Utilities: The RBOCs’ competition

Remember when everyone was all excited about how the Telecommunications Act of 1996 was going to generate competition for local telephony and access services? Remember how all those competitive local exchange carriers were funded by Wall Street and gained all kinds of publicity? Remember how they died? Sure, the whole CLEC venture-funding extravaganza was a big hype wave, but are we now doomed to having no competition at all for the regional Bell operating companies?

Apparently not. The first realistic model for local exchange competition is emerging now – from the electric company.

Last month, ConEdison Communications (CEC), a division of the giant New York metropolitan public utility, announced that it is expanding its services into the small and midsize business (SMB) market. What makes this announcement newsworthy is that CEC is making money in local competition, and not chump change, either. For that reason, we need to understand how the CEC model works, and how it might work in places other than New York.

CEC got started in 1999 at the height of the bubble period, expecting to become a “carrier of carriers” in New York. When the carriers started dying off, CEC decided to jump into the enterprise market, leveraging the huge number of corporate sites in the city and its opportunity to use rights of way and crews to lay fiber and install communications equipment. CEC became a metropolitan carrier for the Fortune 1000.

To address its market, CEC deployed a fiber-and-electrical backbone network to supply bandwidth. CEC also built its own customer/network control center, integrating best-of-breed tools for a highly optimized framework of customer care and network management. CEC used its own conduits and the subways for diverse routing, and has benefited from corporate fears of network vulnerability. It branched out from SONET to Ethernet, to wavelength division multiplexing, and to using Verizon’s facilities to reach businesses that CEC hadn’t wired with fiber.

The newest CEC initiative is targeting middle-market customers with 50 to 500 employees, which number nearly 6,000 in the city. While CEC is expanding its own sales force to address these new customers, it’s also expanding its Agent Program of resellers. To target this new base, CEC is introducing its PowerNet Internet Service with access speeds ranging from T-1 to Gigabit Ethernet, and including e-mail and DNS. In the future the service is also expected to include Border Gateway Protocol routing. CEC also has voice service, based on T-1 or primary rate ISDN, and is evaluating technologies such as voice over IP, storage-area networks and hosting services. Better yet, CEC is exceeding its sales projections and expects to be net-income-positive by midyear.

How did CEC get it so right when so many others got it wrong? CEC management says it’s Business 101 – a focus on making money. Where other CLECs were using free capital to try to grab customers without regard for profitability, CEC was building a network and an operations process that could serve its initial Fortune 1000 market well, and layered on services for the SMB market without facing exploding costs.

Can this model be replicated? It would seem so. Public utilities in other metropolitan areas should be able to follow the CEC model easily. It seems that the big interexchange carriers (IXC) could have created their own metropolitan carrier businesses in New York and other cities. Could it be that they were so obsessed with getting next-to-free unbundled element pricing from the RBOCs that they didn’t even try to develop their own networks? CEC uses wholesale/unbundled elements and collocation, but only to extend its network. The company promoted the idea that “competition” meant having your own facilities, even before FCC Chairman Michael Powell caught on to that approach.

The IXCs probably can’t get the capital to try CEC’s approach now. However, other utilities still have plenty of time to get into the market. Fear of terrorism, concentration of high-value customers and available rights of way aren’t unique to New York. Your competitive access provider might well be delivering to you today – but delivering power or water. The future of competition in networking might belong to the utilities.