Mon, May 14, 2001 page18

• Level 3 chief has a line on Taiwan's telecom needs

  International submarine cable companies are gearing up to roll out their operations in Taiwan after being awarded licenses recently by the government. To find out more about the plans of one of the major firms to get a license, `Taipei Times' staff reporter Richard Dobson spoke with CEO of Level 3 Communications Asia Steve Liddell, who was in Taiwan last week to meet with telecommunication officials and check on preparations for the landing of his company's Tiger cable

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  Taipei Times: At what stage is Level 3 in its move into the Taiwan market?

  Liddell: We're just beginning our operations here in Taiwan. Our license application was accepted in January. We received our establishment permit in April which means we can now go ahead and inject capital into the joint venture we've formed with Yulon Motors ... we can incorporate that joint venture, we can register the joint venture ... and from there we can go through the process by which we achieve a concession license in the future.

  

  Steve Lidell, CEO of Level 3 Communications Asia, talks about what he believes sets his company apart from others providing international network service to Taiwan's telecommunication's firms and Internet service providers.

  PHOTO: CHEN CHENG-CHANG, TAIPEI TIMES

  TT: When will Level 3's Tiger submarine cable make landfall here in Taiwan?

  Liddell: The first leg of the cable is already completed between Hong Kong and Japan and will be operational in the second quarter of this year. The next segment which is the connection into Taiwan will be landed in the fourth quarter of this year and we expect to be in full operation in the first quarter of 2002. We tend as a company to quote conservative time frames with the expectation of beating them. We would prefer to do that than quote aggressive time frames and then miss them.

  TT: Your company, along with the Office of the United States Trade Representative and international submarine cable company Asia Global Crossing, has been critical of Taiwan's regulatory framework. Is the government taking the right steps to further open the market to new and foreign competition?

  Liddell: Taiwan is on a path towards liberalization like many countries where it has adopted a step-by-step process. We firmly believe that an open and liberalized telecommunications market is in Taiwan's long-term best interest. Telecommunications and the services that Level 3 will be bringing to the Taiwan marketplace underpin many aspects of the IT industry. By bringing a large amount of undersea capacity to Taiwan, Level 3 will be able to adopt our strategy of continuously reducing the price of these services to the community of usage. Typically our customers are ISPs, ASPs, content providers and other telecommunications providers. Any company that has a large proportion of their costs in the underlying bandwidth will naturally look at Level 3 as an attractive solution. So by allowing new submarine cables to be constructed and landed in Taiwan the Taiwanese government is making positive steps towards an open and liberalized market. We encourage the [continuation] of that process.

  TT: One area identified as being of particular concern to submarine cable companies is the government's insistence that foreign firms must negotiate with one or more of the four fixed-line operators for the provision of a backhaul service preventing them from providing capacity directly to end-users. Your comments?

  Liddell: The regulations on backhaul allow for a commercial negotiation with one of the existing fixed-network providers and we're in discussions with a number of the fixed-line providers and have successfully have found ways in which we can work with one or more of the fixed-line providers to provide the connection between Toucheng, where our cables land, and Taipei, where the bulk of our customers will be located. We expect to complete those negotiations well in advance of the landing of our submarine cable.

  TT: Any clues on who you might sign up with?

  Liddell: When it comes to looking for a local company to work with we're working on a purely commercial relationship with one or more of the existing fixed-line providers. We hope they will become our customers because we are delivering a huge amount of international capacity to Taiwan and these are the very companies that need that international connectivity to connect their customers to the rest of the world.

  TT: Still on the question of market liberalization, there have been repeated calls from the foreign business community for the government to establish an independent regulator with greater legal authority to enforce policy. What are your views on the role Taiwan's telecoms regulator -- the Directorate General of Transportation Telecommunications -- should play in the future?

  Liddell: It's essential for any country with ambitions to become a telecommunications hub to have a regulatory framework that encourages ongoing investment in technology and skills. To have the right regulatory framework, it is important that a regulator is able to act in the long-term interests of the community.

  So if you look around the world at some of the other competitive telecommunication markets one tends to see an independent regulator with the ability and power to enact changes which encourage ongoing development of the telecommunications sector.

  TT: It's one of Level 3's stated goals to bring down the cost of bandwidth in Asia by up to 60 percent. How does your company hope to achieve this?

  Liddell: We've built our network around the world in a very unique way. Level 3's philosophy is somewhat different from traditional telecommunications companies, and when I say traditional telecommunication companies many of the new entrants are somewhat traditional in their thinking. Level 3 has a view that the telecommunications industry is transitioning away from being a vertical utility business to being a very competitive horizontal model, a little like the computing industry. If you roll the clock back 20 or 30 years and look at the computing industry there were three or four monolithic vertical providers like IBM, DEC, Sperry-Rand.

  Now look at the computing industry. You have competition at each layer. You have hardware competition. You have competition in microprocessors, you have competition in memory and some competition in operating systems. Lots of competition in applications. What caused that huge transformation? Simply, technology. The introduction of low cost, mass produced microprocessing technology by the likes of Intel. The introduction of unified standards such as the introduction of the Windows platform. The same transition is happening in the communications industry. We're moving away from the vertically-integrated monopoly providers such as Chunghwa Telecom, Korea Telecom, British Telecom and moving to a market where we see competition at each layer of the telecommunications industry. Level 3 believes in doing one thing very well. Competing at one layer, hence the name Level 3, which is the transmission layer of the industry. By continuously upgrading the technology in that layer of the telecommunications model we can always optimize our unit cost. Optimizing our unit cost means we can continuously drive down the unit price we charge our customers at a more rapid rate than our competitors. And we do this by building the network in a very unique way.

  For example, even the plastic pipes, the underlying conduits that we've built right across the US and Northern Europe, we've built that in such a way that we can deploy each new generation of fiber so -- ?even the underlying fiber itself can be continuously upgraded ... that technology is rapidly advancing all with the view of driving down that unit cost so that we can pass on those savings to our customers.

  TT: Why is bandwidth so expensive in Asia compared with other parts of the world like Europe and the US?

  Liddell: Let's look at some price points. A unit of capacity often used by communications companies is an STM-1 which is a 155 megabit per second dedicated channel. If you're a company in Taiwan buying an STM 1 [across the Pacific Ocean] to the US it will cost you around US$400,000 per month. Let's for a moment look at the Atlantic Ocean. We've seen competition in Europe the US and across the Atlantic now for a number of years. That same unit of capacity across the Atlantic Ocean would cost US$20,000. So there is a huge mismatch between a fully developed competitive model and one which is just emerging.

  Again if you look at the amount of capacity that has been built and utilized across the Atlantic Ocean it would stagger most Asian countries. So whenever we look at the amount of capacity that's being currently built in our system and in other competing systems what we'll see is very rapid price decline which is entirely consistent with Level 3 strategy and obviously a much more aggressive take up by communications intensive companies.

  TT: Level 3 will initially provide capacity of 320 gigabytes per second, with the ability to expand out to an even higher capacity. When can Taiwan users expect much broader capacity to be available and how is the system upgraded?

  Liddell: The terrestrial network and even the fiber component is now improving at a rapid rate. If you look at our second fiber portal in the United States we have physically pulled more fiber through the infrastructure we've built and we have up to 12 conduits now so that we can deploy each new generation of fiber.

  Again the cost advantage of generation three, generation five, generation seven fiber are immense when you compare it to the original first generation fiber technology. So we can upgrade the underlying fiber we can also upgrade the dense wave division multiplexing we use on this fiber to put more colors of light through that fiber. We can upgrade the transmission electronics which is the number of times you flick the laser on and off in order to transmit information down fiber.

  So all of these components in today's world ... change at a very rapid rate. It's no longer sufficient for a telecommunications company to invest in this infrastructure and expect it to last for 10 or 15 years.

  Because now we have to depreciate these assets on a much more rapid cycle in order to take advantage of each new generation of fiber, each new generation optical IP technology. It's actually a challenge faced by many of the traditional telecommunications companies.

  If you look at an AT&T, or a WorldCom they built their fiber networks in the US 15 years ago.

  And what they've seen is this huge growth in the requirement for high capacity and for many of these companies to upgrade these networks would actually require them to construct a new network in its entirety.

  What Level 3 has done it's built a network that can be shared by all of these users by simply purchasing a lower cost solution from Level 3. The traditional telecommunications companies -- even the new entrants -- can benefit from the low-cost solution that Level 3 built in to the network infrastructure when it was constructed.

  TT: What businesses in Taiwan will benefit the most from expanded capacity?

  Liddell: We are very much focusing on those customers who have what we call telecommunications intensive usage. They can be the carriers, they can be the Internet providers but not the end users themselves. We want to sell to lots of those companies, we're a horizontal company, we'd prefer to sell our services to multiple companies rather than just compete with those companies.

  TT: How does continuing innovation in devices that allow mobile access to the Internet boost business for a company like Level 3?

  Liddell: The demand for access to information over an IP platform is growing in all sorts of shapes and forms be it WAP, be it 3G be it ADSL cable modems all of these technologies are simply alternatives, choices for end users to be able to access the Internet to pull down content to communicate. Level 3 as a company is a provider of large capacity services to those providers. So any number of innovations on how end user can access information in our view are all good things.

  TT: The severance of a submarine cable linking China and the US in February seriously degraded Internet access to millions. How does Level 3 deal with issues of cable security?

  Liddell: I think it highlights the need for additional submarine cables. The cable break you referred to illustrates one of the most critical problems in the industry which is each new cable delivers a lot more capacity because each new generation has a lot more bandwidth availability. When you're very dependent on one cable system and that cable system breaks it can bring the Internet to a grinding halt, as it did here in Taiwan.

  That is a very strong argument for allowing investment by companies into additional alternative submarine cable systems such as the Tiger cable system.

  The way in which the industry now builds submarine cables to avoid these problems is to build them in a ring configuration.

  So that's a second factor, building the submarine cable such that if one segment of that cable breaks then traffic is restored on another segment. We do that and we certainly expect our competitors to do that. Secondly we chose to land our submarine cables in locations that are less prone to those kinds of problems.

  For example one of the reasons for the recent break between the China and US was due to fishing vessels off the coast of China.

  We have no intention of taking that route simply because we believe that route is prone to that kind of damage. We've chosen to land our cable in Toucheng which is away from from any heavy fishing and marine activity.

  When we land our cables we do something called deep trenching which means we physically bury them under the ocean floor. All of these factors are built into the tiger system to avoid these kind of problems.
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