WASHINGTON — Dave Schaeffer's seventh start-up is a doozy. Much bigger--and far riskier--than the taxicab-radio spectrum he rolled up and sold to Nextel Communications, or the wholesale wireless-access business he built at Pathnet Inc.
From his office in Georgetown, Md., he is poised to light his own fiber-optic Internet backbone next month and start selling Internet access to tenants inside large office buildings in major cities at 70 times the speed and two-thirds the price telephone companies typically charge.
Schaeffer's Cogent Communications has committed to spending more than a half-billion dollars to test his belief that a national network built to carry only data--no regular "voice" phone calls--can make money delivering an ultra-high-powered Internet to businesses.
Cogent is among a new breed of telecommunication carriers racing to exploit fiber-optic advances and deliver on the promise of the Internet--instant communication with everyone, everywhere--that remains stubbornly beyond the reach of the average business and consumer. The Internet for the most part is still a rocky back road because its architects can't agree on how to build the wider highways needed to handle the recent explosion of data traffic.
"The Internet is the most gluttonous consumer of communications resources known to man," said Carl Russo, who runs fiber optics for Cisco Systems and pioneered the switching box that Cogent is installing in office buildings. "Cogent is offering a cafeteria to the gluttonous. They represent the future of what is going to happen in the Bell telephone space."
Cogent's $1,000-a-month, virtually all-you-can-use Internet offer is puzzling to competitors and potential customers, who wonder how the price of Internet access could plunge so deeply. Each Cogent customer will get unshared access at 100-million bits of code per second, a leap up from the 1.5-million bps that corporate T1 lines typically provide for $1,500 a month. Those T1 lines use the phone company's copper wires, originally designed to carry voice.
How Cogent can make such an offer provides an intriguing glimpse into the fiber-optics revolution, which is cutting the cost of high-speed data connections and spawning carriers with names such as Cogent, Telseon, CoreExpress and Yipes. Win or lose, these gambles show the challenges telephone companies increasingly face from new business models based on breakthroughs in how light is beamed through glass fibers.
"Fiber is doubling its capacity to carry data every 10 months," said Schaeffer, the 44-year-old scion of a Washington, D.C., taxicab empire. "It's up 16,000-fold from the beginning of the last decade. Today, we are at less than half a percent of the theoretical capacity of a fiber."
Advances in the number and power of glass fibers being laid underground allowed Cogent to develop an optical network more cheaply than similar networks of the past. Cogent purchased two fiber strands running cross-country inside cables laid by Williams Communication, plus a single strand in various cities from Metromedia Fiber Networks.
Cogent is exploiting another engineering breakthrough too, one that has allowed the humble corporate network--known as a local area network, or Ethernet--to reach the transmission speeds of fiber optics. In effect, engineers devised a way to plug local area networks directly into the Internet.
Glass fiber, of course, is hardly new in telecommunications. Fiber has carried voice and data underground across the country for two decades. But until recently, it was too expensive to reach all but the largest corporations.
In the 1990s, the carrying capacity of fiber was greatly magnified by prism-like devices that split light beams into colors so each could carry data as a separate channel. The economic repercussions are shaking up the telecommunications industry, which is in a tizzy over what kind of networking gear should carry the next generation of Internet, telephone and television signals.
The Internet's biggest problem is that it still rides atop a hybrid architecture that uses glass fibers and copper wires designed for voice. This slows traffic because data packets travel as light through fiber, then are converted into electrons to move via copper wires. The bottlenecks are the worst in cities, which have little fiber.
Converting to an all-fiber network could take decades because the Internet has not one but many backbones, sprawling networks that are owned for the most part by phone companies--WorldCom, Sprint and AT&T. All have a vested interest in maintaining revenue from their copper phone networks.