Consolidation isn't cramping competitive style

Consolidation was expected to wreak havoc in the competitive telecom industry as the largest carriers stopped buying wholesale services from others in favor of moving more of their traffic onto their own networks. But judging from the activity in the meeting rooms at CompTel, held in Las Vegas last month, consolidation isn't crushing competitive carriers, just making them more creative.

“This industry has 100 to 200 players who are all buying and selling from each other,” said Steve Hilton, Yankee Group analyst. “Their future needs are driven by ubiquitous connectivity. That drives buyers and sellers to new solutions.”

Increasingly, those new solutions are IP-based, said Craig Clausen, senior vice president of New Paradigm Resources Group, which just issued its latest competitive carrier report. And today's competitive carriers keep a much closer eye on operating costs and maintaining profitability, he said.

“But they are also getting back to their roots of being competitive access providers,” Clausen said. “They are recognizing there is value on the wholesale side, especially if they can help each other bypass the incumbents.”

One emerging trend in wholesale is to offer end-to-end services that combine metro and access facilities with the long-haul network. XO Communications launched a nationwide wholesale offer (see story on page 14), and Qwest Communications used CompTel to discuss the recent FCC ruling that allows it to see long-distance and local services together for the first time.

“As the customers come to us and have a strategic plan, we can now address their metro, local and long-haul needs,” said Roland Thornton, Qwest's executive vice president of wholesale markets. “We can look across our entire portfolio, and we are the only ones with that kind of latitude.”

Even with that forbearance, Verizon Partner Solutions is looking at its pricing of services and building a national pricing strategy. “Our customers have been calling for a single national service,” said Quintin Lew, vice president of marketing and sales for Verizon Partner Solutions,. “Right now, we have different cost structures in different regions of the country based on the legacy regulatory world. By April, we will have a national plan so that customers who use our services nationwide can have a single plan that covers our entire footprint.”

Verizon can then offer them volume discounts on that plan, based on their volume commitments, Lew said.

The end-to-end trend makes sense, said Cindy Whelan, an analyst for Current Analysis, because it enables wholesalers to capture more traffic. “Nobody goes everywhere — not even AT&T and Verizon,” she said.

The end-to-end offers reflect a broader trend, Hilton said. ”I think we are going to see more interesting and unique combinations of wholesale services,” he said. “Wholesalers are going to compete more. The sellers of wholesale are also the buyers of wholesale — it's the nature of the beast — but I think they are looking to compete with different kinds of offerings.”

And while mass mergers are shifting traffic so that, for example, a wholesaler may lose a big chunk of BellSouth's business when it shifts to the AT&T network, a rise in demand is enabling that business to be replaced, said Courtney Munroe, an analyst for IDC.

“Part of the strategies of these mega mergers has been to save cost, so the traffic will shift,” he said. “But more than likely, it is going to pick up somewhere else. There is a lot of demand out there for bandwidth.”

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