CLEC pre-convention chatter: Competitive sky is brighter

Things actually may be looking up for competitive service providers. As they meet this week in New Orleans for the CompTel/Ascent Convention and Expo, CLECs and other competitive service providers have weathered tough financial times, shifting regulatory policies and consolidation within their ranks and among their direct competitors, the incumbent telcos. By contrast, the upcoming year appears to be one of greater stability, according to industry experts.

“CLECs have stabilized over the past year,” said Craig Clausen, senior vice president and chief operating officer of New Paradigm Resources Group. “The ones that are surviving, those are people who have stuck around and paid attention to the model. And there is still the opportunity, especially with technology changing, to provide better service at a better price.”

That doesn't mean anything is getting easier. When the FCC issued the details of court-ordered changes to the Triennial Review Order on Feb. 4, it threw the CLECs a couple of additional curve balls, according to Jonathan Lee, senior vice president for regulatory affairs at CompTel/Ascent. For one thing, between now and March 11, when the order goes into effect, CLECs won't know which central offices or other ILEC facilities will be impacted by the changes because incumbents aren't required to disclose that information in advance. In addition, the FCC put capacity limitations on the transmission unbundled network elements (UNE) that a CLEC can buy even where those facilities will be available.

H. Russell Frisby Jr., CompTel's CEO, says CLECs have to accept the new environment and “rely much more on commercial negotiations than they've had to in the past.”

Those negotiations with the Bell companies replace the unbundling rules under which CLECs could buy network access lines with local switching bundled in, known as UNE-P. The new rules, which phase out UNE-P over the next 12 to 18 months, will push CLECs to explore other options such as voice over IP (VoIP), toward which many currently are moving.

But that's also a challenge, said Tim McElgunn, program manager of competitive operator strategies for Stratecast Partners. “As much as we've talked about IP, we really don't know what it will do to pricing, to margins, to the size and scope of competition,” he said.

The SBC/AT&T merger is also affecting competition, but not necessarily in the expected way. For one thing, it takes the largest U.S. CLEC out of the competitive services market, said Greg Mycio, director of broadband analysis at NPRG.

“By buying AT&T, SBC, along with its existing CLEC initiatives, has the potential of being a very big CLEC itself,” he said.

While SBC will likely have to spin off AT&T's competitive operation in-region, it can compete with Verizon and BellSouth up and down the East Coast, he said.

AT&T was also the leading competitor to the Bell companies on the lobbying front. In recent years, it funded the front groups and much of the Washington activity that fought the Bells' growing advantage before Congress and the FCC. The loss of that opposing voice as Congress considers telecom legislation could be a major result of the SBC acquisition, the analysts agreed.

Looming, however, is cable, which will challenge both RBOCs and CLECs for customers, said McElgunn. “I would expect to see the cable industry coming on strong by 2006,” he said.

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