Hot and bothered in Miami: CLECs air complaints about incumbent hegemony

Sunny weather did little to draw service providers to the Association for Local Telecommunications Services conference in Miami last week. But on the sparsely trafficked trade floor and in seminars, those who did attend spent more time getting hot under the collar about treatment by incumbent carriers than touting new products.

Most competitive local exchange carriers (CLECs) and integrated communications providers expressed frustration about a host of issues, ranging from recent court setbacks for co-location rules to pending data relief legislation to reciprocal compensation battles with incumbent LECs (ILECs).

"The RBOCs treat us like they serve their customers - very poorly," said Roscoe Young, president and chief operating officer of KMC Telecom.

Regulatory processes at the state and federal levels are too slow and outdated to handle such a fast-moving industry, said David Burgess, state commissioner at the Georgia Public Utility Commission. For example, although the incentives included in the Telecommunications Act of 1996 seemed like a good idea four years ago, the low margins in the long-distance business today mean the RBOCs aren't motivated to open their local markets. BellSouth, for example, is having an internal debate on whether Section 271 applications are even worth the trouble, Burgess said.

Nonetheless, carrier executives expressed hope that broadband technologies will help CLECs capture greater market share in the local loop.

"The access portion of the business has yet to be penetrated," said Dan Moffat, president and CEO of New Edge Networks, noting that, on average, only 5% of access lines are tapped by CLECs.

Moffat pointed to the tremendous pent-up demand for DSL service as a reason for optimism. That was recently evident in New Edge's experience in Walla Walla, Wash. New Edge signed 150 DSL users and became cashflow positive after 90 days of entering the market.

"Of course, the iceberg beneath the service is ILEC provisioning and installation," Moffat added.

Another obstacle facing CLECs is the changing network architectures of the ILECs. Buildouts such as SBC Communications' Project Pronto - a program moving DSL access multiplexers in remote terminals closer to the customer but further from the central office - not only attempt to curtail customer choice in video and data services but also try to return CLECs to a reseller role, said a Rhythms NetConnections spokeswoman.

"On the DSL front, RBOC performance is abysmal and unacceptable," said Tom Gillett, chairman and CEO of start-up provider Digital Broadband Communications. Gillett said his team is trying to work with Bell Atlantic to improve line-ordering processes but is also threatening legal action. "We're trying to get it done at the schmooze level and the big-stick level," Gillett said.

Future access alternatives such as fiber, broadband wireless and convergent overbuilds give hope to companies such as Digital Broadband because they mean less dependence on ILECs.

But that's a long time to wait. The recent bankruptcy of GST Telecommunications seemed to weigh on the minds of many executives at ALTS, especially coupled with rising interest rates and instability in the stock markets.

"Gone are the days of not delivering financially," said Bill Beans, president and chief operating officer of ICG Communications. "You're going to have to make your numbers."

On the debt side, lenders are becoming more selective, said Ken Hoexter, managing director at Merrill Lynch.

"Only high-quality carriers can do a bond deal today," he said.

Private debt raised by competitive carriers in 2000 already has reached $5 billion, compared with $6 billion during all of 1999, said Melissa Glass, managing director of TD Securities. But this year's number is skewed by large offerings from McLeodUSA and Winstar Communications, which combined to account for half of this year's year-to-date tally, she said.