IDT Finds Valuable IRUs

How do you find fiber in a major city where it's all been taken? Perhaps, if you are backbone provider IDT, you might find it in bankruptcy court.

by Jim Wagner of internetnews.com [September 23, 2002]

Newark, N.J.-based IDT bought the indefeasible rights of use (IRU) contract Friday from Star Telecommunications, a competitor fallen on hard times and selling its assets to appease creditors.

IDT now has fiber capacity in some hard-to-find areas—doubling its network capacity overall—including New York, Washington, D.C., Los Angeles, and Boston. IDT officials wouldn't say how much they paid for the existing IRU, but reported the original IRU was sold to Star in 1998 for $68 million.

David Willis, vice president of global networking strategies at research firm META Group, said fiber capacity is obviously an asset that has declined in value in recent years, though certain markets have a dearth of fiber capacity, making it a good deal for IDT.

"They're years away from being a credible enterprise customer buyer, but this is a step in the right direction," he said. "They're only making the investment on something they can get an immediate return on investment and it's increasingly harder to find fiber in metropolitan areas."

Fiber capacity is becoming an increasingly precious commodity in large urban areas, where Internet services are finally coming into their own. Companies are buying bandwidth-heavy services like virtual private networking (VPN), videoconferencing, and Web services.

For start-up carriers, the hardest part these days isn't finding the customers—it's getting those customers the bandwidth they need. IRUs, like the one IDT bought from Star, are usually long-term deals with terms as long as 20 years.

IDT will retain the IRUs for the remainder of Star's original contract term—around 16 years—as well as some of the equipment on Star's 20 leg network of OC-3 and OC-12 pipelines.

Howard Jonas, IDT chairman, said recent woes in the telecom industry have been giving his company a lot of business, as companies look for an alternative to failing carriers like Global Crossing and WorldCom.

"We got this fiber network at a great price and just in the nick of time," he said. "At the rate we're growing, we need to get our hands on as much bandwidth as we can."

While IDT may indeed be getting more business as a result of recent telecom troubles, the company has been doing its part to bring customers in who are a little jittery.

Willis laughed when asked about IDT's July $5 billion bid for WorldCom assets, calling it a "joke" bid. At the time, the bid was announced as a stabilization plan, not a marketing plan, to keep WorldCom customers from losing their Internet connection.

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