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Union Pacific Corp., the largest U.S. railroad, is looking at its 33,000 miles of track rights-of-way as a telecommunications resource these days. The Omaha-based company has formed a new unit, Ekanet, to leverage those assets for wireless and broadband access.
Williams Co. began running fiber optic cables down abandoned pipeline routes more than 15 years ago and other energy and utility companies followed suit. As such, Union Pacific appears to be "somewhat late"' to enter telecom, says Osmo Hautanen. The veteran telecom executive is chief executive officer of Fenix Enterprises, UNP's Dallas-based holding company for its technology assets, including Ekanet.
In fact, Union Pacific already owns and operates one of the nation's largest private telecom networks: its point-to-point microwave and wireless communications network used to track train movement across the western and central United States Hautanen says.
"The thing we are looking to now is the whole access business," says Hautanen. Fewer than 5 percent of U.S. businesses, mostly in major cities, have access to broadband technology. Ekanet is exploring how to use the assets it has in place-microwave towers and point-to-point service as well as technical operations in 120 cities-to bring broadband access to tier 2 through tier 5 communities.
Ekanet's business plan, targeted for completion this month or next, isn't wedded to any particular technology but is focused primarily on wireless broadband. Companies using Local Multipoint Distribution Service (LMDS) and some unlicensed portions of the wireless spectrum are natural partners, Hautanen says. Heading up the business plan of development is Ekanet CEO David Gergacz, former president and CEO of Cincinnati Bell Telephone Co., and at Canadian telecom giant Rogers CANTEL.
"Clearly what this is going to take is a lot of partnering. It's going to take a lot of alliances with different people," Hautanen says. "If you have to start from zero and hire people one at a time, it will take way too long."
Union Pacific will look for partners among the major telecom companies that already hold right-of-way leases along less than half of its network. Those include AT&T Corp., Sprint International Inc., MCI Worldcom Inc., Qwest Communications International Inc., and Level 3 Communications Inc.
Union Pacific has had discussions with Qwest for obvious reasons, Hautanen says: UNP Vice Chairman Phil Anschutz, who owns more than 5 percent of the railroad, also is chairman of Denver-based Qwest. Anschutz was a major owner of the old Southern Pacific Rail Corp. when Qwest, then a privately-held Anschutz company, began assembling rights-of-way. Denver-based Qwest chose rights-of-way along rail lines because they were direct routes between the downtown areas of cities, which were strategically important for the fledgling communications company and because rail property offered greater security and protection than other types of right-of-way. Between 70 percent and 80 percent of Qwest's 13,000-mile network was installed on railroad rights-of-way.
Both Anschutz and UNP Chairman and CEO Dick Davidson see breaking the railroad's technology ventures out as independent companies as a means of creating greater shareholder value. While Union Pacific's assets have a book value of about $30 billion and annual revenue is about $11 billion, the company's market capitalization-the value of all its outstanding shares-is only about $12.3 billion, or slightly above 1 times revenue. One reason is the slow-growing rail business, exemplified by the company's post-Christmas announcement that the economic slowdown is prompting Union Pacific Railroad to cut 4 percent of its workforce and slow capital spending this year.
"If we pull these companies out, run them as independent operating companies, try to grow their business beyond railroad, and look at railroad as one channel of distribution, we should be able to create more value than if they're just one division of a railroad," Hautanen says.
Hautanen previously worked at wireless telecom giants Nokia and Philips Electronics, and also was CEO of Formus Communications, a Denver-based international wireless communications services company.
One of the pleasant surprises Hautanen's encountered through Ekanet's evolution is UNP's established core of technical talent and its deep pockets during the start-up phase. The railroad has more than 300 employees operating and maintains its own private telecommunications network.
"When you have a rich uncle like UNP, it definitely makes life easier" when it comes to starting a new company, although the railroad doesn't intend to support Ekanet and its technology siblings forever, Hautanen says.
Fenix also has snared former cable television executive Larry Romrell as a member of its board of directors. Romrell, former executive vice president of Tele-Communications Inc., now AT&T Broadband, played key roles in the development of TCI's unit that invested in advanced telecommunications technology. He's also a director at Liberty Media Group, AT&T Corp.'s programming unit headed by former TCI Chairman John Malone.
Romrell's experience harnessing strategic assets in telecommunications companies makes him "a major asset" to the Fenix group, UNP Chairman Davidson said in a company statement. Romrell didn't respond to a Broadband Week request for an interview.
Other Fenix units include AMCI of Omaha, Neb., which sells wireless software for remote mobile commuting; PS Technologies, a Boulder, Colo., developer of workforce management software; and Union Pacific Technologies in St. Louis, which offers shipment monitoring, inventory management, operating management and electronic gateway message software and services.
Other major rail companies, including Burlington Northern Santa Fe Corp. and CSX Corp., also are exploring options for broadband uses of their rights of way. Fort Worth-based BNSF is also in early discussions with other rail companies about joint telecommunications ventures, says spokesman Jerry Jenkins.
BNSF operates in the same western and central U.S. regions as Union Pacific, with 33,500 miles in 28 states and two Canadian provinces. CSX operates 23,000 miles of track in 23 states, the District of Columbia and two Canadian provinces.
Tulsa-based Williams at one time owned the nation's fourth-largest long distance phone network. In December Williams completed construction of its second communications fiber network, located in and along its 33,000 miles of decommissioned pipeline and pipeline right-of-way.
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