TO BUY OR NOT TO BUY

That is the question many CLECs face today. There are compelling arguments for both scenarios

In the past, the most successful competitive local carriers built their own fiber-based transport networks to undercut the cost structures of existing carriers. Today, many competitive local exchange carriers - especially those focused on delivering data services - are leasing transport facilities and depending on their agility to compete.

For example, most DSL-focused CLECs will lease co-location space and the copper between the co-location space and their customers, from an incumbent LEC (ILEC). At the co-location site, they will deploy DSL access multiplexers (DSLAMs). The CLECs then will lease transport facilities, in most cases a T-3, back to a central office (CO) and, ultimately, to their ISP partners (Figure 1).

The question is, can CLECs remain competitive in the long term when their competitors own and control the majority of their network? Conversely, can they remain competitive if they try to build their own transport?

Why not own?

There are several good reasons why many CLECs choose not to build their own transport networks. Perhaps the most compelling is the need to focus on their core business, which is building the data network and delivering access over copper to the end user. With fierce competition for market share, building footprints in as many COs as possible and growing a customer base as quickly as possible is a much higher priority than building a transport network. The distraction of building a transport network consumes capital, human resources and management attention that could be better spent on building market share.

There also are technical obstacles for a data CLEC wishing to build a transport network. Since data and transport networks traditionally are built and managed by different organizations, if not different companies, traditional transport equipment is designed to be provisioned and operated independently from the data network using different management systems. This leads naturally to different skill sets and operational models for data and transport networks. For the CLEC, it would mean creating what amounts to a separate network using separate management and provisioning systems, as well as separate staffing.

Perhaps an even larger technical issue is co-location space, such as the 10-foot-by-10-foot space the CLEC leases from the ILEC. The use of bulky transmission equipment can consume space needed for equipment such as DSLAMS. To provide enough transmission capacity for long-term growth, the DSL provider must allow for multiple Sonet multiplexers and possibly the addition of dense wave division multiplexing (DWDM) equipment to provide scale. By leasing transport, the data CLEC keeps all transport equipment out of its co-location space. This space constraint can, in some cases, eliminate the ownership of transport as a viable option.

Why own?

While the reasons to not own the transport portion of the network may seem compelling at first, there may be just as many reasons to consider it. The most obvious is the lack of available capacity to service their needs. For example, DSL traffic is carried predominantly over leased T-3 circuits. In a typical large city, a major DSL CLEC might require a large quantity of these circuits just to build out an initial footprint.

Consider this example: A CLEC wants to populate 10 COs with DSLAMs to deliver services for three ISP partners (Figure 2). Each partner wants a dedicated circuit for its services to ensure security and quality of service. Each co-location space will require three circuits back to the switching point of presence (POP) and one for each DSLAM dedicated to an ISP. In addition, from the co-location space, one T-3 is needed from the switching POP to each ISP.

In total, 33 DS-3 circuits are required just to get started. Although the number of DSLAMs per site and the number of sites may vary, this is not an unrealistic number. In most cases, ILECs that use traditional Sonet networks cannot deliver this type of capacity fast enough to meet the data CLEC's requirements. As a result, the lack of transport facilities can become one of the major limiting factors to turning up service and establishing a customer base. No matter what issues the data CLECs may have with obtaining access to copper facilities, the first customer can't be turned up until the transport network also is in place.

In the past, customers who couldn't lease circuits from the ILEC turned to a fiber-based CLEC that usually could turn up circuits faster. Customers typically needed a T-1 with an occasional T-3 or OC-3, which could be accommodated within a single OC-48 Sonet ring. In most cases, CLEC architectures are built around the same Sonet technology as the ILECs', so while they can be a viable alternative, fiber-based CLECs will, at some point, run out of capacity as well.

Newer fiber-based CLECs that promise to deliver massive amounts of bandwidth by leveraging DWDM technology in the metro network may not be much help either. Many of these emerging carriers are focusing on pure IP-based services built on gigabit Ethernet technology, which can't natively carry the output of a DSLAM (DS-3 ATM) or even an IP router using packet-over-Sonet technology. Even in cases where ILECs are making efforts to catch up to demand, the non-fiber-based CLECs still face a competitive situation where factors such as network cost and time to market are at least partially controlled by their ILEC competitors.

With these motivating factors, data CLECs do have new technologies at their disposal that allow them to address some of the obstacles to owning their transport. Systems that integrate DWDM, Sonet, ATM and IP capabilities now are coming to market.

In some cases, these products reduce the co-location space penalties associated with traditional Sonet systems, provide high scale in a small footprint and may eliminate the need for some other devices. For example, an integrated ATM function might replace the need for a second stage concentrator for DSL services in addition to combining Sonet and DWDM functions (Figure 3).

Also, many of these transport systems can be managed integrally as part of the data network.

Wholesale opportunity

Even with the technology available, most data CLECs still see the construction of a transport network as a distraction from their core business and would rather have the problems solved by others. An ideal situation would be for fiber-based CLECs to leverage new technologies such as the previously mentioned integrated DWDM/Sonet/ ATM/IP devices to deliver large numbers of circuits quickly as a service offering to data CLECs.

This would mean a shift in the current "IP/gigabit Ethernet only" trend in emerging fiber-based CLECs. It would require them to include the capability to deliver traditional transport services such as T-3 and OC-3 in higher volume and at a lower cost in addition to their IP and Ethernet services. A CLEC providing this type of wholesale service to multiple data CLECs would have high economies of scale and technological leverage. They also could offer high-bandwidth services to ISPs and high-end enterprise users.

A few of the emerging fiber-based data CLECs are realizing this opportunity. While they may be focused initially on delivering high-bandwidth services using IP-over-gigabit Ethernet, they are doing so by building networks that also can carry wholesale CLEC traffic using Sonet and ATM.

This type of wholesale offering would allow the data CLECs to focus on building their data networks and establishing footprint and market share, without leaving them dependent on a single supplier for copper facilities, co-location space and transport.

The bottom line

Data-focused CLECs today face a dilemma. They would like to lease transport capabilities and focus on building their data networks, establishing a footprint and building a customer base. However, the lack of high-capacity transport is a major inhibitor to growth and customer service, which is driving some data CLECs to consider leveraging new transport technologies to take control of their own destiny.

For these CLECs, the ideal solution would be for a fiber-based CLEC to offer wholesale services based on new technology that could provide lower cost, higher scale and faster service turnup than that available from the ILECs.This represents a tremendous opportunity for emerging fiber-based CLECs willing to buck the trend toward "IP/Ethernet only" to also support traditional Sonet and ATM services.

Until these services come online, however, the jury is still out. Some larger data CLECs may be forced to build, while others will live with the problems and push the ILECs and fiber-based CLECs to grow their capabilities. Only time will tell.