Carrier Channel: Can CLEC Cooperation Break the Last-Mile Bottleneck?

Posted: 4/2003

Can CLEC Cooperation Break the
Last-Mile Bottleneck?

By Tara Seals

James
Martino, president and CEO for Last Mile Connections Inc., says he has the
ultimate technological solution for competitive telecom providers: A way to beat
the Bell stranglehold over the last mile.

Martino’s dream is to create a
national alliance of CLECs and IXCs, with a detailed model for avoiding the
Bells’ last-mile bottleneck through interconnection of the alliance members. By
physically bringing together an array of wholesalers and telephone companies’
fiber, last-mile connectivity can be traded — those that have built it out to a
desired building can offer capacity in exchange for access to another building
where they may not have a footprint. By thus avoiding the incumbent, Martino
says competitive players can save billions, since hefty access payments to the
Bells average 70 percent of access costs.

"You don’t have to read ‘The
Art of War’ to figure out you’re going to lose [under the current model],"
says Martino.

Martino’s vision requires buying
services from other CLECs instead of the RBOC. "So the result of that is
significant billions of dollars that flow from CLECs to RBOCs cease and start to
go from CLEC to CLEC," says Martino. This redirection of cash flow gives
the competitive industry more money and long-term viability, he adds.

"Disruptive events [like this]
paint a brighter future," says Martino, "and can save the dreams and
desires of the competitive telecom industry."

The key to the proposed national
alliance working is meeting carriers’ stringent business case for deploying
fiber to a building. That requires a demonstrable return on investment.

"You need contracts with
customers in place so as to guarantee payback, and it’s hard to meet the
hurdle," says Martino. "It used to be that people built on spec,
making it work on future expected revenues. But now, they need an
under-nine-month payback guaranteed, and very few business cases pass that
hurdle, so they need signed contracts."

Building out is an expensive
proposition, and so is the sales effort. Martini says it averages a $200,000
outlay to capture 5 percent of a building’s business, using one sales force.

Last Mile Connections’ system gives
participants a better proposition: Several sales forces coming together and
capturing 50 percent market share for the building, which will offer a seven- to
eight-month payback cycle. Last Mile Connections’ patent-pending technology
knits together different providers’ systems for clearing, payment, revenue,
orders, pricing, specs for buildings to qualify and returns, allowing companies
to work together towards building penetration — in effect, more companies will
be selling the footprint provider’s capacity, and everyone wins.

"So you grow the marketplace
with minimal risk and an understandable payback on a building-by-building
basis," says Martino. "This allows you to make the numbers with Wall
Street, and everyone starts to look healthier more quickly. Our solution makes
for a new investment vehicle for Wall Street to come back in."

Last Mile Connections raised $150
million in funding through One Equity Partners, the private equity arm of Bank
One Corp., and says it will actively fund some of the buildouts created through
the alliance.

"We will bring cash into a
marketplace starved for cash," says Martino. "These charters in the
end-user buildings look like individual investments with an easy-to-understand
ROI, so we’ll provide financing to alliance members to add and upgrade
buildings, which opens up a whole new door of financing. Today there’s not a
tremendous appetite out there."

The goal is to create a
20,000-building, nationwide network, which means a "predictable cost
structure and shorter provisioning cycles," says Martino. Last Mile
Connections has been holding a series of high-level meetings to get the alliance
going, and has test-driven the idea with its Local Loop Exchange in New York
City, a trading floor for local loop access to more than 650 end-user buildings
connected with fiber by a CLEC.