IU, state pushing regulators to halt sale of I-Light vendor

October 8, 2007

Indiana University and the state's Office of Technology have sought an emergency order from regulators to halt a Colorado company's further assimilation of an Indianapolis fiber provider it bought Oct. 1.

They say Zayo Bandwidth's plans for Indiana Fiber Works may threaten a high-capacity data network, known as I-Light, used by the state's largest universities for advanced research.

The Indiana Utility Regulatory Commission should "place [Indiana Fiber] under receivership so that the public interest may be protected," IU and the state's technology office request in their filing.

Zayo said it plans to honor the remaining nine years of contracts Indiana Fiber Works has to lease fiber-optic lines to the state for ILight. By the end of the year, the network plans to serve at least 22 Indiana colleges.

But I-Light officials say Zayo intends to change Indiana Fiber's business model to focus on an entirely different market in Indiana and has provided "vague and ambiguous provisos to their commitment to 'honor' the agreement" with the state.

"We have grave concerns about this. It's a competitive matter for the state of Indiana," said Bradley Wheeler, chief information officer at Indiana University, which manages the network. The public good, he said, "has been put at grave risk by this transaction."

Indiana Fiber leases more miles of lines to I-Light than any other vendor--primarily in northern and southeastern Indiana. Obtaining alternative forms of fiber service easily could cost 10 times as much and imperil the network, said Dave Jent, associate vice president of networks at IU.

"I could picture a scenario that, because of this, there will be higher education institutions in the state that won't get connected to the backbone," Jent said.

IU and the Indiana Office of Technology sought the emergency order from IURC on Oct. 3, a day after Zayo announced it had completed the Indiana Fiber purchase.

IU and state officials said they were floored because only days earlier they had successfully argued for a hearing before the commission to challenge the sale; the hearing is set for December.

They say the sale would breach numerous aspects of the state contract and that the IURC should withhold operating authority for Zayo until the issues are resolved.

Technological treasure

To many researchers and academicians, little-known I-Light is arguably the most important piece of cyber infrastructure, second only to the Internet.

A light-speed highway for incomprehensibly vast amounts of data, the network connects Indiana's biggest universities to one another and the world for projects ranging from national security to fetal alcohol syndrome research.

For example, the Center for Computational Homeland Security at Purdue University has used it as part of numerous simulations of cyber terrorism and bioterrorism.

I-Light supports three-dimensional visualization facilities, where room-size maps and other graphic data can be displayed and discussed with colleagues on other campuses. The network is strong enough to support massive amounts of data being conveyed by supercomputers from around the world.

O'Neal Smitherman, vice president for information technology at Ball State University, said I-Light has made a dramatic improvement in the school's ability to transmit data--roughly a 100-fold increase since 2001.

A high-performance digital framework is an essential part of an economy that needs to produce, manipulate and distribute information, he said. It is key to supporting emerging cottage industries and in helping universities prepare an experienced work force key to economic development.

"I-Light is hugely important to higher education, especially," Smitherman said. "But it's also important for economic development because of what it says about the state. It says we're ready to play in a new global economy."

Business is business

IU officials sardonically quip that all Zayo and its venture-fund backers care about is growing the company through acquisitions and perhaps flipping it down the road, for big bucks.

They note that Zayo is snapping up numerous fiber networks. Over the last year, it has closed three deals in Indiana, Pennsylvania and Tennessee--and plans to buy Minneapolis-based Onvoy Inc. by year-end. Zayo expects its acquisitions to boost annual revenue to $125 million and to give it control of at least 8,400 route miles of fiber.

That's quite the contrast from Indiana Fiber, which--at least before being acquired--had seven employees based in a modest block building downtown at 625 E. 11th St.

It was founded in 1998 by entrepreneur Andrew Purcell as Metro Xmit LLC. In November 2001, it filed Chapter 11 bankruptcy and was bought by General Electric Capital Corp. and renamed.

In 2004, Indiana Fiber won a state contract worth more than $4 million to provide and maintain I-Light fiber in northern and southeastern Indiana.The contract gives the state "exclusive and indefeasible" right of use of the fiber.

IU and the state Office of Technology allege that Zayo breached the terms of that agreement with the state on several grounds.

They argue that the certificate of territorial authority the IURC issued allowing Indiana Fiber to operate here is encumbered by the I-Light agreement. It doesn't appear the financing arrangements Zayo made to pay for the acquisition comply with terms of the agreement, they say.

They also argue that Zayo has not provided, as required by contract, adequate information about its operation.

"Ownership of the [certificate of territorial authority] should not be transferred without a demonstration that the new owner has the managerial, technical and financial ability to fulfill the terms of the agreement or otherwise meets the terms upon which the CTA was granted," IU told the IURC.

Zayo's attorneys rebuffed the state's claims and questioned whether the IURC even has jurisdiction in an ownership change, citing Indiana's recent telecommunications law reform.

They also counter that many of the discovery requests from IU are inappropriate and involve sensitive company data.

Wheeler said Zayo has been practically non-communicative in regard to the sale and its implications for the state agreement. Zayo executives declined an invitation to come to Indianapolis to discuss university concerns until after the deal closed, he said.

Richard Aikman Jr., a Stewart & Irwin attorney representing Zayo, said the company has stated in writing that it plans to honor the existing agreements.

"I think it's unfortunate they have these concerns," he said.

Bad blood

Wheeler is undeterred, saying the parties need to come to a clear understanding about what's to come.

"What is the absolute letter of the law [regarding the contract]?" Wheeler asked. "If someone moves from a cooperative posture to an uncooperative posture, that makes things very difficult. ... There are a lot of things in a relationship that are non-contractual."

Also of concern are plans to connect 19 more campuses around the state to ILight in the next round of I-Light's growth over the next year. The Indiana General Assembly has appropriated $7 million to build "last mile" fiber connections to all the colleges and universities in the state, IU's Jent said.

In recent days, Zayo officials indicated they were willing to resume talks, Wheeler said.

One reason for I-Light operators' concern is Zayo's plans to focus on "lit" fiber service versus the "dark" fiber it leases to the state for I-Light.

So-called dark fiber is used on a sporadic basis. It's ideal for universities, where usage is less predictable. Dark fiber is more flexible for researchers, who can dial up and down their usage. Buying "lit" service would be more expensive.

Zayo wants to strike contracts with Indiana firms for lit fiber, which potentially is much more lucrative.

In the complaint filed with the IURC, IU and the state said Zayo has explained that dark fiber "is not one of its standard product offerings" and the firm "requires the appropriate level of review and evaluation to determine overall feasibility."

Zayo plans to broaden Indiana Fiber's offerings to include lit fiber-optic service, Vice President Matt Erickson said. It also will offer service in more specific geographic areas of the state rather than marketing mostly statewide applications.

Erickson declined to comment on the contract for I-Light, saying, "We look forward to continuing discussions with the state." In announcing the sale, CEO Dan Caruso said Zayo would continue to serve customers wanting dark fiber.

Zayo attorney Aikman said the larger company brings broader expertise and capabilities to Indiana than Indiana Fiber delivered.

Chris Cotterill, deputy chief information officer for the state, said that, regardless of the concerns about Zayo, "no one needs to be concerned whether I-Light will be up and running tomorrow."

Still, "if we got an inkling they weren't going to build out I-Light, that would be a real problem."

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