Collocation Moves into Neutral Territory

Posted: 02/1999

Collocation Moves into Neutral Territory
By Khali Henderson

Investment Equities Associates’ New World Tower carrier hotel located in downtown Miami Source: Investment Equities Associates

Frustrated that their international carrier’s expansion plans were bogged down by the
inability to easily place new switches, Jim Lavin, Sheila Peterson and Bob Marmon left
Arbinet, New York, in 1997 to form a new company to help other carriers in need of switch
sites. The new venture, Switch & Data Facilities Co., is one of several
carrier-independent collocation companies to crop up to meet the increasing need for
equipment housing and support from emerging multinational carriers (EMCs), competitive
local exchange carriers (CLECs) and Internet service providers (ISPs).

"There’s so much talk about cyberspace that we sometimes forget that there is a
physical reality associated with it," says Peterson, Switch & Data’s vice
president of sales and marketing. That physical reality includes switches, computers,
routers and modem racks as well as the buildings that house them.

While service providers can and do find sites of their own (see info, below), there is
a growing need for collocation to allow for physical network expansion, interconnection to
other carriers and backup for other facilities. Make no mistake: This brand of collocation
is not characterized by contentious negotiations with a regional Bell operating company
(RBOC), sky-high rents or exclusive-use restrictions. Instead, it is:

• Carrier neutral, so customers can choose among competitive offerings;
• Prebuilt with a telco-grade infrastructure, so all conduit, power, environmental and
  security requirements are satisfied;
• Shared, so costs are spread among tenants, lowering capital expenditures; and
• Flexible, so tenants pay only for as much space or service as they need.

In addition, collocation facilities operators typically offer technical support
services for an additional recurring fee.

Vendors

Switch & Data’s goal is to build a nationwide footprint. The company’s team of
telecom and real estate veterans is on the road scouting potential sites three days a
week, Peterson says. They’re looking for existing carrier hotels–buildings that already
house many large carrier switch facilities—or buildings that, by virtue of their
construction and proximity to a LEC central office (CO), could be converted.

Switch & Data’s first facility, in the carrier hotel on Broad Street in
Philadelphia, opened in December. Collocation facilities in Los Angeles and Chicago are
expected to open in first quarter; Miami, San Francisco and Boston by second quarter.
Other locations in the works are Atlanta and Dallas. In the next year, the company plans
to expand overseas.

ExtraNet’s main distribution frame for CLEC Services Source: ExtraNet

One of Switch & Data’s predecessors is New York-based ExtraNet. The company was
founded in 1988 as a systems contractor to carriers and corporate customers. In 1995, the
company began offering collocation services primarily to meet the needs of the
then-emerging international resellers, which did not want to be tied to one carrier, and
international callback service providers, which needed backup power for their personal
computer (PC)-based telephony services, says CEO Michael Collado. ExtraNet now operates
two facilities in the same building at 111 Eighth Ave. Sites in Newark, N.J., and Chicago
are planned to open in first and second quarters, respectively, and sites in Miami and Los
Angeles are under evaluation, Collado says.

Interestingly, one of the Miami sites, New World Tower, which Collado is evaluating for
ExtraNet, is owned by Miami-based Investment Equities Associates (IEA), another new player
in the collocation arena.

New World Tower, a carrier hotel, turned up Dec. 1 as a "meet-me" room for
carriers to interconnect to one another. IEA is set to open another meet-me room in an
adjacent building by second quarter, says David Garfinkle, an IEA partner. He says the two
meet-me rooms then will be linked, thus doubling the number of potential interconnection
partners a tenant might have. IEA differs from ExtraNet and Switch & Data in that its
roots are real estate. It has not ventured far from the tree, primarily offering prebuilt
lease space to carrier tenants. The meet-me rooms now offer collocation options akin to
those of the other two, however, and are available to all comers, but at a discount to
building tenants.

Space

Investment Equities Associates’ 200 SE 1st St. Miami property Source: Investment Equities Associates

Space in a collocation facility is offered in varying sizes, but falls into three basic
categories–cabinet, secure cage and secure facility. Rent for each of these options
depends on several criteria, including the geographic location of the building, the size
of the space, the term of the lease, the amount of additional space leased from the lessor
and any special buildout requirements needed.

ExtraNet’s New York facility, undoubtedly in one of the more expensive rent districts,
offers cabinet collocation starting at $650 per month not including any other applicable
discounts. A secure cage from ExtraNet runs from $2,000 to $10,000 per month depending on
the size; a secure facility is up to $25,000 per month.

Support

While tenants are always able to access and manage their own facilities, generally
collocation facilities providers also will offer facilities management services. IEA
currently is evaluating just how and when to introduce this part of its service. ExtraNet
and Switch & Data both offer tiered levels of support for installation, operating and
engineering functions, from "remote-hands" emergency support to a formal
outsourcing contract to ordering and provisioning local loops and long-haul circuits. They
even will provide interconnection services.

"Essentially, the carriers can deploy their equipment and have unmanned
facilities," says Collado of ExtraNet’s facilities management services. These
services enable emerging carriers and ISPs to expand quickly without the expense of
24-hour manpower at each facilities site. They also are the reason that many enterprise
customers chose to place their backup servers at a collocation facility.

Incubators

A secure facility service client installation Source: ExtraNet

"It’s an exciting niche to be in," Peterson says. "Everyone wants to
talk voice over IP (Internet protocol [VoIP]) and DSL (digital subscriber line), but what
we are doing is serving a need. It’s great to be in sales for a company that when you tell
a prospect what you do, they say, ‘What a great idea. I need that.’"

In newly deregulated telecommunications markets, both in the United States and abroad,
neutral collocation facilities will enable CLECs, ISPs, international resellers and PTTs
to enter markets quickly and affordably and without the headaches normally associated with
site selection or LEC collocation. Just think of them as incubators for the world’s next
generation of telecom providers.

Khali Henderson is editor-in-chief of PHONE+ Magazine.

Site Selection Tips
How to Avoid the Lease from Hell
By Brant Bernet

The three most important criteria for real estate site selection, it is said, are
location, location and location. While this is true for a shoe store, bakery or bicycle
shop, the checklist explodes into a wish list when it comes to suitable telecommunications
technical space.

Many years ago, in the infancy of the recent telecom surge, traditional real estate
brokers were being asked to locate technical switch, point of presence (POP), gateway and
node sites for the growing number of telecommunications providers. Often, it wasn’t until
after the lease was signed, obligating the tenant to 10 to 20 years of technical
"hell" or an expensive lease buyout, that the telecom company realized that the
building’s ceilings weren’t high enough to house its equipment or that it could not
accommodate its generator requirements. Sophisticated space users need only make this
almost fatal, multimillion-dollar mistake once.

Challenges in technical site selection today are vast. For one, space is more difficult
to find due to the incredible number of telecommunications companies entering the various
real estate markets. In addition, Wall Street’s insistence on rapid, national deployment
requires an enormous real estate department. And, most importantly, the transactions are
extremely complex.

Despite the potential site-selection hazards, most of the pitfalls can be avoided with
proper planning.

First, if your company requires multiple site deployment (ie. several sites to hit
"revenue-ready" at the same time), create a national team comprised of your
equipment vendor, a real estate broker with specific telecommunications expertise, a
construction manager and a space planner/architect. This stage is critical because
improper "staffing" can be costly. Let’s call this group "The A Team."

Next, with input from The A Team, devise an all-inclusive checklist detailing the
requirements for your project. This list–the team’s bible–should be implemented in
exacting detail and should include the following at a minimum:

• Required proximity to fiber carriers;
• Required proximity to regional Bell operating company (RBOC) central office (CO);
• Location in the building (basement vs. first floor vs. higher in building);
• Type of building (high-rise vs. warehouse);
• Required ceiling height;
• Required floor load;
• Power generator needs;
• Conduit requirements;
• Dry cooler specifications; and
• Fire suppression guidelines.

Third, create a timeline and stick to it. If it looks like dates are slipping,
find out who is causing the breakdown, tighten the screws and force the project
back on track.

Finally, and most importantly, create transaction accountability through written,
weekly updates. Set benchmarks (e.g., by week three, The A Team will conduct a facility
tour; by week 10, we will sign a lease, etc.). Make sure each component of The A Team
fulfills its transaction requirements on a regimented, weekly basis.

The enormous task of technical site selection does not have to be a nightmare. The
daunting prospect of selecting the perfect location has caused us to rewrite the rules of
real estate; location only does not fill the prescription anymore. A well-trained team and
a methodical plan will save time, money and lots of aggravation.

Brant Bernet works for Trammell Crow Co., Dallas, and is a national consultant for
the telecommunications industry. He can be reached at [email protected].