It's all about the metro

Lately, the focus of IP networks has shifted from long-haul stuff to metro fiber transport. Carriers like Level 3 and Cogent are continuing to expand their metro presence constantly. I recall reading in Cogent's latest SEC filing that they will expand by 50 something buildings in the second half of 2006 - one of those will be right here in Jacksonville. As for Level 3, they've been on an acquisition spree, buying up Wiltel, Progress Telecom, and (soon) Telcove. All three of these companies, particularly Progress and Telcove, have a vast metro presence which will be good for Level 3.

Why is metro so important? Customers, customers, and customers. More and more customers are starting to deploy services like Metro Ethernet instead of private lines for intra-office connectivity. More datacenters are springing up to accommodate new demand for infrastructure, particularly in lower tier markets. Companies like colo4jax need connectivity between POPs. All of these customers have transport in common, which relies on metro fiber.

More metro assets translates into better customer reach, which translates into more revenue. In reality, Level 3 is simply using their favorable financial position to outflank all the other carriers who don't have a favorable financial position (like Cogent). They're really just duplicating Cogent's strategy of appearing where people need them. The unfortunate downside is that companies who want dark fiber have fewer options with Wiltel, Progress and Telcove now folded into L3.