Article about competition between CLECs and RBOCs in Network World - Apparently CLECs don't like to invest in infrastructure. RBOCs can provide DSL without having to share infrastructure.
networkworld.com
Coming soon: a sea change for the
CLECs
Network World, 03/15/99
When the Telecommunications Act of 1996 was signed, many people visualized hundreds of competitive local exchange carriers (CLEC) digging up streets and installing new state-of-the-art access options. Instead, we got hundreds of attorneys digging through law libraries and seemingly little progress in improving access technology. But that may be about to change, and the surprise is that this change may not benefit CLECs. To create more competition, we may
end up killing off some of the competitors.
For all the hype about competition, today about nine
out of 10 CLEC lines are simply wholesaled from the incumbent regional Bell operating companies and resold. A few CLECs, such as Northpointe and Covad, have augmented basic copper loop with digital subscriber line (DSL) service, but they're in the minority. We've changed who sells telephony but not who provides it. CLEC operation may impact pricing, but most CLECs aren't doing anything for network
technology because they aren't doing anything at all with technology.
Now the RBOCs are getting ready to become CLECs. At least two are now quietly restructuring their organizations and facilities in preparation for dividing themselves into an incumbent local exchange carrier entity dedicated to wholesaling and a CLEC
entity dedicated to retail. We'll probably see the first of the divisions take place by summer.
Furthermore, in a rule-making scheduled for late this month, the Federal Communications Commission will allow RBOCs to deploy infrastructure for advanced data services out of a CLEC subsidiary without being subject to the wholesale restrictions of the telecom act.
This will let an RBOC provide DSL service, for
example, without having to share its infrastructure with competitors. For their part, CLECs can bundle voice access with DSL, something the act forbids RBOCs to do.
Data service users are going to end up the big winners in the new CLEC competitive race. If CLECs and RBOCs fight it out on the data access field of battle, the result can only be better, cheaper and faster access technology. Voice services are already
inexpensive under competitive pressure, and RBOCs are expected to enter the long-distance market later this year, driving prices even lower.
The total profit margin on voice could well shrink to a little more than 20%, which isn't much better than the wholesale/retail spread the CLECs rely on today. Data, on the other hand, can generate margins approaching 60%. With data profits, CLECs can deploy their own infrastructures. With voice profits, they can't. Get the picture?
Rebirth of TLAN
The first revolution in CLEC data services is likely to be a rebirth of the concept of transparent LAN (TLAN) services. TLAN is by nature a local service, so it fits the CLEC's limited service geography. In Canada, where CLECs always had a time limit for
wholesaling from the incumbent, TLAN is probably the most popular CLEC profit source.
TLAN is also more versatile than its early application, as a kind of metro-LAN for users with multiple local
sites, would suggest. A TLAN user could reach an ISP through the TLAN service connection.
Likewise, the user could reach an IP virtual private
network (VPN) service, or even a frame relay service. The CLEC could thus sell the user TLAN service for local site networking and then sell access to national VPN and Internet services.
Then, to further profit, the CLECs could turn around
and charge the VPN interexchange carriers or the ISPs for access to the customer.
This happy new world won't be without challenges for
the CLECs, however. Most don't have the capital or the skills to build networks. As a result, it's possible that more than half the CLEC lines now in service will be returned to RBOCs as CLECs go out of business.
There will be a lot of groaning and gnashing of teeth
when the new market emerges, much of it from
CLECs that don't want to invest in infrastructure.
Ignore them and focus on those CLECs that are
willing to prove themselves in the real market.
Nolle is president of CIMI Corp., a technology assessment firm in Voorhees, N.J. He can be reached at (609) 753-0004 or tnolle@ cimicorp.com.
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