By Griff Witte
Washington Post Staff Writer
Tuesday, December 9, 2003; Page E01

Perched at the edge of an open manhole at Euclid and 16th streets in Northwest Washington one chilly morning last week, Andy Farrel peered down into the tangle of grimy cables and saw his past -- and, possibly, his future.

Farrel, a trim 40-year-old with a gruff voice, spent the 1990s ranging across the country, tearing up streets and burying fiber-optic cable at a furious pace. Prodded by venture capitalists and investors who believed that the demand for fiber and its promise of lightning-quick connections knew no bounds, Farrel's employers sank all their money into laying millions of miles of the tiny glass strands.

"When it's going like that," said Farrel, a project superintendent, "nobody thinks it's going to end."

But then it did. Demand crashed, and Farrel was laid off.

Unlike many colleagues who gave up on the business, however, Farrel stuck with it. Two months ago, he got a job that will keep him busy laying fiber across the Washington area for at least the next few years.

The difference is that Wall Street isn't funding the work anymore. Taxpayers are.

Farrel's new boss, Omaha-based Adesta LLC, has a contract with the District to help build a $93 million fiber-optic network intended to improve emergency communications and provide top-notch Internet connections to schools, libraries and hospitals.

The project is just one of many taxpayer-funded ventures across the country that, together, have provided a life raft for fiber companies trying to stay afloat until private-sector demand returns.

The government's appetite for fiber has been surging of late. The combination of security concerns since the Sept. 11, 2001, terrorist attacks, the allure of digital technology and the falling cost of building networks has created a market awash in government work.

This is happening despite the fact that fiber -- glass strands only slightly thicker than the human hair that can carry voice, video and Internet transmissions at high speeds -- already saturates the ground in many areas. Nonetheless, it doesn't always go where it is needed, and governments have often decided they want to own their networks, independent of private-sector constraints.

The Defense Department, for instance, awarded $390 million in contracts in September to infuse its global information grid with fiber. On a much smaller scale, municipalities and public utilities across rural America have been leading the way in bringing fiber to the home, paying to build advanced digital networks that run through farmers' fields.

In many of those cases, residents didn't have anything faster than dial-up Internet connections and had given up on waiting for private companies to come to them with speedier options. So local governments and utilities have shelled out the upfront cost for building a fiber-optic network in the hope it will generate enough economic activity in the long term to make the venture worthwhile.

"The private company is going to go where the profits are. We don't have to have a profit next year," said Christine Stallard, spokeswoman for the Grant County Public Utility District in Washington state. The county, with 13 residents per square mile, offers Internet connection speeds of up to 10 megabits per second -- many times faster than the digital subscriber lines and cable modem services available in most urban and suburban areas. To get those speeds, the utility district spent $91 million to lay 800 miles of fiber across the central Washington desert.

Private companies have opposed efforts by local governments to build their own networks, questioning whether municipalities and utilities should be getting into the telecom business. "The issue is whether this is the best use of taxpayer dollars when there are private companies ready, willing and able to deploy this technology," said Verizon Communications Inc. spokesman Eric Rabe.

But many wonder how long that will take. Today, only 64,700 homes in the United States have fiber connections, up from 5,500 in 2001, according to the fiber research firm Render, Vanderslice & Associates.

Verizon, the nation's largest phone company, has said that next year it will begin rolling out fiber past 1 million homes as the first step in a long-term project to replace the traditional copper network that has carried voice communications for more than a century. It's a venture that, over time, would inject billions of dollars into the fiber market.

But the other regional telecom giants -- BellSouth Corp., SBC Communications Inc. and Qwest Communications International Inc. -- have been far more circumspect about their plans. Even Verizon concedes that a series of pending regulatory decisions could have a major impact on how aggressively it deploys its fiber.

"The telecom companies have told us [they'll deploy fiber] before," said Paul Polishuk, a fiber-optic industry analyst and president of Boston-based IGI Group. "So whether they really put their dough out there or not could be a different story."

That uncertainty in the private sector explains why many of the companies that live or die on fiber demand have poured their energies into pursuing government work.

"In the grand scheme of things, the government contracts are not that significant," Polishuk said, noting that even the Defense Department's $390 million contract is dwarfed by the $17 billion that the regional telecom giants spend annually on capital investments. "But for the smaller company that can get into one of these deals, it means survival."

That's certainly true at Adesta. The company was a highflier in the late 1990s, building approximately 2 million miles of fiber in 70 metropolitan areas and taking in $200 million annually in revenue. But it depended almost entirely on private sector demand, with WorldCom Inc. and Enron Corp. as two of its biggest customers. When the technology bubble burst, Adesta filed for bankruptcy as revenue dropped to $20 million and the payroll sank from 750 to 200.

Since then, the company has remade itself, with a focus on meeting the government's fiber needs. "There are all kinds of reasons to do business with the government. For one, they always pay their bills," said Robert Sommerfeld, Adesta's president, who noted that about 60 percent of the company's business now comes from the public sector.

Adesta is not alone. Atlanta-based Xspedius Fiber Group, also a bankruptcy survivor, has seen a bump in business in the past few months as it's picked up subcontracting work on government jobs. The idea is to use the government work to "get over the hump," said Wade Robertson, Xspedius's senior vice president of sales and marketing. "As the government begins to close out all its contracts, then the private sector will pick back up," Robertson said.

Some analysts are not so optimistic, noting that private sector demand may not come back as soon as some companies would like and that the government work will eventually dry up.

"They're not going to get to the promised land this way," said telecom analyst Scott C. Cleland, chief executive of the Precursor Group. "It's a bad sign when you're having to turn to the government for most of your business."

For now, the companies will take what they can get. In September, Adesta and two other companies outbid seven competitors and won the contract to deploy fiber for the District's DC Net project. The project involves connecting about 400 government buildings through underground pipes to a new network that the District will own, said Peter R. Roy, the city's deputy chief technology officer.

Roy said the District needs a fiber-optic network because the existing copper network does not adequately meet the city's emergency response needs, as was shown Sept. 11, 2001, when the system was overloaded. He said that building fiber also will be a boon to the school system, which can use the network to provide students with real-time interactive video instruction.

Cost is a factor as well. Roy said the District hopes to save $10 million annually by having its own network rather than leasing from Verizon, as it does now. The upfront costs of installation also are not as high as they once were.

"The technology has matured to the point where it's not too terribly expensive," he said.

Part of the reason for that is that a lot of fiber is already there. Across the country, thousands of miles of fiber lie dormant because the builders went belly up. PSINet, for instance, had a 13,000-mile network that has sat idle since the company's assets were acquired last year by D.C.-based Cogent Communications Inc., which has its own nationwide network.

To build its network, the District took advantage of a significant amount of fiber that is already in the ground. But because most of the fiber deployed during the tech boom was meant to meet the needs of large companies, not government, the District has to fill in a lot of gaps. That's why it pays Adesta to build connections off of the main backbone into individual buildings.

Unlike in the late 1990s, when the city's streets were continuously under construction as company after company buried its own cables, Adesta's work should not cause the same havoc for motorists. In most cases, the fiber-optic cable will be threaded through conduits that now carry the wiring for the District's outdated firebox system, Roy said.

For Farrel and his crew, that means installation of new fiber in most cases will involve nothing more disruptive than popping a manhole cover.

Last week, Farrel's team was going block to block, periodically disappearing into the world beneath the streets to scout around and decide exactly how to run the fiber. In his career, Farrel estimates, he has been involved in laying 2,000 miles of fiber. Now he has the chance to bury even more.

"I don't believe it will ever be like it was," Farrel said, "but it is definitely picking up."