If that helpful neighbour in the movie The Graduate were to whisper one word to the young hero today, it would probably be “fibre” instead of “plastics.” Not the kind of fibre you get in cereal, but the kind that is made from spun glass and buried in the ground — optical fibre, the kind every telecom and computer networking company wants a piece of, so they can beam Internet data, voice and digital TV around the globe at high speed.
Every few days there seems to be another fibre-related deal: JDS Uniphase, for example, said last week that it is merging with fellow fibre company E-Tek Dynamics of San Jose, Calif., in a $15-billion (U.S.) deal. JDS Uniphase — itself a product of the $6-billion merger of Ottawa’s JDS Fitel with Uniphase Corp. just a year ago — is already one of the largest fibre-equipment companies, and well on its way to becoming what analysts call the Intel of fibre (referring to Intel’s dominance of the computer chip market).
The comparison with Intel could be apt. Just as the battleground of the past was the personal computer — a war Intel and Microsoft have won — some industry watchers feel that the battle of the future will be over who has the biggest and fastest and most agile network, able to offer the best route for high-speed, intelligent Internet traffic, voice and digital entertainment. Companies such as JDS Uniphase won’t have their names on the product, but like Intel, they will be providing the underlying firepower.
Another company trying to marshall its artillery is Nortel Networks. Using its high-flying stock, Nortel has been buying its way into the business: Last month, it paid $3.2-billion for Qtera Systems, whose technology boosts the carrying power of fibre. Its competitors aren’t standing still, mind you: In August, Cisco Systems paid $7-billion for an optical startup called Cerent, and Lucent Technologies paid $1-billion for Nexabit, a company with no sales.
Nortel and its larger cousins also have to move fast because some of the industry’s small fry are growing so quickly that they are pricing themselves out of reach even for the big guns. A small fibre-optic company called Sycamore Networks now has a market value of more than $23-billion, while the formerly unknown Redback Networks has grown to the point where it is now making billion-dollar acquisitions — such as last month’s $4.3-billion purchase of Siera Corp., a fibre-equipment company with no revenue.
Another Canadian company trying to position itself at the forefront of this industry is little-known Worldwide Fiber Inc. of Vancouver, a privately held unit of a construction company called Ledcor Industries. Worldwide Fiber became a lot less unknown earlier this year, when it said it had convinced Microsoft’s chief financial officer, Greg Maffei, to join the company as CEO. This was a fairly major coup — like an unknown bar band convincing Keith Richards of The Rolling Stones to join the group as lead guitarist.
What helped Mr. Maffei make the decision was revealed last week: He got a loan of $77-million from Worldwide Fiber to buy 31 million shares of the company, which has said it will file later this year for an initial public offering. But despite the inducement, the fact is that a senior executive of the world’s most valuable company decided to join an unknown in Vancouver.
Worldwide Fiber is currently in a race to wire the globe with fibre-optic cable. The company, which began laying cable as an offshoot of its construction work, has bundles of fibre — each strand of which can carry 320 gigabits, or the equivalent of 5.7 million Internet connections — stretching across the country, and is halfway through a similar network in the United States. It is also building an undersea cable to join North America and Europe, and recently acquired fibre linking 11 European cities.
The Vancouver company isn’t alone: Its strategy is similar to that of a U.S.-based company called Global Crossing, which turned an undersea fibre cable into a multibillion-dollar market valuation — allowing it to make a $35-billion offer for US West (it lost out to a higher bid from Qwest Communications). Tyco International, the U.S. company that is laying the undersea cable for Worldwide Fiber, also recently announced that it plans to lay its own fibre network at the same time and go into the networking business.
Cementing the impression of fibre as the pipeline business of the future, U.S. energy giant Enron — which made its name with old-fashioned gas pipelines — also has a sizeable fibre-optic network it acquired when it bought a regional utility. The company rents it out to other companies, and says it is developing a trading network that will allow companies to buy and sell capacity on fibre-optic networks the same way companies trade capacity on natural gas pipelines. One of its first customers: Global Crossing.
If you want to build an information superhighway, you’ve got to have a road — and fibre, it seems, is the road-building material of choice.