Frayed fiber.

Byline: SHERRI BURI McDONALD The Register-Guard

A BOX the size of a first-aid kit crammed with fiber-optic cable hook-ups hangs on the wall in the break room of Dennis McCallum's machine shop in the Lowell Industrial Park, about 12 miles southeast of Eugene.

"The fiber is in our building," McCallum said recently. He gestured to the box with callused hands: "It's hanging on the wall going, `Uh, here I am.' '

But for now, a first-aid kit would be more useful than the fiber strung throughout the small industrial park. The fiber went in early this year, but the costly equipment needed to "light" it - so it can carry phone conversations, e-mail and other digital data on flashes of light - has yet to be installed. McCallum's fiber line is a road to nowhere, a digital dead-end.

Despite elaborate government efforts to bring fiber-optic telecommunications to rural Oregon, including Lane County, that goal remains largely unrealized. After the national fiber-building frenzy of the late 1990s that provided most big cities with fiber-optic lines, no one, including government, is eager to spend more to extend fiber to rural areas.

Without the fiber, rural communities lag in recruiting businesses. They're passed over by companies such as customer call centers that require fast, high-capacity fiber connections.

Lowell and many other small towns in the southern Willamette Valley thought that by now they would have high-speed telecommunications. They pinned much of their hope on two consortia of local governments that cut deals in 1999 with companies that were installing long-haul fiber-optic cable past their communities. In exchange for waiving the franchise fees companies must pay when they lay fiber lines in public rights of way, the government consortia acquired the right to use fiber strands along a 500-mile route from Springfield to Klamath Falls and in a loop from Springfield to the Oregon Coast and back via Roseburg, Cottage Grove and Creswell.

The value of the waived franchise fees was modest in most communities, said Milo Mecham, a planner at the Lane Council of Governments and staff member for both consortia. Springfield gave up the most in fees - $20,000 to $25,000 a year, said Len Goodwin, Springfield franchise manager. All the other communities combined waived less than $10,000 a year, Mecham estimated.

The entire plan was an unprecedented local-government foray into fiber-optic telecom.

But so far, the communities have nothing to show. That's because private investors and government entities have failed to drum up the millions of dollars for equipment needed to activate the consortia fiber routes and hook them up to major regional fiber lines. Given the current economic slump, it seems unlikely that either private firms or government agencies will find that money anytime soon.

In May 2001, the consortia contracted with Preferred Connections Inc. Northwest, or PCINW, a Lakeside-based telecommunications provider, and had ambitious plans to link 22 cities and four counties to the fiber route by May 2003.

That effort, however, is now at a standstill. "We're technically in a holding pattern," said Vaughn Rains, chief executive officer and co-founder of privately held PCINW.

So Lowell and other rural Lane County communities must wait for the fast Internet and e-mail connections that many urbanites take for granted.

That's a tremendous setback for business. "It's making the economic recession worse or prolonging it in small communities," Mecham said.

At McCallum's machine shop, it often takes 30 minutes to download an e-mail from a client sending electronic blueprints of parts to be manufactured. McCallum said he sets up his computer to download files, then slips out of the office to work in the shop.

Sometimes, McCallum gives up on the computer and ask clients to fax the blueprints.

But Lowell and other cities in the consortia remain interested in the fiber project. The communities "are willing to ride this out," said Jan Wellman, city manager of Veneta.

Lane County Commissioner Cindy Weeldreyer, who spearheaded the creation of the fiber consortia, urged patience. "Rather than looking at this as a failure, or an experiment that didn't work, we need to realize that it will take time," she said.

Seeking public aid

As PCINW's attempts to tap private financing sources have turned up dry, the consortia are stepping up their efforts to get public money to help build out the fiber network in rural areas and to buy costly equipment needed to activate the consortia fiber.

Earlier this month, Lane County commissioners rejected a consortia request for $353,650 from the county's economic development fund. The consortia wanted the money to launch service in Veneta, Lowell, Oakridge and Cottage Grove. The fiber would enhance Internet and e-mail connections for businesses, government agencies and private residents. Money the consortia would receive from leasing the fiber to PCINW would be spent on fiber installation and on equipment to establish service in other consortia communities.

Commissioners, alarmed by the risk, the high cost, and the failure of PCINW to uphold its contractual obligation to find financing, instead approved $90,000 to help activate fiber in one community, probably Lowell or Veneta.

Meanwhile, the consortia will seek other public financing, and PCINW will continue to seek private investors.

That's a formidable task. Tainted by huge losses, bankruptcies and accounting scandals, the telecom industry is on Wall Street's black list. Few investors are willing to front large sums in the hopes of generating revenues from small, scattered rural communities, many of which are struggling economically.

The bankruptcies shaking the telecom industry raise the question of whether the consortia even have a legal right to access and use the fiber network.

The consortia made agreements with Williams Communications, 360 Networks and Level 3 Communications to use fiber along different parts of their routes in Oregon.

Williams' parent company and 360 Networks are both in Chapter 11 bankruptcy reorganization, and Level 3, though not bankrupt, is laden with heavy debt.

The consortia have filed a claim to secure their rights in the bankruptcy case of 360 Networks, Mecham said. Williams has assured the consortia that the bankruptcy of its parent firm won't interfere with the fiber agreement, he said.

"It appears as if the bankruptcies aren't going to have an effect on the availability of the fiber," Mecham concluded.

No links provided

Williams, 360 Networks, Level 3 and other fiber providers raised and spent billions of dollars to lay tens of thousands of miles of fiber throughout North America in the late 1990s.

Those routes passed through Oregon to connect major population centers, such as San Francisco, Portland and Seattle. But the fiber trunk line didn't put connection points in many rural communities because small towns don't have the volume of users necessary to generate big profits. So, many of the small towns in Lane, Douglas, Coos and Klamath counties tried to find a way to connect to that fiber backbone on their own.

The communities formed two groups: the Regional Fiber Consortium and the Fiber South Consortium.

The Regional Fiber Consortium includes communities along a fiber-optic line from Coburg through Springfield, Oakridge and Klamath Falls to Merrill, at the California border. The group has an agreement with 360 Networks to own 12 strands of fiber on the route. That's a small fraction of the total number of strands that 360 Networks laid on the route.

The Fiber South Consortium consists of communities along a fiber loop from Eugene to the Oregon Coast and south to Bandon, then back across the Coast Range and north along Interstate 5 to Jasper. Fiber South signed an agreement with Williams for the right to use 12 strands of fiber. Williams installed a total of 120 fibers on the route, Mecham said.

The consortia entered a third agreement, with Level 3, to use eight strands of fiber from Eugene to Salem and four strands from Eugene to Portland. Unlike the deals with the other fiber providers, Level 3 stipulated that the consortia could use the fiber to Portland only for government purposes, not for luring commercial business that otherwise might go to Level 3.

The route from Eugene to Portland may be lit soon for use by schools and government under a pending deal between the fiber consortia and the Oregon University System. The state agency would buy the equipment to light the route.

Disappointing delays

To try to turn the consortia fiber into an operational network, the government groups teamed up with PCINW a year ago. The private company originally projected it would spend $2 million to establish service in all the consortia communities in two years.

The plan went like this: PCINW would make the needed capital expenditures, and the consortia would lease the fiber to PCINW at rates low enough that PCINW could offer the service at low rates to rural customers, and still make a profit.

The consortia insisted that PCINW put service in all of the consortia communities, not just in towns that could generate the greatest profits.

But in the meantime, the investor that PCINW had lined up backed out, said chief operating officer and PCINW co-founder Rick Rose. He declined to reveal the investor's identity.

"In the past 1 1/2 years, we've approached 200 people, venture capitalists, angel investors, Indian tribes," he said. "Without an investor, we've had to push out our deployment schedule."

Consortia members don't blame PCINW and haven't sued the firm for breach of contract. Asked by Lane County commissioners why the consortia hasn't sued, Mecham replied: "You can't get blood from a turnip or a stone. Legal action wouldn't help solve the problem."

Mecham told The Register-Guard: "No matter who the partner might have been, they would have had a hard time raising money because of the state of industry."

Of the eight firms that bid seriously for the consortia contracts, all the national players are now out of business, and PCINW is one of two regional bidders still in existence, Mecham said.

By focusing on smaller markets in Oregon, PCINW has survived an industry shake-out that has knocked out many rivals.

PCINW is privately owned by Rains, Rose and eight others. For the past three years, PCINW has operated CoastNet, a fiber route from Depoe Bay to Waldport. That route should break even or make a profit in the next six months, Rose said.

"There's no threat of PCINW going insolvent," he said.

The company has spent about $870,000 out of its own pocket and revenues on the consortia project, Rose said.

PCINW resells Internet service and long-distance phone service and sells telecom hardware.

Linking up Lowell

Through it all, rural Lane County communities have patiently waited.

"We have 18 interested public and private parties that would hook up as soon as fiber is available," said Wellman, the Veneta city manager.

The city has pledged up to $40,000 to help build out its local connections to the consortia's fiber.

It would cost $100,000 to $125,000 to buy the equipment to activate fiber in Veneta and upgrade the Eugene hub to handle Veneta traffic, Mecham estimated.

Lowell, too, wants its fiber lit, said Lowell Mayor Warren Weathers. "If we can light the fiber, we could easily produce 50 family-wage jobs in our city in the next five years," Weathers told Lane County commissioners.

Using a $22,000 regional grant and $3,000 from McCallum, who is part-owner of the Lowell Industrial Park, the community installed a mile of fiber from the park to the consortia's connection point to the fiber backbone at Pengra Road.

But the community still needs up to $30,000 worth of equipment to activate the fiber.

In addition to fiber connection work in local communities, the system's hub in Eugene needs to be completed to link PCINW's facility in the U.S. Bank building at 800 Willamette St. to Williams and Bonneville Power Administration long-haul fiber lines several blocks away. That would cost about $250,000, Rains said. The central hub would direct the fiber-optic signals along all the Oregon routes controlled by the consortia.

McCallum said fiber links would increase the value of sites in his park.

"It's just another feather in your hat when companies come looking," he said. For any tenants planning to do e-commerce, "you need to have fiber optic, otherwise your customers can't get to you," he said.

McCallum's machine shop is in a 15,000-square-foot building. McCallum is constructing an additional 9,000-square-foot, six-unit building, which he hopes to fill with tenants. The nine-acre industrial park has two other lots that each could accommodate a building of up to 40,000 square feet, McCallum said.

High-speed fiber access would benefit McCallum's 13-employee machine shop, Tumac Inc., and its regional clients. It's easier for clients to e-mail digital blueprints rather than deliver paper versions.

The 25-year-old firm supplies parts mostly to Northwest companies, such as pellet stove manufacturers, Coburg-based RV maker Monaco Coach Corp., and Eugene-based PW Pipe. "About 20 percent of our work is done electronically," McCallum said. That could increase if Tumac had high-speed fiber, he said.

Contact Sherri Buri McDonald at 338-2367 or [e-mail].

FIBER-OPTIC GROUPS

Regional Fiber Consortium: Coburg, Springfield, Lowell, Westfir, Oakridge, Klamath Falls, Merrill; Lane and Klamath counties.

Fiber South Consortium: Springfield, Eugene, Veneta, Florence, Reedsport, North Bend, Coos Bay, Bandon, Coquille, Myrtle Point, Roseburg, Sutherlin, Yoncalla, Drain, Cottage Grove, Creswell; Lane, Coos and Lincoln counties.

CAPTION(S):

Dennis McCallum paid to have high-speed fiber-optic cable brought to the industrial park in Lowell where his business is located, but problems have kept it from being hooked up to the network. FIBER-OPTIC GROUPS Regional Fiber Consortium: Coburg, Springfield, Lowell, Westfir, Oakridge, Klamath Falls, Merrill; Lane and Klamath counties. Fiber South Consortium: Springfield, Eugene, Veneta, Florence, Reedsport, North Bend, Coos Bay, Bandon, Coquille, Myrtle Point, Roseburg, Sutherlin, Yoncalla, Drain, Cottage Grove, Creswell; Lane, Coos and Lincoln counties.