High-profile metropolitan Ethernet provider Yipes Communications joined a parade of competitive local exchange carriers by filing for bankruptcy protection last month. Several more CLECs, including XO Communications, are teetering on the brink.
So it comes as some surprise to see a pair of recent analyst reports assert that competition in the business telecom market is not only alive and well, but also growing.
How can competition be thriving when so many competitive carriers have gone belly up?
The demise of so many CLECs has a lot to do with the success of the remaining carriers, say the authors of the studies from The Eastern Management Group and The Yankee Group.
"There were too many providers in the market before and now that there are fewer, the remaining ones are becoming more stable," says Robert Saunders, an analyst with The Eastern Management Group. Instead of competing with one another, as they were in the past, the CLECs now can focus their attention on competing with the regional Bell operating companies.
Three of the more stable CLECs remaining are Allegiance Telecom, Time Warner Telecom and NuVox Communications, Saunders says.
Allegiance focuses on selling voice and data services to small- and midsize-business customers in 36 metropolitan markets. Time Warner Telecom targets larger customers in 44 metropolitan markets with a variety of broadband and optical offerings. NuVox serves up voice and data to 30 markets in the Midwest and Southeast.
A number of smaller, regional players are also having a great deal of success, he says.
Michael Lauricella, an analyst with The Yankee Group, says Conversent Communications, a facilities-based CLEC serving New England, is another provider enjoying some success in growing its business.
Both reports rely on Federal Communications Commission statistics to back their claims of growing competition. The key statistic is the growth in switched access lines. In June 2001, CLECs reported having 17.3 million of the nation's 192 million switched access lines - up 16% from 14.9 million access lines at the end of 2000.
According to the FCC, telecom competition is highest in: New York, where CLECs provide 20% of the access lines; Texas, where they hold 12%; Massachusetts, with 11%; and Pennsylvania, with 10% penetration.
The recent run of bankruptcies may have hurt the reputation of CLECs in some circles, but often a customer of a bankrupt CLEC will look for another CLEC when it searches for a replacement provider, Saunders says.
"They get used to the price. They think the service is better, and they like the idea of an integrated access service," he says.
Integrated access services are offerings that allow businesses to get their voice and data over one connection, even though the voice and data may be traveling over separate channels. For example, a competitive carrier could bring a T-1 line into a business, dedicate 12 channels to voice and the other 12 channels to data.
The RBOCs don't offer comparable services, Yankee Group's Lauricella says. And because integrated access services are cost-efficient for the competitive carriers, they allow the CLECs to differentiate themselves from the incumbent providers on pricing, without forcing the CLECs to sell the services at a loss.
Another area that sets the CLECs apart from the RBOCs is customer service. According to Yankee Group research, CLEC customers usually are happier with the customer service they get from their new provider.
"The CLECs are smaller and very focused on the market they serve," Lauricella says. "The RBOCs have a large customer base [and] a variety of products to sell, and they often have a harder time getting a focus."
While the CLECs are having some success winning over enterprise-class customers, most of their business is still generated by midsize companies with 1,000 or fewer employees, Lauricella says.
Telecom competition might be increasing now, but there's no guarantee it will continue to do so.
Legislation affecting wholesale access rates on incumbent networks, such as the Tauzin-Dingell bill before the U.S. Senate, could have a dramatic impact on whether competitive providers thrive or die, Lauricella says.
"But to say that all of these companies are going to be bankrupt tomorrow is really premature," he adds.
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