CLEC survivors might be worth a look

Many years ago, before the Internet bubble had really started, I was advising a slew of small telecom equipment companies with similar business models. Each one told me solemnly that it planned to make big bucks selling to competitive local exchange carriers.

I told them all the same thing: Better line up as many customers as you can right now, regardless of the revenue you get, then get bought by somebody else – before the CLEC market implodes.

How could I be so sure in the mid-1990s that the CLEC market would collapse? Simple. If CLECs offered nothing more than an inexpensive alternative to the incumbents, they had no long-term sustainable differentiators. And for the most part, that was the case back in the ’90s.

But it’s no longer the case. CLECs have wised up and learned that to compete they have to offer a range of services the incumbent local exchange carriers either can’t or won’t provide – at prices the ILECs aren’t willing to match. So the time might be just about right to draw your attention to a handful of CLECs that have survived the maelstrom and have services worth investigating. A sampling:

• OnFiber offers optical wavelength, SONET, and most interestingly, Gigabit Ethernet services. The company, which picked up the assets of Telseon and Sphera, appears to have a relatively healthy balance sheet and a solid strategy for sustainable growth.

• Yipes offers Gigabit Ethernet and managed IP over fiber. The company emerged from bankruptcy in July with a new CEO, new advisory board, and $41 million in new equity from venture capital backers such as Norwest Venture Partners and New Enterprise Associates.

• Cogent Communications offers Gigabit Ethernet and has recently added DSL to its mix. Target customers are small-to-midsize companies requiring at least a T-1 worth of bandwidth. The company acquired the assets of PSInet, FiberCity and Allied Riser.

• XO Communications emerged from bankruptcy last month and now is owned by Carl Icahn. The company offers a range of services, including local and long-distance voice, Internet access, and Ethernet and managed wavelength services.

• Level 3 last summer generated a vote of confidence in the telecom market from Berkshire Hathaway chairman Warren Buffet, who invested $500 million in the company. Level 3 service offerings include wavelength, dark fiber and MPLS, and it recently acquired the assets of Genuity.

• ICG Communications offers a variety of services, including Internet access and fiber services. It has been relatively quiet since emerging from bankruptcy last October but the firm recently announced network expansions in Los Angeles.

• Covad Communications emerged from bankruptcy in late 2001 and specializes in DSL and Internet services for small-to-midsize businesses. It recently entered the voice market.

Bottom line: News of the CLECs’ demise has been greatly exaggerated. Taking a look at some competitive players would at least help your negotiating position with incumbents, and could end up providing you with great services at competitive rates.