As CLECs get a second chance, users get deals

Anderson Columbia, a road construction contractor in Lake City, Fla., chose to switch to telecom provider ITC DeltaCom just five months before the competitive local exchange carrier filed for bankruptcy.

But Mark Resler, communications manager for Anderson Columbia, says he wasn't concerned about the bankruptcy, filed in June 2002. "It's done all the time in the corporate world," he says.

When Anderson Columbia switched, it saved 10% to 15% on telecom services, amounting to more than $3,000 per month, he says. The company, with about 1,000 employees, uses ITC DeltaCom for local and long-distance service, T-1 lines and frame relay connections for its 10 locations in northern Florida.

While investors in CLECs have lost billions of dollars, the competitive carriers that survive are fighting hard for the business of companies such as Anderson Columbia. In addition to saving the construction contractor money, ITC DeltaCom offers personalized customer service that Resler says he doubts would be available from most larger carriers. "My requests get handled real well," he says. "They call back relatively quickly."

Taking different paths

Telecom observers have seen dozens of small and midsize CLECs emerge from bankruptcy in the past year, and even more came back in the previous year. Some survivors are gobbling up smaller competitors, some are cutting back on services or markets, some are offering new services and still others are just trying to turn a profit. The good news for telecom buyers is that these formerly bankrupt CLECs are focused on competing with their larger cousins and with incumbent carriers, sometimes by lowering prices and sometimes by trying to offer bundled services or better customer service.

"It's good for customers right now," says Nancy Kaplan, vice president of telecom strategy consultant Adventis. "CLECs are going after customers with lower prices."

Price competition, however, might not be a winning game for many smaller CLECs, when large CLECs and the RBOCs have economies of scale on their side, Kaplan says. "If all you're going to do is play on price, that's a difficult sell," she says. "Some of these companies will emerge very strongly, some of them will be bought by other carriers, and some of them aren't going to make it."

While customers should pay attention to CLECs' financial reports, service won't get turned off overnight if a carrier doesn't succeed in the long term, Kaplan says. Worst case, a customer would have to eventually negotiate another telecom contract if a CLEC doesn't survive, she adds.

Often CLECs emerging from bankruptcy don't offer business plans that are radically different than they offered before. In the case of AboveNet, a fiber-based telecom carrier, bankruptcy meant cutting loose three data centers and getting rid of "fiber bank contracts," where customers bought contracts based on estimated future needs.

While those contracts were "spectacular from a revenue point of view, they were a disaster from a planning point of view," says AboveNet President and CEO William LaPerch, who joined the company in January, three months after it emerged from bankruptcy.

The IDG News Service is a Network World affiliate.