Yipes the Company was founded in July 1999 with the singular objective of offering Ethernet MAN/WAN services. While we have seen many a greenfield NSP stumble and fall of late, Yipes is still going strong. Its strengths include first-rate management (including executives previously with US West and Pacific Bell), strong funding ($265 million via three rounds), rapid growth (Yipes now serves over 250 customer locations), on-time execution of an ambitious rollout plan for 2000, aggressive marketing and a strong cadre of partners (including Qwest Communications, Level3 Communications, UUNET, Metromedia Fiber Networks, Exodus Communications and Akamai Technologies). However, it remains a very small player, with annualized revenue that we estimate is less than $15 million, with many of its customers being dot-coms and new, small ISPs.

Yipes' Network Is Not Rocket Science — and that has been key, we believe, to its successful rapid rollout. It has taken a simple architecture, employed conservative design principles and built the service in very rapid, "cookie-cutter" fashion. This is not in any way demeaning; we believe it is the only rational way to achieve such a large-scale rollout quickly and successfully.

Yipes establishes metropolitan fiber rings via multiple-sourced dark fiber; buildings connect to these backbone rings via physically diverse fiber access rings or Digital Loop Carrier (see Research Note M-12-9200, "The New Ethernet Service Providers: Diversity Reigns"). The MANs include multiple peering points and WAN connections. Typically, Yipes locates an Extreme Networks' Summit Gigabit switch at each building served that feeds Extreme Black Diamond or Alpine switches at Yipes POPs (Juniper M20/M40 routers provide WAN and Internet connections). The typical ILEC ATM switch /SONET multiplexing infrastructure is not required; we estimate that Yipes has at least an 80 percent equipment capital cost advantage and a 60 percent TCO advantage over traditional architectures. By employing a straightforward design, the cost of adding a new building is only about $70,000, and a new building can be brought up within 45 days. Yipes employs a single service level, and there is minimum sharing among customers. Access switching is nonblocking; the backbone is not oversubscribed and DWDM is just beginning to be used. Using this design approach, Yipes has aggressively built an extensive operational network in 18 months: 20 cities, 92 lit fiber rings and 22,000 lit fiber strand miles.

What is particularly intriguing is the detail to which Yipes has planned out its metropolitan area coverage by analyzing individual buildings to ascertain which have desired revenue potential (e.g., PC density). It has also lowered its capital costs by signing rights-of-first-refusal contracts with multiple dark fiber providers; with 16 separate contracts in 20 cities and no single fiber company providing more than 10 percent of its capacity, it has virtually assured itself of having fiber capacity "just in time."

Yipes' Network Services are rather basic. First, Yipes enables an enterprise to interconnect its sites within a metropolitan area via Ethernet at up to 1 Gbps. Second, Yipes offers Internet access to UUNET and Level 3 at similar speeds. Third, among its served metropolitan areas, Yipes offers WAN interconnections via Qwest or Level 3. Service is exceptionally low in price; Yipes claims that metropolitan prices are 40 percent to 75 percent less than those of ILECs for equivalent bandwidth (largest savings are achieved for data rates greater than 10 Mbps). Yipes' services are available in 1 Mbps increments, starting at 1 Mbps and going up to 1 Gbps. Once service has been installed, very rapid bandwidth adjustments can be made (i.e., under three hours); by 2H01, bandwidth change time will be reduced to one minute via a Web portal provisioning system. Yipes' appeal right now is as an alternative to multiple T1s or fractional T3 services — a sweet spot that covers 6 Mbps to 25 Mbps. Data rates per user have been climbing. As prices decline, services become more readily available and networked resources such as ASPs become more established, by 2003, interest will be predominately at higher bandwidth levels (100 Mbps to 1 Gbps) and less granular increments (perhaps 10 Mbps). Yipes will need to rapidly move to DWDM and 10 Gbps access support to meet these new demands.

Emerald City is Yipes' service concept to be rolled out in 2001. Its key characteristics are:

• Higher-capacity system/services and network expansion: hybrid 1 Gbps/10 Gbps network, DWDM deployment, lambda services; 38 cities are to be added
• Multiple service levels to support voice, videoconferencing and videostreaming via a customer-controlled policy management system and using 802.1 p/q tags, DiffServ and MPLS mechanisms in Extreme and Juniper switches
• Extensive security options: authentication/encryption, managed firewall (announced 21 January 2001), secure VPNs, extranets and certificate authorities
• Improved customer control: real-time bandwidth adjustments; online Web-based management, monitoring and provisioning; usage-based billing

Within its POPs, it expects to offer a variety of networked data center services including colocation, hosting, storage and content delivery (Akamai is already using its POPs). With Emerald City, Yipes envisions supporting a broad array of application services (including voice, videoconferencing and streaming) for enterprises of all sizes and service providers. In our view, Yipes has done a good job in identifying services that will appeal to various customer segments.

While we applaud Yipes' vision, we are concerned that this small, agile and previously single-minded company may now be attempting to move onto too many fronts simultaneously. Additionally, several of these fronts challenge the "state of the art" significantly more than does its current design: large-scale policy management across heterogeneous platforms would challenge even the largest service providers; large players to date have had considerable difficulties with managed firewall services. Yipes is also late in attempting to enter the crowded networked data center arena; we view this area as the one in which it would be better to exclusively partner with others; its strengths are in accessing such services, not providing them.

However, enterprises can expect Yipes to at least partially achieve its ambitious goals by 2002, as it has the backing and execution skills to do so. By 2002, Yipes will be offering up to 10 Gbps in at least 35 WAN-interconnected cities with at least three defined service levels (0.8 probability). Greater functionality and value-added services can be expected in the 2002 time frame.

Strategy:

• Be the leading Ethernet IP MAN and WAN NSP by being first to establish broad U.S. presence and layering value-added services onto its bandwidth offerings

Strengths:

• First-mover advantage: operational in 20 cities
• Targeted, aggressive marketing
• Low-cost infrastructure including "just-in-time" fiber capacity
• Strong executive team
• Good partners (MFN, UUNET, Qwest, Level3, Akamai, Exodus) and suppliers (Extreme, Juniper)

Challenges:

• Moving from basic bandwidth infrastructure services to value-added and professional services
• Need to rapidly upgrade infrastructure (10 Gbps, DWDM, multiple services)
• A small player competing against large, established incumbents; ILEC backlash likely — and many competitive LECs have already folded
• Increasing competition, especially in more value-added services (e.g., GiantLoop Network)
• Obtaining greater diversity in customer mix

Bottom Line: Enterprises with large bandwidth requirements in metropolitan areas should consider Yipes' services where available as an alternative to or an adjunct of traditional metropolitan broadband services. As with nearly all NSPs these days, especially smaller players, contractual safeguards should be taken in the event that Yipes ownership should change hands. Our advice in working with Ethernet services in general and Yipes in particular is to start small and incrementally extend service in bandwidth and locations over time. Enterprises should look to Yipes to offer differentiated service levels and other service enhancements late in 2001 or early 2002. Enterprises looking for specific features or location availability should negotiate these into initial contracts. Lastly, Yipes' offerings are data only and will likely remain so throughout 2001; enterprises should factor in interim voice networking costs when evaluating Ethernet service options such as Yipes.

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