Fiber

SHELLY GARCIA Staff Reporter Fiber-optic telecommunications providers, who until now have confined their efforts to densely populated commercial centers like downtown L.A. and Century City, are moving into the San Fernando Valley, making significant financial investments to lay fiber-optic cable as far west as Woodland Hills. Teleport Communications Group, which is currently merging with AT & T;, is expected to complete installation of a network into the Warner Center Plaza towers, Warner Gateway and the nearby Trillium buildings in the next three months at a cost of about $500,000. Meanwhile, developer J.H. Snyder Co. is evaluating a number of fiber-optic service providers for its Burbank-based Media Center office complex, which is expected to open early in 2000. “The entertainment industry are heavy users when it comes to fiber optics,” said Brendan McCracken, vice president, marketing and leasing for Snyder. “It’s important for us to have a comprehensive system.” The moves come at the behest of Realtors and developers who believe that fiber-optic access will help to attract and retain commercial office tenants and command higher lease rates. At the same time, fiber-optic service providers are showing a new willingness to wire areas like Warner Center because they believe the day is fast approaching when most companies will find they can no longer conduct business effectively over traditional telephone lines. “All of the companies that two years ago said, ‘I don’t need a presence on the Internet,’ are now hip-deep in e-commerce,” said Jon Goodman, executive director of EC2, a multimedia research and development center at USC. Traditional telephone lines can handle large volumes of phone calls and fax transmissions. But when it comes to transmitting large amounts of data, or actually conducting sales transactions or merchandise transfers, telephone wires are inadequate. It can take a television station 15 minutes to download a 20-second video clip over the telephone lines. That same clip will take seconds to transmit over fiber-optic cable. Besides lightning speed, the addition of a fiber-optic service gives companies the assurance of a backup system if their regular phone system fails, since even the most enthusiastic fiber-optic users typically also use a Baby Bell. And fiber optics also can save on phone bills. The Baby Bells and GTE are limited in their ability to set prices because of guidelines set by the federal government to promote competition in the wake of deregulation. Fiber-optic service providers are under no such restrictions. And because they are battling for market share, their rates can be as much as 30 percent lower than the traditional phone companies. “Those customers who we’ve served in downtown centers have said, ‘We like what you offer. We want you as a bargaining chip when we’re dealing with the (Baby Bells),'” said Roger Cawley, a spokesman for TCG, which is one of the largest fiber-optic service providers in the nation. As a result, real estate and other experts believe that the next battle for the hearts and minds of tenants will revolve around fiber-optic networks. “You’ll see a whole other definition of class-A office space,” Goodman said. Donald W. Hudson, senior vice president and director of leasing for the Warner Center Properties, said he began investigating fiber optics when he learned that several downtown L.A. buildings “were getting rents of $28 at a time when the rest of the market was getting $15 and $16 a square foot. Pretty soon, everyone’s going to have it, and if you don’t have it, it’s going to be a negative,” Hudson said. In Sherman Oaks, one of the earliest Valley area to get fiber optics, the service has helped to maintain higher-than-average occupancy rates, even in less-desirable buildings, according to William Snyder, a vice president with First Property, a real estate brokerage in Century City. Snyder said the Sumitomo Bank building at the intersection of Ventura and Sepulveda boulevards in Sherman Oaks has maintained a 97 percent occupancy rate, despite the fact that it is older and has fewer amenities than some others. The occupancy rate for most other buildings in Sherman Oaks and Encino is in the 80 percent range. “There are tenants there (for whom) what they pay in rent is immaterial,” Snyder added. “They need the service.” The management at the Trillium buildings decided to explore fiber optics because those buildings are now 10-years old. “We need to make sure we’re state of the art” to remain competitive, said Jim Lindvall, senior vice president for Grubb & Ellis Co. in Sherman Oaks. Despite such enthusiasm, fiber-optic companies have been slow to wire the Valley. Only parts of Sherman Oaks and Glendale currently have fiber-optic service. Though the city of Burbank uses and leases fiber optics to some companies, it has no network for communications outside the city. With those exceptions, fiber-optic service providers have kept pretty closely to places like downtown L.A. and Century City. The reason is the cost. The price tag of laying just one mile of fiber-optic cable can run upwards of $1 million, plus another $200,000 to wire a single building. As fiber-optic providers develop alliances with cable companies that already have created infrastructures for wiring, the costs are going down. Still, recouping such a sizable investment takes selective marketing, said Charles K. Norrie, executive vice president at Markley Stearns Partners, a real estate consulting and brokerage company in L.A. “They’re not going to whimsically build into properties,” Norrie said. “They look for trophy properties.” Indeed, with the exception of entertainment, financial and high-tech companies, most tenants are not clamoring for the service. But demand is beginning to rise. Besides transmitting film clips and music scores, fiber-optic networks can transmit long legal documents, photographs of buildings and insurance contracts in seconds instead of minutes. And soon, teleconferencing, television and movies all will be available over the Internet. “Ten years from now, we’re going to be putting so many wild things on computers, we’ll need the cable for all these things we haven’t even dreamed of,” said Norrie. That’s not far away for most Realtors who are currently negotiating five- and 10-year leases. “It’s like getting out there in front of it before it’s a need by most of the tenancy,” said Lindvall.