CLECs put on a happy face

BURLINGTON, MASS. -- Incumbent carriers might have won round one vs. competitive local exchange carriers, but those challengers that haven't been knocked out still have plenty of fight left in them.

That was the message Wednesday from speakers on a panel titled "The Broadband Last Mile -- What Now?" sponsored by the Massachusetts Telecommunications Council. Among the speakers were representatives from data CLEC Covad, competitive carrier C2C Fiber of Massachusetts and Dynamic City MetroNet Advisors, which helps cities set up their own telecom networks.

Covad, the national DSL provider that filed for bankruptcy protection in August of 2001 and emerged from it about a year ago, is looking to become "the Southwest Airlines of the telecommunications industry," said Morgan McChesney, senior vice president of network operations. He said Covad plans to do this by driving down the cost of doing business and passing along those savings to customers, which will mainly include small businesses and consumers.

Covad, with $1.4 billion in debt wiped off its books through the Chapter 11 process, is already undercutting most broadband service providers by offering DSL at $39 per month, McChesney said. The next goals are to get that price under $30 and then down under $20, even undercutting what AOL charges per month for its dial-up service.

Among other things, Covad is trying to reduce the number of expensive truck rolls to customer sites by trying to make self-installation much easier, even for its network security offerings. Plus, McChesney pointed out that only 10% of the capacity on Covad's national network is in use, which means the company can add plenty of new traffic without adding bandwidth. However, he did note that the company is adding collocation sites (it has about 1,800) to extend its reach.

Brady McConaty, CEO of C2C Fiber, which delivers last mile connectivity to enterprises and service providers, agreed that offering low-priced services is key to the success of CLECs. Recognizing that the telecom industry is in distress, customers are pushing for cheap bandwidth, he said. However, "That's in conflict with what the investors want to see," he added.

While plenty of challenges remain for CLECs, there are a couple of things working in their favor, said McConaty, who acknowledged that his company has "morphed its business plan three times" since starting up in 1997. First, customers still have a post-9/11 mindset of making sure their networks are redundant. That, McConaty said, creates demand for CLECs that provide connectivity over networks that are physically separate from ILEC facilities. Second, he said building owners are becoming much more network-aware. "The Number Two question after price [of property] is: Does it have high capacity fiber in the basement?" he said.

Overall, McConaty said that companies left standing in the telecom market seem to be behaving more rationally. "The land grab days are over," he said. It's more common now for carriers to conduct fiber exchanges and to push customers to sign for longer-term contracts, he said.

Aside from CLECs, cities themselves are standing up to incumbent carriers by building their own broadband network facilities. By doing so, the cities look to ensure that their residents have access to high-speed services at low prices, said Ernie Bray, CTO for Dynamic City MetroNet Advisors.

He cited a group of 17 cities in Utah that run a broadband network through an organization called Utopia. Among the reasons that the operation can offer low cost service is that it doesn't have to spend a lot of money on getting rights of way, an expensive and time-consuming undertaking for most CLECs. Also, the cities give multiple service providers access to the local transport system, providing customers with a choice of suppliers. Cities can also spread the cost of such a system out over 20 years by issuing bonds, Bray says.

The cities aren't so much concerned with making money on the telecom networks, Bray said. "It's more about quality of life and economic development," he said.

CLECs put on a happy face

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