Williams Communications is aggressively targeting the wholesale
market in the US. It's nation-wide 32,000 mile Multi-Service
Broadband Network is scheduled for completion in the year 2000.
It will connect to over 125 cities. The company is also
preparing for an IPO later in the year, where it hopes to raise
between $500-750 million. The sales proceeds will be reinvested
in the build-out of the network.
The company has a unique background. It is a subsidiary of
Williams, one of America's largest transporters of natural gas.
Williams Communications has been able to exploit the advantage
of having rights of way on Williams nation-wide pipeline
network to build out its fibre network. Williams first used
decommissioned pipelines to house fibre optic cables in 1985,
under its previous banner WilTel.
This made it one of the first players to deploy a nation-wide
fibre- optic network. The original fibre-optic network was
eventually sold to WorldCom in a $2.5 billion deal. Under the
terms of the transaction, Williams retained ownership in a
single strand of fibre covering 11,000 miles, maintained its
video and complementary telecoms business.
There was also a three-year non-compete clause that
dramatically scaled down Williams' ability to sell telecoms
services. It re-entered the wholesale long-distance market, as
soon as the non-compete clause ended in January 1998.
In an exclusive interview with Global Telecoms Business,
president & CEO Howard Janzen describes this ambitious
project and explains how the company aims to exploit the
opportunities in the market.
How do you view demand for high-bandwidth data
services in the US? What customers are you targeting with your
Janzen: We see phenomenal demand for data services.
If you look at the kinds of growth rates we are experiencing
with the Internet, you see growth rates of 1,000% a year. We
perceive tremendous demand in the data side of our business and
can see no end in sight.
In terms of the customers that we are targeting, since we are
a carrier-services only provider, we are very focused on people
such as the long-distance players, the RBOCs, ISPs, CLECs and
even utility companies. The same dynamics are also apparent in
your country. A number of utility companies in the US are
considering whether to leverage the benefits of their rights of
way and their ownership of retail customers and are trying to
move from energy and utility businesses into communications.
This represents another group that we have targeted.
Who do you see as your main competitors in your target
markets? What do you perceive to be your competitive
Janzen: The competitors are largely the new entrants,
companies such as Qwest, Level 3, IXC and Frontier. But you
also have the players in that wholesale market space today.
Obviously, MCI WorldCom is very big. So it really is a
combination of legacy players and the new emerging carriers. I
think that we have significant advantages. First of all, our
company has a 90-year history of building and operating
networks. A lot of our network businesses have for a number of
years focused on the energy side of the business. We have
focused for the past 15 years on the network. Our company
understands how to operate and build networks better than
anyone in the business. So we have a very large construction
and operations advantage.
Our team was one of the very first players to deploy a fibre
network nation-wide back in the mid-1980s. On the whole the
same team exists today. They have got that experience. We have
the advantage of having been there and done that. We have a
technology advantage, since we are able to leverage the latest
in technology with a team that really knows how to do that
properly, because we are designing our own network. We are
really not dependent on vendors designing it for us.
We have an unusual advantage in terms of our rights of way. We
are the largest pipeline company in the US. So we have rights
of way that go from coast-to-coast to border-to-border. We are
using those rights of way everywhere to facilitate construction
of our fibre network
Pipeline rights of way represent by far the cheapest right of
way to build on. It is up to half to a third of the cost of
railroad and highway. Once you are finished, you have a very
big advantage, because people don't tend to dig around
The warning signs that say "Danger - dig here and you are in
trouble" stop people from digging. So we have a tremendous
reliability advantage once the network is in place.
Why did Williams sell its all fibre-optic network to
WorldCom in 1995? Under the conditions of the sale, you could
not sell telecoms services for three years. How difficult was
it to re-enter the wholesale long-distance market in 1998 and
Janzen: We sold that network, because we received an
offer that was so good that we could not overlook it for the
benefit of our shareholders. That was the sole reason. Williams
did not want to get out of the telecoms business, but the offer
was so attractive and became more attractive as we negotiated.
That really was the sole reason. We intended to re-enter that
business as soon as the non-compete clause would allow us. In
January 1998 we were able to re-enter that business.
However, we never left the network business, because we
retained one fibre everywhere the old WilTel network went. We
kept the business called VYVX which we will talk about later.
That allowed us to maintain a very strong network team to
operate that business. As we were allowed to operate multimedia
businesses on fibre, we could make a lot of headway up to
January 5 last year, when we were able to re-enter the
As we are the only carrier focusing on wholesale, we have an
attractive competitive advantage: our customers would prefer to
do business with someone who is not going to directly compete
with them for the retail business. That is a big advantage,
because the big players that we are trying to target to use
this network perceive a great advantage in not enabling a
Who is supplying dense wave division multiplexing
technology for your ATM based fibre optic network?
Janzen: The technology for WDM and really the
technology that is lighting the network is being supplied by
Nortel. We have a very deep relationship with Nortel. But we
deploy whoever has the best technology. In terms of where we
are today, Nortel definitely is the vendor of choice. We have a
number of technology relationships. Our ATM platform represent
the key ones on the optronics side. That is based on Ascend 550
We are evaluating all the time a lot of emerging players that
are coming up with technology. We are assessing a number of
people's technology moving forward to maintain our competitive
advantage and low costs. We are currently working with Signal
Networks to move to the next-generation switching technology.
They were the original founders of what became Ascend's ATM
When will the network be finished? How many cities
will you cover?
Janzen: Our plan is to finish the 32,000 mile long
network by the end of the year 2000. It will cover 120 cities.
The cost was originally estimated at about $3 billion, although
at this point we are assessing very deeply a plan that could
raise that cost to $4.7 billion, as we try and build more
capacity and a bigger cross-section on the network.
Why did you decide to double your purchase of Nortel's
equipment? In view of Nortel's participation in your solutions
unit, how does this affect your relationship with other
suppliers such as Cisco?
Janzen: You are referring to our decision to enter
the switched voice business, again on a wholesale basis. That
decision was made along with the decision to use Nortel's voice
switching equipment. Our solutions business was kept out of our
sale to WorldCom. It is an interesting relationship, as we are
vendor independent and yet we lead with Nortel, wherever that
makes sense. For instance, we are a very large Cisco
distributor. We were a large Bay Networks distributor, prior to
the acquisition by Nortel. As we are the largest distributor of
Octel voice mail equipment, we are also a big Lucent
distributor too. That is an unusual relationship. We have
worked very hard with the other vendors to maintain good
relationships. They perceive a lot of value in our channel,
because we have so many customers. We have 133,000 business
customers in that business. We have 6,000 people located all
over North America to help service those business customers.
With OC-192 capacity in each of 16 windows, one fibre
can carry simultaneously two million voice conversations. Is
there a risk that you will have too much capacity and a
shortage of demand? Have you already signed contracts to sell
Janzen: We have entered into a number of contracts to
sell capacity on our network. We have a number of major
transactions that help consume that capacity, but we are
extremely bullish on where demand is going. When we started
building the network, we adopted a very cautious attitude. We
felt that it was extremely important to build the most
efficient network in case there was a mismatch between supply
and demand. We have had the lowest cost point which we have
been able to establish and intend to maintain. As we move
forward, it has become much clearer that demand is continuing
on this exponential growth that we have been experiencing. We
just see phenomenal demand coming. It is really being enabled
by advances in computing technology with Moores' Law at work.
The power of high capacity bandwidth and broadband capacity
connecting all that computing power are really important. We
are in the early stages of perceiving the impact. It was
probably in 1995 that the average person first started hearing
about the Internet. We are not very far into understanding
where this is going. We perceive tremendous increases in
demand. We are gearing up our network to exploit those
What are the goals behind Williams entry into the IP
market? Could you tell us about the launch of "Transit
Services"? What new products do you hope to offer customers
Janzen: We continue to try and understand exactly
what our carrier customers would like to see in a product
sense. This drove our decision to enter the switched voice
business. Our decision to enter this business does not mean
that we are establishing a legacy circuit-switched voice
network. We are actually deploying that voice traffic off the
voice switches onto our ATM platform. So we continue to have a
leading-edge approach on how to handle the voice traffic.
In terms of the IP market, we are trying to help ISPs meet
their capacity needs and even offer to co-locate services for
them and be able to design, install and even outsource the
management of all their network needs. This is something that
the ISP community wants. As we can offer them value-added
services, that is behind our decision to enter transit
services. We will continue trying to understand what our
wholesale customers want and make the requisite moves to
provide them with a full suite of products to help them do
What levels of revenue growth do you project in 1999?
What levels of growth did you attain in 1998?
Janzen: There was some very impressive growth in
1998. The network side of our business recorded the highest
growth. Revenues in 1997 totalled about $43 million and then
almost $200 million in 1998. So we are achieving very large
increases. I can't comment on forward-looking parts, in
particular as we move into our IPO. So you will have to draw
your own conclusions. But I can certainly look back. What you
can see is phenomenal growth.
When do you think that you will become EBITDA
Janzen: I would prefer not to make a forward-looking
projection. I am sorry to beat around the bush, but again if
you look at our growth rates, I can see some really positive
signs for this year.
When do you expect a minority interest of Williams
Communications to be sold to the public? What percentage is
likely to be sold? How much money would an IPO raise? How would
the proceeds be re-invested?
Janzen: We expect to make a filing for the IPO by the
end of the first quarter or early second quarter, and then move
into the road show and all the processes that go with that and
the approval process that immediately follows. The IPO is
likely to occur in mid-year.
We are not focusing on a percentage. We are focusing on the
amount to be raised: we intend to raise $500-$750 million in
the public market. You can look at comments by analysts on the
value of Williams Communications. Goldman Sachs recently put
our value at $6.2 billion. I have seen another analyst put it
at $7 billion. Analysts believe that we are worth somewhere in
that range. So you can do the maths. We are trying to focus on
the dollar amount, rather than the percentage. The proceeds
will all be re-invested into building the network.
Do you believe that the company will have to undergo
any significant restructuring over the next few years?
Janzen: This is an interesting question. In view of
the dynamic industry that we are in and all the changes that we
are going through, any answer that says "nothing will change"
and "we will stay the way we are" is just not realistic. I
don't perceive any need for restructuring as we move forward.
At the same time our company is a very opportunistic company.
We fully intend to build a business that will last over the
long haul and a business that we plan to operate. I am sure
that this will lead to opportunities in the future.
Why did you decide to only sell capacity to wholesale
Janzen: We deployed the wholesale customer approach
very successfully in our first life as WilTel. If you
understand the economics of the network, it was absolutely
critical to load up capacity on this network and thereby drive
down costs. There is an exponential relationship between
capacity and cost: so it is very critical to load capacity
quickly. The fastest way to do that is to sign up large peak or
tenant customers. That is the premise for our carrier-services
We think that we can load capacity on the network much more
rapidly than going out and attacking retail customers, which is
a more of one-step, two-step approach. We have great appeal
since we are the only player that had a pure wholesale-only
approach in the network business domestically. So, that plays
very well with our customers. In our opinion, this provides us
with a big advantage. That is why we have been on that track.
What was the significance of a recent agreement with
WinStar? How does this agreement accelerate your overall
Janzen: WinStar provides a great example of another
customer with large network needs. The transaction provides us
immediately with a network service opportunity, as we will
loading WinStar's capacity on our network today. In the future,
it provides another opportunity, because we can help them light
that fibre. We can maintain that fibre for WinStar. This
implies constant business with them and enables us to continue
to bring them network services that they will in our opinion
require in addition to that dark fibre. So this is a great
transaction. We are repaid in one way with some of WinStar's
wireless capacity. Again we lease that on a wholesale basis to
bring to our carrier customers and allow them to have a more
complete product set to go further into the last mile, enabling
them to solve the last mile problem, as well as the long haul
The Williams Multi-Service Broadband Network won the
top award at SuperComm 98 for innovative network design. Were
you surprised to win this award?
Janzen: I'm not surprised, since our team is so
strong in the network. Again that experience is derived from
having done it before. Our technical network team has the
engineer's dream of having all the knowledge of previously
building a big network, without facing any legacy problems.
They had a clean sheet of paper to go and do it again,
deploying the latest technology.
I wasn't surprised when they won that award, because I truly
believe - and this is confirmed every time customers come
through and visit with our technical team, when I see their
reaction after the visit - that we have the best technical team
in the business. So this specific award was due to the way we
are lighting our network. We have come up with a design that
allows us to deploy fewer boxes and less optronics to light our
network for the amount of capacity that you receive. In other
words, we drive to a much lower cost point by refraining from
putting additional optronics on the network. The award focused
specifically on this inter-weaving technology or putting ATM
essentially in the base between channels, allowing us to move
more capacity down our network. So between SONET channels we
are inter-weaving ATM directly on the fibre. It is an extremely
interesting concept, which allows us to put more capacity down
What is your ultimate goal? Do you want Williams to
become a facilities-based provider of voice, video and data in
all markets? Will you stay in the carrier's carrier market? Do
you have a business plan to move into the retail market?
Janzen: In the network side of our business, we will
clearly stay in the carrier's carrier market. That is our
intention. However, we do have opportunities to play in the
retail space as well, but not in competition with our
customers. That is through our solutions channel. We have a
very large customer base. We have a big business there, that is
achieving in rough round numbers $1.5 billion in revenue today.
That business has the ability to bring network services to
those enterprise customers.
We would do that by providing network services that our
customers are branding on a retail basis. UniDial provides a
good example. UniDial is one of our network customers. We
provide UniDial network capacity, but at the same time our
solutions business unit can go and sell UniDial products to
their enterprise customers. This helps UniDial, but also loads
up our network. So that is our opportunity to play in the
retail space. I think that it is a big opportunity and does not
compete with our customers.
How do you view consolidation in the US telecoms
Janzen: We believe in a deconstruction model when you
look at developments in our market. Even though you see big
consolidation, deconstruction is still at work. The computing
industry may offer the best example. If you move from the
mid-1980s up to the present day - in the mid 1980s the
computing industry was dominated by three big players: IBM, DEC
and Data General. Then the whole industry deconstructed.
Focused players carved out pieces of that value chain and
companies such as Intel started building micro-processors.
Microsoft built operating systems and software, while Dell and
Compaq packaged computers and retailed them. Even retail
companies, such as BestBuy, Circuit City and CompUSA emerged
with a focus on retail. Huge value was unleashed by this
We see the same thing happening in telecoms. If you look at
the data, it is happening. The category called others is
growing far faster than all the big players. Even after they
consolidate, their market share continues to drop.
Deconstruction will become more apparent in any business, where
technology is a factor and technology is moving as quickly as
in our business. There is a real role for a focused player that
is the best-in-class builder and operator of a network that can
bring players, whose real strength is to work and own retail
customers and bring them that best of class network service.
This is the kind of opportunity we see. We think that it is
very real, when we talk with big customers.
Could you tell us about "ChoiceSeat"? When will the
service be offered commercially? It made its market debut at
the Super Bowl XXXII? How does your participation at one of
America's biggest sports events work? What does this service
offer sports fans?
Janzen: It is an interesting opportunity and is one
that we have been doing for almost three years now. It began in
1996. When you talk about commercial deployment, we have just
done the San Diego Padres for two baseball seasons. We have
done the Tampa Bay Devil Rays, which are a new team and did
their stadium last season. We did the Super Bowl for the past
two years. We have already had a commercial product out there.
Frankly, we are still in the applied research stage. We are
learning more about the technology and marketing aspects of
This service really brings the best of the PC and television
rights to the seat in the stadium. So there is a small flat
screen display - touch screen - and it allows the fan in the
stadium to pull up multiple camera angles. In this game, there
was a camera full time on the quarterback. There was a camera
from the Blimp. There was a camera from different positions on
the field, like goal line stances, so you could pull up your
own camera angle. In fact you could pull up the Fox network.
If you have a ChoiceSeat, you can actually watch the
commercials if the game is on. If it is a slow game, as this
one turned into in the second half, there are a whole series of
videos like "Road to the Super Bowl" and "Best bloopers in
Football". NFL Films do really good production. There is the
opportunity to order souvenirs and other merchandise from your
seat. You can actually order concessions too. There are
statistics. There are instant replays, which get hit on real
heavy for big plays. It enables the fan to be a director in
their own seat. As the technology progresses, it will allow
that to be moved into the home, which would be a big user of
the network. It would allow a person in their home to have a
capability that is very unique.
Could you describe your applications business?
Janzen: Our applications businesses include Vyvx and
GlobalAccess. We actually have operations in the UK, in both of
those businesses. I think we are very leading edge in our
approach. Vyvx primarily transports video content. In video we
are the leaders in the world in moving video and are connected
to the majority in big sports venues. For instance, more than
80% of professional sports move on our network in the US. At
the Super Bowl, not only did we have "ChoiceSeat" which is part
of Vyvx: Vyvx also handled the transmissions out of the Super
Bowl. We had about 600 hours of transmissions coming out of the
Super Bowl. Obviously when they are playing those $1.8 million
dollars a second of commercials, you cannot afford to have any
downtime. We have been doing this for ten years at the Super
What is the significance of your partnership with NCR?
What does Williams bring to this partnership? Can you describe
briefly your relationships with US WEST and Concentric?
Janzen: We are providing for their business
television needs. So it is not a partnership, but they are a
customer and we are bringing them that service. Our events
group is one of the most capable groups in the world in
handling large events that involve a number of sites for video
and audio clips. We do a lot of business with big global
players, such as Oracle, BMW, Daimler-Chrysler. At Nortel, I
obtain unique views, as I talk to a lot of the highest level
people in Nortel. When they make high level announcements, they
use us. They think what we do is really good. IBM is another
big customer. So that is what the relationship is like with
Our relationships with US WEST and Concentric are very deep -
they go beyond the standard customer relationship. In both
cases we play a strategic role in meeting their network needs.
For example, US WEST announced on the day that we came out of
our non-compete clause that they would use us for their data
network for out of region data needs. We value highly this
relationship. US WEST understands what the opportunities are in
the data world. I think they are really on top of that area.
We are Concentric's network too. That drives a lot of the
network business. One form of payment for that network capacity
involved equity in Concentric, which has turned out to be a
very good investment. Here too we have a serious working
relationship. In fact, we outsource Concentric's network
operations. Our team designed their network for them.
What are your hopes and ambitions for the company over
the next few years? Where do you hope to position Williams on
the US telecoms landscape?
Janzen: My ambition is for our company to be the
leading edge network provider for carriers of any description,
whether they are carriers that you think of today, ISPs or
utilities. If we do that in a world class way, we are going to
bring our customers great value and we will be a critical part
of their business moving forward. We are going to build a very
large book of business if we are successful at achieving that
How do you see developments of the data markets. What
do you perceive as the opportunities for new carriers to make a
Janzen: The real opportunity is to bring much higher
capacity service to the market, adopting the most efficient
operation. That really is our opportunity, since we can build a
network from the ground up. It is designed to be one network
that can handle all traffic. So you have the most efficient
operation for data. I think there is also an opportunity to
continue looking for leading edge services and applications
that you can layer on to that efficient capacity. If you look
back in time, we were the first company to offer a commercial
Frame Relay product. So that was very value-added, when it
first came out. This is what we have to continue doing.
In view of the interfaces that the customers have with us, our
systems have to be absolutely leading edge, so that when
customers do business with us, it is so much more capable and
flexible. Their control on our network is different than what
they would get with other customers, so it actually has to feel
like their network. It feels as if they are actually
controlling this network. They have windows into our network to
see what the operation is and we have gone much further than
other industry players in the design of our systems to make
sure that happens and adds greater value.