CLECs still struggling to make a difference

Six years after passage of the Telecommunications Act of 1996 set the groundwork for their emergence, competitive local exchange carriers have failed to make the significant impact on telecom pricing for business customers that advocates had predicted.

But CLECs have managed to introduce new services, such as integrated voice/data access. And in some large markets - such as New York City, where CLECs AT&T and WorldCom operate their own local facilities - they are competing with the regional Bell operating companies.

Competition has helped lower pricing in the long-distance market, but the effect has been much less noticeable on the local services side. Pricing has come down since 1996, but not any more dramatically than it declined before passage of the telecom act.

"The CLECs only won very limited market share," says Michael Lauricella, an analyst with The Yankee Group. "So the incumbents were never forced to really drive down prices."

The CLECs' impact has been blunted by the fact that droves of them were forced out of business when the capital markets became less forgiving in 2000. About 50 CLECs have filed for bankruptcy or left the market, leaving 80 to 100 in place, according to the Association for Local Telecommunications (ALTS), a CLEC group.

Impact has been felt in places

The overall effect of CLECs on pricing might be negligible, but in markets where they have a significant presence, CLECs have made a difference. Those markets tend to be major metropolitan areas where there's a large enough concentration of customers to make it profitable for CLECs to build out their networks, says Hank Levine, a partner in Levine, Blaszak, Block and Boothby, a firm that specializes in telecom contract negotiations.

In some cases the RBOCs will lower their local prices to maintain market share in these major metropolitan areas, Levine says.

"A few years ago you would do a deal with the RBOCs and they'd offer you a 4% discount if you'd sign for three years," he says. "Those discount numbers have doubled and tripled."

Still, Levine notes, no large corporation that he's aware of has pieced together a national telecom services contract that relies primarily on a CLEC.

"Overall, because the penetration is so spotty and many of them have gotten into trouble, their impact has been limited," he says.

In areas where the CLECs operate, they generally promise savings of between 15% and 20%, says Lynda Starr, an analyst with Probe Research. They also try to win customers with promises of superior service.

"With a CLEC there will actually be personal contact with the customer," Lauricella says, "whereas you pretty much have to be a company with at least 2,500 employees for the RBOC to consider you worthy of a dedicated sales rep."

One company that has made a CLEC an important part of its national telecom strategy is Marcus Evans, a corporate-event, training and market-analysis firm in Chicago.

Until recently, Marcus Evans relied on WorldCom to fill its voice and data needs, says Nicholas Convey, vice president of IT. But over the past year the company changed to a diverse carrier strategy.