more advanced applications are coming to market daily. The
fibre infrastructure and photonic distribution of that fibre
have to move from the long-haul to the metro market to every
floor in a building.
We believe that, unlike the long-haul networks that are built
in just a few years, the photonic infrastructure that controls
80% of the data market world-wide is within the local loop.
Many of these metropolitan areas of major cities will take
15-20 years to build out by the time it is completed.
In your opinion which applications will drive this
demand? How do you view the potential for E-commerce?
Garofalo: We believe that the Internet will not be
the Internet, as you know it today. Eventually the Internet
will be a full motion video Internet, where you will hold a
video conference in a chat room and actually look at the person
you are dealing with, instead of holding a memo conference in a
chat room. There will be dating services that will comprise a
full motion video of the person that you are interested in
There will be newsreel services from places such as CNN, where
you can download and carry out research on companies that you
would like to know about on a full motion basis off the
Internet. We just see it as a much larger experience than it
You have claimed that you are laying 864 fibres per
trunk in each metropolitan area, while RBOCs typically lay on
average only 48 fibres. How will you maintain this low-cost
position? Is there not a danger that you could be overtaken by
a new start-up operator in a couple of years that can undercut
your low-cost position in these metropolitan areas?
Garofalo: This is the only business that we are in.
MFN leases fibre and breaks it up into increments. Therefore we
need to deploy more than 48 fibres. Our business model is
predicated on delivering at least 50 times the bandwidth at a
fixed cost over private dedicated fibre networks.
It is a free world and anybody can enter the business. But we
have a clear advantage, as we have spent years in pre-planning
and clearing easements. We have spent years on the build in
these cities. There is a significant advantage to where we are
In a recent edition of Global Telecoms Business, we
conducted an interview with the CEO of Covad Commuinications,
Robert Knowling, who spoke about the importance of first mover
to market advantage? Do you believe that you are in a similar
position to Covad?
Garofalo: I would say that we are the first mover in
our market: to the best of our knowledge, no other
communications company in the world is in the business of
building high-capacity, high-density networks and leasing the
individual strands of fibre.
How do you view the market opportunity for MFN in
Europe? From a regulatory standpoint, what are the differences
between the US and Europe?
Garofalo: I do not think that anybody can stop the
future from happening. In my opinion the regulatory situation
in Europe has in some cases been as good as in the US, if not
better. In some cases there will be difficulties.
However, I think that we will witness a move to a world-wide
photonic network on a global scale. We believe that the tariff
structure as we know it will be broken down and charges, such
as they are today, will not exist in the future
Do you think that the FCC is doing a good job
facilitating widespread competition in telecoms markets? How do
you view the era of consolidation in the US?
Garofalo: I think that the FCC is doing a fantastic
job. There is always consolidation in the communications
business. I think that history speaks for itself there.
How many employees do you have? Are you expecting to
increase employee numbers significantly over the next two years
as revenues grow? Which efficiency benchmarks do you use?
Garofalo: We have about 529 employees. We expect a
significant increase owing to our growth. Our plan is to
continue to run a very low SG&A.
Where do you hope to position the company in two-three
years? What trends do you see emerging in telecoms over the
next five years?
Garofalo: Our immediate objective is to build out
fibre in the 67 metropolitan areas that we have announced so
far. We believe that there will be tremendous demand for
applications and that our fibre infrastructure will play a key
role in helping providers deliver these advanced applications.
We aim to be the leading provider of private fibre-optic
networks on a world-wide basis and that is our business. We
lease fibre out on a fibre/mile, monthly basis and plan to
create a purely photonic network world-wide.