AT COMPTEL, SIGNS OF CLEC LIFE AMID REGULATORY UNCERTAINTY

While Competitive Telecommunications Association President Russell Frisby told attendees of the group's conference in Orlando last week that the CLEC sector is showing signs of life, some constituents suggested many of their brethren should be given a death sentence.

The sector is coming back, due in large part to an improved financial outlook and increasing market share, Frisby said, while pointing out that CLECs still have just 13% of the local switched access market seven years after passage of the Telecommunications Act. The primary hurdle to prosperity, he said, is the FCC, which “cast a pall” on the sector with its Triennial Review order and a pending review of the TELRIC pricing formula used to set rates for unbundled network elements. The order was a mixed decision that changed the rules under which CLECs operate and reestablished the Bell companies' monopoly, Frisby said.

“We're growing every day, and we're growing because we provide faster, better and cheaper services that America's consumers want, and the FCC shouldn't do anything to stop that,” Frisby told show attendees.

Much of the improved financial outlook for the competitive carrier sector is attributable to numerous corporate restructurings over the past couple of years, including several bankruptcy reorganizations. Though not typically viewed positively, CLEC bankruptcies were a helpful development not only for the carriers but also the vendors that serve them, said Deb Lenart, CEO of CNM Network, which provides long-haul transport to CLECs over a 20,000 route-mile network.

“We're very confident in the sector,” Lenart said. “As they've restructured, they've become more profitable, and it's going to continue to get better.”

While Mpower Communications Chairman and CEO Rolla Huff agreed with Lenart that the heavy debt burdens plaguing so many carriers are lessening, debt is still the sector's biggest issue. “Creditor committees, not management teams, are managing too many of these companies,” Huff said.

Mpower, a facilities-based CLEC with 259,000 installed lines in Los Angeles, San Diego, Northern California, Las Vegas and Chicago, emerged debt-free from its restructuring — although it was forced to sell off three unprofitable coverage markets and eliminate about 1200 jobs. Unsustainable business plans also remain a huge problem, said Huff, an advocate for consolidation.

“If you don't have a viable business model, regardless of how hard you work, you have to think about your customers and employees,” he said. “We don't do anybody any good if we get liquidated.”

There are too many CLECS in most markets to effectively compete with the Bells, Huff added.

“If SBC [Communications] has an 85% market share, how can six other networks scale to the point where they all can survive?”

Larry Williams, president and CEO of ITC^DeltaCom, which completed its own restructuring one year ago and last week finalized its merger with BTI Telecom, agreed. “Consolidation has to happen,” he said. “It's the only way we'll see any money on a regional level, and maybe on a national level, too.”

However, the timing of consolidation is going to be important, and it might still be premature, said Rick Roscitt, president and COO of MCI, which is expected to emerge from bankruptcy this fall.

“Don't forget that the telecommunications industry for the past 30 years has lagged behind the recovery of the general economy,” Roscitt said. “And so far, we've had a jobless recovery, which means people aren't making capital investments to open up new facilities, and they don't need new buildings. We need a sustained business recovery before we'll see a telecom recovery.”