Building longevity

The industry as a whole has blackballed certain business plans that it once supported fervently. As a result, most four-letter acronyms used to describe various service providers seem to have become four-letter words.

The effect analysts and the media have on our everyday lives is amazing. As illustrated in the recent presidential election, outsiders' comments can turn seemingly liberal candidates conservative, and vice versa, all for the sake of winning votes. But changing for the sake of public opinion isn't always wise, although changing for the sake of a stronger business is.

The story is the same for telecommunications companies lobbying for support from a different yet inherently similar group of analysts and media. The downturn of the economy that first infected other technology companies has found a good host in the telecom sector. The industry as a whole has blackballed certain business plans that it once supported fervently. As a result, most four-letter acronyms used to describe various service providers seem to have become four-letter words.

And while service providers were once proud to call themselves everything from CLECs to data CLECs to BLECs, that has all changed with the soured opinions from Wall Street and the rest of the financial community. Now, providers are working hard to distance themselves from those monikers with newer, sleeker and, hopefully, financially successful descriptions.

This phenomenon is particularly evident within the BLEC community. With a few businesses such as UrbanMedia simply closing their doors and others not doing as well as expected, the court of public opinion has taken an even more vicious turn for providers with the noun building in their business plans.

That negativity has not only dried up some funding and plummeted stock prices, it also has caused the service providers, once called BLECs, to find a new designation. Everest Broadband Networks wants to be known as a business service provider, or BSP. The company's executive vice president, Joseph Varello, recently said that competitor Allied Riser Communications fit more appropriately into the BLEC category (see Telephony, March 5, page 20).

But not surprisingly, ARC scoffed at that description. ARC's Doug Morgan, vice president of national strategic initiatives, retorted that calling ARC a BLEC would be like calling Qwest Communications a railroad LEC. Morgan also rightfully pointed out that while negativity has struck the BLEC model, it is really symptomatic of analysts having become bearish about the entire sector.

Although seeing companies close their doors and lay off employees is worrisome, we need to realize that the companies with the most sound business plans and the strongest management and execution likely will be left standing when the economic downturn levels off. Unless a provider works on a wholesale basis, the concept of providing only transport in buildings may be flawed. To survive, providers must offer a set of services for which customers will feel indebted to the provider.

Despite the fact that opinions have changed about the strength of the BLEC model, the demand clearly exists. Not only is the demand for services growing, the margins are much better than those for pure transport. Most providers probably realize that, but now they must find the right set of services to meet clients' needs.

And although providers such as ARC and Everest have added services to their portfolios, they unfortunately must continue to distance themselves from their past and convince the financial community of their future. To secure that future, the providers most likely will have to offer more than just services.

To increase margins for providers beyond providing services, BLECs might be wise to partner or merge with existing CLECs. A combination could make for an even stronger business plan. And considering how rough the financial community has been on service providers lately, finding ways to better ensure longevity is critical.

Contact Liane Labarba at labarba@airmail.net