No Gold Mine In Sewers

Few telecom start-ups can match the press attention devoted to CityNet, the Maryland company that sends robots through sewers to lay fiber-optic cable to buildings. The media loved the company and its novel solution to the last-mile problem, and governments were intrigued by the idea of getting their cities connected without tearing up the streets. Venture capitalists loved CityNet, too, investing $275 million. Alas, even all that money, goodwill and attention wasn't enough to escape a retrenchment.

WashTech reports that CityNet is laying off an unspecified number of its 80 employees and shelving its ambitions to build sewer-borne networks in 20 cities. Instead, the company will focus on completing projects in Los Angeles and Indianapolis and selling services over its existing network in Albuquerque.

You can't be surprised, given the state of telecom. But on another level, it was hard not to root for CityNet, which seemed to have built a better mousetrap. The current market is throttling the good ideas as well as the not so brilliant ones.

Trade Show Funk

What's tougher than telecom these days? Telecom trade shows. The Service Networks show in Baltimore last week was pretty grim, from an attendance standpoint. Back in the days when it was BBSCon and then ISPCon, the show was a major draw. But barely 120 diehards were in attendance for the Wednesday morning's keynote address. On the trade show floor, the staff in the booths outnumbered the folks in the aisles.

"I think it's probably reflective of the state of the industry," said Bob Fischer, director of industry intelligence for Universal Access, which had one of the larger booths at the show. "The next year is going to be a tightrope act."

It's no secret that trade show attendance has been hit hard by the double-whammy of the recession and post-Sept. 11 fear of flying. Massive layoffs and belt-tightening in the telecom and Internet sector have added insult to injury.

Show sponsor Penton Media sought to build a critical mass of attendees for last week's event by combining three existing trade shows - ISPCon, Connected Home and NextWare Spring - at the Baltimore Convention Center. By May 1, the Connected Home and NextWare components had been postponed.

"Despite the world-class faculty that has agreed to speak, the partnerships that we have made and the promotional efforts behind this show, the response from the market has not matched the expectations we'd set forth for this event," the show's organizers said in announcing the slimmed-down show.

Smaller shows have their benefits, however, and the panels were intimate, informative and interactive, with lots of give and take between the presenters and the audience. There was also a strong "survivor sentiment" that the downturn has had a Darwinian effect, winnowing out the faint of heart.

"The reason there aren't as many people here is that the speculators are gone," said Dan Moffat, president and CEO of New Edge Networks. "About 80 percent of the people who came in thinking they'd build something and sell it found they can't sell it, and now they're gone. The good thing about the people in this room is that you have real businesses."

Broadband Growth in Major Cities

Is the last mile barrier being worn down? New data shows solid growth in broadband penetration in major U.S. cities, even as the Internet infrastructure has experienced a major meltdown. More than 25 million Americans are now surfing the Internet over a broadband connection, according to the new data.

The relatively slow adoption of high-speed Internet services has been a major factor in the great Internet disappointment. Projections of explosive uptake of Internet services abounded during the euphoria of 1998-2000. But the so-called "last mile" barrier has proved a stumbling block, as the Telecom Act of 1996 has not produced the seamless connectivity needed to deliver broadband to the masses.

Not surprisingly, the new report from Neilsen/NetRatings shows the strongest gains in the major markets, including New York (2.7 million broadband users), Los Angeles (1.7 million) and Boston and San Francisco (1.1 million each). The fastest-growing major market was Washington, DC, which showed a one-year gain of 153 percent to 532,000 high-speed users.

This growth pales when compared to the giddy projections of just a few years ago. But any improvement in broadband penetration is welcome news for the Internet infrastructure industry, as it brings us ever closer to the day when fat pipes deliver meaningful levels of movies, music and online gaming to the home, and real-time collaborative tools to the business community.

What's In A Name?

Remember when tech-centric names were trendy? Everything was e-this and i-that and Net-something. Not any more. This week the Chicago mixed-use development known as e-port underwent a name change. The 1.5 million square foot project will now be known simply as 600 West, which the developers hope will attract more non-tech tenants to the site, which is reportedly about 40 percent leased.

A similar fate has befallen many projects that were designed for high-tech/telecom tenants that never materialized. As the telecom meltdown accelerated, many of these projects shifted strategy and began pursuing alternate use tenants, primarily office leases. As a result, all those "technology centers" have adopted more conventional names.

It may be true that a tech-friendly moniker is a barrier to interest from traditional retail and office tenants. Perhaps the notion of a wired building represents higher rents in the minds of many of these tenants. But it's fair to say that the anemic leasing in the tech sector has left a bad taste in the mouth of many developers and leasing agents. The name becomes a symbol of a failed flirtation, and dumping the name is one way to sever links to that past and get a fresh start.

Emptying Space

This week there were more headlines promising headaches for telecom landlords. Even before its bankruptcy filing Wednesday, Teleglobe was shutting down its Washington data center (Washington Business Journal, free registration required).

Like many downtown telecom projects, the 140,000 square foot, $120 million data center was once hailed as a potential magnet for new economy businesses. Instead, it will become just another vacant facility as Teleglobe bails out of the web hosting business completely.

Coming on the heel of Infocrossing's termination of its lease at CyberFortress I, this adds more inventory to the already abundant vacant space in the Washington market.

All is not gloom, however. As noted in a recent story from WashTech, the federal government's dominant presence in the DC market has actually insulated the region from the worst of the tech meltdown, as Washington's unemployment rate is half that of Silicon Valley.

And yes, there's still plenty of market activity, according to Jason Britton of Fortress Development, the developer of CyberFortress I. "There are many tenants - particularly the Federal Government - who have expressed interest in this facility," said Britton.

Virtual Search Warrants

The issue of "cybercrime" has always been sticky for ISPs and web hosting companies, who must balance their legal obligation to assist police investigations with the privacy rights of their customers. A news item this week in the Web Host Industry Review adds a new wrinkle: just how much physical access must data center operators provide to police and federal agencies?

Industry groups including NetCoalition and The U.S. Internet Service Provider Association have protested a Minnesota court ruling that requires police officers to be physically present when data sought under search warrants is retrieved. The case involves a child pornography case in which prosecutors in Minnesota issued a search warrant for information on Yahoo's servers in California. The warrant was faxed to Yahoo, which had employees fetch the information and send it back to Minnesota.

The defendant protested, asserting that having civilians (rather than police) conduct the search violated his Fourth Amendment rights against undue search and seizure. The judge in the case agreed, and ruled that in the future, police should be present when search warrants are executed by ISPs and web hosts.

The ISP industry groups say that allowing police access to their data centers would be disruptive and threaten the privacy of other customers, and is unnecessary because engineers and technicians would be needed to actually retrieve the information.

While I'm not familiar with all the facts of the Minnesota case, you'll forgive me if I'm cynical about the motivation of the defendant in raising the objection. Is this a legitimate Constitutional issue, or just a desperate bid to exclude damaging evidence?

One thing we've all learned since Sept. 11 is that security policies need to be taken seriously. Limiting physical access to data centers is a key element in securing America's telecom infrastructure. Those policies shouldn't be diluted by novel legal arguments by alleged child pornographers.

Handing Back The Keys

When it came on the market in the spring of 2000, CyberFortress I served as the poster child for the Internet data center boom, sparking a bidding war among eager tenants. Now it's the latest example of how landlords are taking it on the chin.

On Monday Infocrossing Inc. officially terminated its lease for the 54,000 square foot data center facility in Loudon County, Virginia, which would have paid an additional $30 million to landlord Fortress Development (formerly DataCentersNow). Infocrossing said last August that it it no longer has any need for the space, and has been paying operating expenses of nearly $600,000 per quarter to maintain it.

CyberFortress I was built on spec. When it was completed in the spring of 2000, nearly 60 prospective tenants toured the site, and 11 bidders competed for the right to lease the project.

Infocrossing said it also recently renegotiated the lease for its Atlanta data center at 6620 Bay Circle Drive in Norcross. "Under the renegotiated lease, rent commitments are reduced by 33 percent - a cash savings of $5 million over the balance of the lease term," Infocrossing said in its release.

That was good news for Infocrossing's shareholders, as the company reported its first operating profit since 1999. But if Infocrossing's numbers look prettier, it's because its landlords got a haircut.