Nacchio, characterized by the media as “no ordinary Joe,” was a relatively young 48-year-old who had become QWEST’s star attraction. He was restless at AT&T and upset in 1996 that he had been passed over for promotion by the long distance leader. Phil easily convinced Joe to leave AT&T and lead QWEST, a new player whose objective was to build a new fiber network that would rival and surpass that of his former employer.
Joe hailed from New York and talked a mile-a-minute during the Kleiner Perkins-hosted meeting. He had been with QWEST less than a year and his fervor came across, built on increasing confidence in his own management skills and style. The company’s stock had risen steadily from its initial June offering price of $22 to trade at more than $47 by October 1997. Investors were ecstatic that their QWEST investment had more than doubled in less than six months. Part of the reason for QWEST’s increasing valuation was its lower cost structure compared to a company such as AT&T. Even though QWEST priced its long distance phone service at 7.5 cents per minute, much less than AT&T’s price of 14 cents per minute, Joe Nacchio’s company had margins that were just as large.
To continue QWEST’s descent down the cost curve for continued competitive advantage, the company embraced new technology. Vinod believed his startup companies could deliver that new technology in an industry that needed to support customers flocking to the Internet and driving up traffic demand everywhere.
Ajaib Bhadare, Mike Hatfield, and Terry Brown resonated with Joe’s philosophy on startups versus big companies and his view of knowing what needs to be done. Joe believed, “Real innovation and value creation was not going to be by the big companies. It was going to be by the new entrepreneurial upstarts who are betting on new technology and taking the risk.''
He implored QWEST employees and suppliers alike, “Always be sure you understand the technology around you. Always be sure you understand the economics of the industry. Always be sure you understand the customers.”
These were words that Fiberlane’s executives already lived by.
QWEST deployed Cerent’s multi-service provisioning platform (MSPP), the Cerent 454, to terminate OC-48 traffic at network end points. The Cerent 454 interfaced with Nortel’s innovative OC-192 long-haul system to cut network costs by more than half of what it cost AT&T to do the same with earlier generation Lucent gear. The combination of pay-as-you-grow OC-192 DWDM from Nortel and the fifty percent reduced cost of Cerent’s OC-48 configuration allowed QWEST to maximize their capital dollars and significantly reduce operational costs.
Nortel’s integrated network management (INM) system was able to manage Cerent’s gear too . As David Friedman, one of Cerent’s product managers recalls, “I had an INM script and screen shots of [Nortel’s management] screens . . . I used those in a slide deck to show [prospects] that we could fit into and be managed by the Nortel EMS. We could then walk into any Nortel optical transport account and be managed there.” This strategy worked for Cerent in QWEST and later in U S WEST.
QWEST’s lower cost structure and competitive pricing expanded the large addressable voice market and allowed the company to enter new markets through innovative offerings. For example, IP phones provided connections as clear as the telephone company’s, yet didn’t require digital switches. QWEST’s IP long-distance service did not force customers to change how they placed a call, but it enabled circuit-to-IP platforms made by companies, such as Newbridge Networks, to be deployed for much lower cost than Nortel or Lucent voice switches.
Next generation optical transport solutions in the form of MSPPs had become mainstream. In this area, Cerent led the way and rode the light with QWEST and hundreds of others.
 According to Steve Nicolle, Nortel’s GM for its Integrated Network Management System during the 1990s, “INM lasted over a decade and may still be alive in some form. I know that the startup Nakina Systems was basically an INM spinoff with many ex-Nortel people. INM was designed to be an open multi-vendor network management system and I believe supported dozens of non-Nortel devices.” Indeed, INM even supported TL-1 interfaces popular among many telcos.