CLECs and ISPs: A love story?

Here's a story.
Of a tiny C-LEC.
That was trying to do it all alone.
They had staff and rack space,
Yes lots of rack space,
But of profits, there were none.
Here's a story.
Of a small-town ISP.
That was trying to compete with AOL.
The had routers and modems,
Yes lots of modems,
But of customers they had, well, only one.

I've got a hunch. I've got a hunch. These two firms will become ... the Brady Bunch.

Bad song? It sure is. Deduct two points from your IQ if you actually hummed the real Brady Bunch theme.

As for the rest of you, get set, because the marriage of CLECs and ISPs is about to begin. And look for them to come in a flood over the next year; I wouldn't be surprised to see a Moonie-like mass marriage of dozens of CLECs and ISPs.

A few years ago, ISPs were the hot startups - everybody, it seemed, was forming their own Internet access company. Today, the equivalent is CLECs - is there anybody who isn't trying to achieve the American dream by starting up their own phone company? The market shows no signs of cooling down any time soon. But many of the CLECs are experiencing troubles with everything from unreliable hardware, immature technologies (i.e., xDSL) and a lack of qualified staff. It's unlikely many of them will be able to become big players (although, like ISPs, many will hang on in niche markets, for example, in serving campuses and office parks).

All this activity hasn't gone unnoticed by the major independents or the LECs and IXCs. In fact, we should start seeing an increase in CLEC acquisitions/mergers by the end of this year.

As for ISPs, they're going to start dropping as well - we simply don't need several thousand Internet providers in the U.S., although there will continue to be specialized niche markets for many of the smaller ones (by the way, this does not mean there isn't still room for a few major national ISPs to carve out specific vertical business markets - something we'll come back to at a later date).

So with the major players sniffing around the smaller players, why do I see future marriages between CLECs and ISPs? Several reasons. First, there is the issue of survival for those that have not been purchased. Secondly, this is what our contacts in CLEC and ISP companies are hinting to us - that they are very interested in exploring "mutually beneficial" opportunities in this area.

It actually makes sense - and the opportunities could be significant - if they can iron out some issues, such as true voice and data integration.

No, these unions will not be easy. The level of technical expertise varies considerably between CLECs and ISPs, as do the basic business plans and strategies. But the smart ones will find a way to overcome these differences. As for the not-so-smart ones, they will become yet another foot-note to what has already become an extremely exciting - and volatile - networking market.