Posted: 07/1999

Local Resale Shows Signs of Life
By Ken Branson

Like Mark Twain reading his own obituary, there are those who believe that reports of
local resale’s death are greatly exaggerated. When PHONE+ reported in May that local
resale was dying–and not much missed by some of its practitioners–we heard from some
that we had overlooked some signs of life.

Just days after that issue hit the streets, at the Telecommunications Resellers
Association (TRA) Spring Exhibition and Conference in San Diego, UniDial Communications
Inc., Louisville, Ky., and Bell Atlantic Corp., New York, announced a $300 million,
five-year local resale deal with discounts much deeper than the going rate. Though
wholesale discounts in Bell Atlantic’s 14-state region range from 15 percent to 25
percent, UniDial will receive additional discounts of 10 percent the first year, 13
percent the second year and 15 percent during each of the following three years. The
discounts depend on UniDial meeting volume commitments.

The notion that resale may be a way to enter the market, but no way to stay there,
meets with determined dissent, unsurprisingly, from Bell Atlantic.

"I really disagree with the notion that … resale is not a viable long-term
market-entry approach," says Peter Karoczkai, vice president-marketing and product
management, Bell Atlantic Telecom Industry Services. "In many instances, I would
characterize some businesses’ [in]abilities to make resale viable more in the category of
pilot error than the discount structure."

In other words, the deepest discount in the country won’t save a bad business plan or a
management team that can’t execute.

Bell Atlantic’s spokesmen say their company believes in resale as a viable business,
extra discount rates or not. When it and UniDial announced their deal in May, TRA
President Ernest B. Kelly III was inspired to urge "everybody and their brother"
in the reselling business to examine the agreement, go to their own suppliers and see if
they couldn’t negotiate a better deal.

And Sean Dandley expects to do just that. He is CEO of Digital Signal Communications
Inc. (DSCI), Lexington, Mass. DSCI resells Bell Atlantic local service in New York and in
all the New England states except Connecticut (where the Southern New England
Telecommunications Corp. [SNET], New Haven, is the incumbent). Dandley says he and his 26
colleagues make a good living at the current discount rates, thank you very much.
"But do I want to make more money?" he asks rhetorically. "Oh, yeah."
At press time, he was following Kelly’s advice–examining the UniDial agreement and
looking forward to an early meeting with his account team at Bell Atlantic.

DSCI only works in Bell Atlantic country so far, and doesn’t depend exclusively on Bell
Atlantic as a wholesale source. Depending on the needs of its customers–businesses and
institutions with more than $3,000 per month in telecom expenditures–DSCI also may use
WinStar Communications Inc., New York, or AT&T Local Services (the former Teleport
Communications Group Inc.), Staten Island, N.Y. And DSCI has a proprietary convergent
billing system which, as the CEO of a privately held company, he is loath to describe in
detail. Dandley says his company is 100 percent resale, and it has no plans to be anything
else. "We manage to have a good business and pay people well," he says.

Those people–26 of them in Lexington and Laconia, N.H.–are the key to DSCI’s success,
and having the wrong people lies at the heart of many reselling failures, Dandley
believes.

"They seem to have come from a commodity environment," he says of the staff
of some other resellers. "A lot of the senior staff [of failed resellers] thought
that local resale would be a lay-up of the long distance resale environment from the
mid-1980s."

But local resale is far more complex, Dandley explains, and the consequences of failure
to deliver services graver. He also believes there is a language and cultural gap between
some resellers’ employees and the people they deal with at incumbent local exchange
carriers (ILECs). The resellers sometimes don’t "parlez Bell Atlantic" (or
AT&T, or WinStar) and the ILEC employees taking their orders misunderstand what
they’re being asked for. This is why he likes to hire former account executives from
companies such as Bell Atlantic. He reasons that they’ve spent their careers on the other
side of the wholesale conversation and know exactly what to ask for and how to ask for it.

As much as Dandley is looking forward to his conversation with Bell Atlantic, Bell
Atlantic is looking forward to its conversation with him and others like him.

"Frankly, I’m looking to sign several more of these agreements in the next several
months," Karoczkai says. "We’re already in discussion with several large
resellers and CLECs (competitive local exchange carriers) about this agreement, and
looking forward to having a meaningful, constructive dialog with them about it."

Karoczkai declines to say to which resellers or CLECs Bell Atlantic is talking.

There are those who believe that local resale, dying or not, deserves death. They say
that to put the future of your business in someone else’s network is unwise. And to do so,
they say, not only is unwise, but also borders on making a pact with the forces of
darkness. The ILECs will do anything they can, these critics say, to keep customers on
their network and prevent competitors from building their own competitive facilities.

"There are two kinds of new telecom companies," Dandley says. "There are
technology-oriented, engineer companies that want to hold, hug and love a switch. And
there are distribution companies, which is what we are, that are focused on the best
solution for the customer."

BellSouth Corp., Atlanta, pleaded guilty to wanting to keep customers on its network
when it announced its unbundled network element platform (UNE-P) earlier this year. The
general idea is this: A telecommunications company can have the use of BellSouth’s entire
network–with discounts of about 40 percent for three, five or seven years–provided it
commits to putting 70 percent, 80 percent or 90 percent of its circuits on that network
during that time. The standard offer includes access to the network’s vertical services,
normally available to resellers ` la carte or not at all.

Karoczkai says Bell Atlantic certainly wants to keep customers on its network, but he
denies that his "y’all come" invitation to resellers to renegotiate their
contracts in the wake of the UniDial deal is intended to discourage competitors from
building their own networks. "Our goal is not to convince facilities-based providers
to stop building their facilities," he says. "Our goal is to [say that] we have
a growing resale population that came to us with the request of building a long-term
relationship based on volume commitments."

Ken Branson is business and finance editor for PHONE+ magazine.