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July 1, 1999

9 Min Read
Ports for Rent

Posted: 07/1999

Ports for Rent
By Ken Branson

"I use the word ‘incubator,’ because to me, [switch partitioning] is a
product, not a business. We used it to get started ourselves. We’re a carrier; we
understand carriers."

–Mike Hosley, director
of business development, STAR Telecommunications Inc.

In the deep, dark recesses of the telco hotel at 60 Hudson St. in New York is a DMS
300/250 tandem switch. On that switch are ports, and in those ports, Melissa Craig will
tell you, is a living. She is president and CEO of General Telecommunications Inc., which
owns that switch and two just like it in Miami and Los Angeles. She claims her company is
the only one that rents switch ports as its principal business.

The act of renting ports is called switch partitioning. It has that name because
carriers who do it usually carve out–or partition–a certain number of ports on their
switch to be rented. Companies that rent ports are companies that need to land some
traffic in a city where they have no switch, and for which the traffic volume does not
justify buying one. Some very large carriers might fit that description. However, many
renters of switch ports are carriers that, in the words of one executive who has been on
both ends of such transactions, "are not quite ready for prime time … that is,
people who actually aren’t completely sure they know what they’re doing."

All are welcome at General Telecom, which is often referred to in the industry as
"Melissa’s," as if Craig were running a bar or cafi instead of renting ports in
DMS 300/250s. But don’t be fooled–it’s not that warm and homey; it’s strictly business.

This is Craig’s value proposition: You got traffic? You got some minutes? You want to
land in New York? You got $2 or $3 million to buy a switch? No? You got half-a-dozen
technicians to run the switch? No? You think switches grow on trees? You think technicians
work for free? And where you gonna put the switch? You know what it costs to rent space
for a DMS? Fuhgettaboutit! You go see Melissa.

For between $440 and $750 per port per month, with a minimum of eight ports, any
carrier that wants to land traffic in New York, Miami or Los Angeles can have an
arms’-length, strictly business relationship with General Telecom, and walk away from it
with 30 days’ notice, no regrets, no questions asked. "All pricing is a matter of
terms and conditions," Craig says. Accept more terms and conditions, and the carrier
can have a more meaningful relationship–12 to 18 months, more features in the contract.
Either way, she claims, the carrier gets 24-hour, seven-day-per-week coverage of the
switch, plus the ability to manage traffic remotely. General Telecom is not a carrier, any
more than a car-rental company is a chauffeur. Such companies rent cars. General Telecom
rents ports.

Some carriers have rented ports at General Telecom and then gone on to greater glory.
Viatel Inc., a New York-based international long distance carrier, is one. Larry Malone,
Viatel’s vice president-sales and marketing, says his company felt the need to get its own
switch when it reached the 100-port level. Now, Viatel competes with General Telecom; it
has switches in New York and just across the river in New Jersey.

Still, many carriers are content to make a profitable, if not particularly glamorous,
living renting ports from General Telecom. "We rent anywhere from eight to 250 ports
[to each customer]," Craig says. "The 250 guy is a one-man band–I mean, he’s
got a computer, a phone and a secretary."

Renting ports from General Telecom or anybody else allows a carrier to sound and act a
bit grander than its facilities would justify to a critical eye.

"I can’t tell you how many times someone comes up to me at a trade show and says,
‘Well, we have a DMS in New York,’ and it’s Melissa’s or ours," Malone says.

Craig would rather it were hers, all things being equal. She has 28 employees who do
nothing but give tender, loving care to her DMS 300/250s. They don’t do network
management. They don’t do network design. They do ports. "You rent ports from a
carrier, something bad happens, whose traffic gets taken care of first?" she asks.
"Yours? I doubt it."

Then there’s the issue of confidentiality, she says. To send your traffic through
somebody else’s switch is to make available to that somebody else a lot of information
about your customer, Craig says. A carrier might see a rich revenue stream passing through
its partition and decide to take it. General Telecom, because it isn’t a carrier, could
care less.

Carrier representatives might be inclined to grant Craig’s first point. They run
networks, and the network comes first. But they point out that switch partitioning, for
them, is a means to an end, and is usually offered as part of a larger bundle. If all you
want to do is poolside arbitrage with your laptop and cell phone, they say, General
Telecom may be the way to go. But if you want to grow, to be a player, you need to think
about relationships.

"Originally, when we did switch partitioning, we did it to attract and retain
overseas PTTs," says Mike Hosley, director of business development at STAR
Telecommunications Inc., Santa Barbara, Calif. "To accommodate them, we began to
partition our switches for larger carriers and for domestic companies, like callback
companies, that wanted to build on a relationship with STAR."

For Hosley and his colleagues, and for other international long distance carriers,
switch partitioning can be mainly about relationship building, and is usually part of a
larger agreement involving wholesaling. Telecom New Zealand, the dominant carrier in that
Pacific Rim country, rents ports from STAR, but also purchases other services from STAR.
Hosley says it’s difficult to determine exactly how much his switch-partitioning services
cost, because they’re almost always part of some larger agreement.

"Telecom New Zealand, had they gone to Melissa, would have had a facilities-only
solution," Hosley says. "But STAR is a potential customer, and a potential
vendor, for international and even domestic termination."

The same is true of Viatel, Malone says. Viatel is knee-deep in building a
trans-European fiber optic network called Circe. The company has switches in the German
cities of Dusseldorf and Frankfurt; London; Milan, Italy; New Jersey; New York; and Paris.
Viatel is scheduled to open switches soon in Barcelona and Madrid, Spain; and Rome. There
are about 64,000 ports in each switch, and 10 percent of those ports are for rent in the
New York and New Jersey switches. In London, it’s 5 percent. The percentages in the
continental switches vary, Malone says.

"I use the word ‘incubator,’ because to me, [switch partitioning] is a product,
not a business," Malone says. "We used it to get started ourselves. We’re a
carrier; we understand carriers. We use it to help other carriers get started. I’ve got
more than 50 carriers [renting ports] on my two key switches in London and New York."

Malone says his ports are for rent at or close to the same price as General Telecom’s,
but that a carrier doing a certain volume of traffic may pay less, near $300 per port per
month. Viatel pitches its rented ports as places of access and egress, and uses them to
promote the use of its network.

So it is with STAR Telecom, Hosley points out, that his company owns pieces of 20
submarine fiber optic cable systems, online or in progress, and everything the company
does is aimed at making the best use of that resource.

Malone and Hosley, who speak of Melissa Craig with affection, take her point about
confidentiality less seriously. Hosley stresses relationships with the carriers that rent
his company’s ports. "We’re here to help each other out," he says. Malone points
out that telecom operations people are less numerous than one might think, that they tend
to move around a bit, mingle at trade shows and hang out in the same bars, literally and
figuratively. "Everybody knows who’s doing what with whom," he says. "I
don’t think there are really any secrets in this business."

Malone and Hosley say carriers offer something else to the people who rent ports from
them: a little STAR quality (no pun intended). This is to take care of the small carrier
the CEO of which says to someone at a trade show, "Well, yeah, we’ve got a DMS in
L.A." If the person so addressed says he would like to see the switch in Los Angeles,
Hosley is ready. It’s showtime, baby.

"You should see our switch room in L.A.," Hosley says. "We have a very
wide range of support services. We’re talking an extremely high-end, high-tech operation,
with all the bells and whistles. We’ll send a car for you, bring you out, you can show
your client around, we’ll have coffee ready … the whole thing."

In other words, Hosley wants to help carriers make a good impression, so they can get
more customers, so they can generate more traffic on STAR’s network. While somewhat more
restrained in his description, Malone says Viatel plays it pretty much the same way.

By contrast, General Telecom’s switch room is a room with a switch–a rather bare room
with a very well-cared-for, lovingly monitored switch.

That there is enough business for both approaches to switch partitioning seems fairly
clear. Jim Lavin, president and CEO of Switch and Data Facilities Co. LLC, Teaneck, N.J.,
would know, because his company often is mistaken for one that rents ports. It doesn’t. It
offers neutral collocation services, for which a customer needs to have a switch to
collocate. "We get a lot of people asking us to rent ports, because they see where
we’re going and they need to go there," he says. "We refer them to General
Telecom, if they’re near the General Telecom facilities."

As for Craig, she and her colleagues may cater to small carriers, but they’re not
thinking small themselves. Asked if they plan to expand, she replies, "Oh, yeah!
You’ve got to be thinking Mexico City, Tokyo, London–wherever there’s traffic."

Ken Branson is business and finance editor for PHONE+ magazine.

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