Building a New Frontier

The growing telco is creating a fiber optic nationwide network

Frontier Corp., Rochester, N.Y., is already doing what most telcos aspire to -- the company offers local telephone service, long distance and wireless on one single bill.

The telecom company, known well in the communications world, but barely recognized outside, has been growing quickly, acquiring seven other businesses and doubling its size in the past two years. The Fortune 500 company's annual revenues now total $2.5 billion.

Frontier's buying strategy revolved around the idea that the U.S. Congress would eventually let long distance companies into the local telephone market and vice versa. Now, it's the fifth largest long distance carrier, and the 12th biggest local exchange provider in the country. And Frontier, like other smaller telcos, qualifies for an exemption under the Telecommunications Act of 1996, signed into law in February, that lets it market together integrated communications services -- local, long distance, wireless, Internet. Other companies, such as AT&T, Sprint Corp. and MCI Communications Corp. must form separate subsidiaries to jointly market the services.

Frontier's expertise makes it a likely takeover target by a larger telco in this fast-changing business.

Last month, Frontier added what is so far its most attractive attribute -- a plan to build a $2 billion nationwide fiber optic network that it claims will be not only the largest single fiber buildout ever in the United States, but the most technologically advanced.

Frontier is investing $500 million in the multi-ring SONET-based network that would connect 100 cities. The network will carry not only voice but data, which is extremely important as Internet use grows exponentially.

The network uses a new kind of fiber optic cable that has only been available for about six to eight months, said Robert Barrett, president of Frontier Network Systems and Services. "We can put speeds on a piece of fiber that are 12 times that of a few years ago," he said.

And the Internet was used much less a few years ago than it is today. "There's going to be a substantial [increase] in demand for bandwidth," said Barrett. "Networks like ours will have to carry other things besides voice."

It makes sense for Frontier to build the network now that the local and long distance market is opening up and the technology has improved. The build-it-yourself strategy is expensive, but is expected to save the company money in the long run as well as guarantee use of a network. "Everything we do depends on a high-speed reliable network," said Barrett.

Frontier's chief financial officer, Louis Massaro, predicts that annual transport costs will be reduced by 50 percent when the network is finished, which will probably be in 1998, although parts will be operational in 1997.

It also makes sense that Frontier is a more likely takeover target for building such a network. Although he wouldn't comment specifically about potential suitors, Barrett said Frontier is actively building strategic partnerships with several large companies, some of them international. But everyone is partnering up, he pointed out. "The telecom industry is incestuous -- we're all partners," said Barrett. And telcos must be global to succeed. "This is not a national game," he added.

Frontier's two allies on the network project are Lucent Technologies, Murray Hill, N.J., which officially was spun off from AT&T in September, and Denver-based Qwest Communications, a privately held company that designs and builds fiber optic networks.

The network allows new technologies to be added as they are invented. "The fiber is specially designed for current and future network requirements," said Nina Aversano, president of Global Commercial Markets at Lucent, in announcing the partnership.

Another partner, Andersen Consulting, Chicago, is helping Frontier determine how to merge customers from the seven different companies. Everything from billing systems to individual customer calling plans must be integrated.

While it seems like Frontier is ahead of the pack in network-building, Barrett admits that the company must develop a stronger Internet strategy. The company now rents connectivity to Internet access providers and offers switched and dedicated Internet service. However, Barrett said, "We have to be a more active player than we are."

Barrett points to WorldCom as having a good strategy. It recently acquired MFS Communications, which had just bought Internet access provider UUnet Technologies Inc. "That's the kind of company that will be a difficult competitor," he said.

Frontier has come a long way since its founding in 1920 as Rochester Telephone Corp. "It's very dangerous to assume that anything [in telecom] is going to stay the same," said Barrett. "It's an exciting time."

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