Soap Box – Service Providers Jockey as Rules Shift Balance of Power
Posted: 01/2001
Service Providers Jockey as Rules Shift
Balance of Power
By Whitney T. Weller
FCC (www.fcc.gov) regulations regarding the
unbundling of services certainly have shaken up the balance of power in the
telecom industry by enabling carrier’s carriers–like Qwest Communications
International Inc. (www.qwest.com)–to bypass
ILECs–like Verizon Communications (www.verizon.com)–and
establish direct links to customers.
But far from allowing these regulations to sideline them, incumbents remain
strong, driving even newer regulations that enable them to build new
infrastructures for delivering broadband services.
Telecom regulations are not new. Since the dawn of wireline telephony
services, the government has issued regulations to protect the weak from the
strong and the public from monopolistic practices.
In many ways, regulations have given rise to the tremendous market
opportunities we see today. For instance, the same regulations that enabled the
Bell system and AT&T Corp. (www.att.com) to
gain the stronghold on the U.S. market also have enabled the carefully
engineered standards those companies have pioneered throughout the years.
These standards and the public access to technology the Bell Laboratories
invented during the monopoly and regulated years laid the foundation for
fledgling telecom service companies and enabled spin-off technologies to develop
and take hold.
But the same kind of regulation style that nurtured public and competitive
access to telecom technology also engendered today’s competitive market.
As we have seen with the breakup of the Bell system in 1984, the industry has
struggled with the restrictions placed on service providers.
Regulations related to the unbundling of services are a good case in point.
For example, the November 1999 FCC 99-238 ruling on network unbundling produced
a different landscape for service providers. This ruling ushered in sweeping
changes that untied the hands of ILECs and IXCs, giving them the ability to
offer broadband services. Prior to this ruling, existing regulations–put in
place since the 1984 breakup–restricted ILECs from using their market dominance
and control over the physical infrastructure to hold back CLECs.
Regulations were written to allow equal access for CLECs and IXCs to the
customer base served by ILECs.
By giving CLECs and IXCs access to physical connections to customer locations
within the ILEC service area, regulations relating to the unbundling of
telecommunications services attempt to strike a balance between large and small,
new and old.
The regulations prohibit larger IXCs from offering long-distance IntraLATA
services until they can demonstrate that CLECs and IXCs have equal access to
local customers in their traditional service areas.
LATAs are the 196 geographical areas within the United States in which local
telephone companies may offer local or long-distance communications services. As
part of the breakup of the BOCs, CLECs and IXCs can lease ILEC facilities
currently not in use at reasonable rates.
ILECs that have such spare capacity are required to lease it to whomever
requests the facility. This means that CLECs and IXCs can and do request the use
of anything from copper pairs to fiber optic cables not currently in use by the
ILEC.
As a result, IXCs and carriers’ carriers now have the opportunity to realize
the revenue benefits that come from dealing directly with customers. To take
advantage of these opportunities, many carriers are collocating new breakthrough
equipment in so-called telecom hotels–buildings located at the center of
commercial hubs and rented by businesses that sublease space to emerging
carriers for use as PoPs or access points.
The new breed of multiservice equipment collocated in these hotels can take
huge amounts of bandwidth from a single fiber and use it to sell services
directly to end users. By providing a single, multifunction solution, this
equipment saves the time and costs of aggregating and managing multiple
equipment platforms. By enabling low-cost, highly differentiated services, this
new breed of equipment gives CLECs and IXCs a competitive edge over service
providers using legacy equipment.
In contrast, many ILECS responded to the regulations by placing as many
existing facilities into service as possible and curtailing investments in new
ones unless bandwidth demand forced them to do so. Unfortunately, the growth of
the Internet led to skyrocketing customer demands for broadband services and
left ILECs without adequate facilities to keep pace. The resulting long wait for
broadband service delivery from ILECs drove customers to the faster, leaner
CLECs that were able to move quickly to respond to their demands of rapid
delivery of high-speed bandwidth services.
Because they are newer carriers, CLECs can build their infrastructures from
the ground up–optimizing them for delivering broadband services. In doing this,
they gain an edge by aggressively adopting newly invented, high-speed bypass
technologies such as DSL, DWDM and new multiservice platform technologies. CLECs
can offer last mile connectivity to new-age IXCs as well as to high-demand
users, while turning a profit and reducing costs to customers.
At a clear competitive disadvantage, ILECs worked for regulations that would
level the playing field. FCC ruling 99-238 accomplished this by allowing ILECs
to provide non-unbundled services as long as the physical infrastructure is not
shared by their regulated businesses and does not use legacy access facilities.
As a result, ILECs now can build out new infrastructures dedicated only to
delivering broadband services–much as CLECs had been allowed to operate without
the requirement to unbundle the facilities. The change means communities served
by ILECs can benefit from investment in new facilities, and those ILEC
investments will be protected from CLEC use and competitive encroachment.
While regulations can tip the balance of power from one player to another,
they also can present opportunities for rival carriers to form alliances that
can result in greater profits for both. These alliances can protect all parties
from the vagaries of the regulatory world by banding together a block of
providers with common interests. By forming carrier-to-carrier alliances, for
example, CLECs and ILECS can connect corporate bandwidth powerhouses with large
corporate consumers of broadband services.
An example might be the acquisition of MediaOne Group (www.mediaone.com)
by AT&T, which joined a long-distance carrier and an ISP and cable provider.
The resulting entity is a traditional IXC and a new CLEC that provides a
worldwide network and direct access to the LATA customer base.
The Qwest/US WEST alliance is another example of a carrier’s carrier
cooperating with an ILEC to get access to the local customer base. The ultimate
aim of these alliances is the ability of service providers to offer the most
comprehensive communication packages in their regions for the lowest prices.
Driven by FCC rulings on non-unbundled services and insatiable demands for
Internet and broadband services, incumbent carriers have begun several
nationwide programs. These programs are aimed at providing broadband access for
next-generation services including storage area networks (SANs), application
service networks (ASNs), interactive data warehouse services (DWS), and
multimedia streaming services (video on demand, advertising, streaming audio,
media stream customized for the local market, etc.), among others.
The programs include Sprint Corp.’s (www.sprint.com)
Integrated On-demand Network (ION), and SBC Communications Inc.’s (www.sbc.com)
Project Pronto. ION provides for interactive multiservice terminals at customer
locations that are connected to local Sprint CLEC PoPs using fiber and
broadband. Project Pronto provides a broadband IAD connected to the local
service PoP using fiber and broadband. Also, WorldCom Inc.’s (www.wcom.com)
Generation program provides for fiber, wireless and broadband services delivered
directly to customer premises or any mobile location where the customer might
be.
Because the new rulings give these carriers the flexibility to function as
CLECs, each is evolving toward becoming an integrated service provider. Each is
registering with the FCC as a CLEC. Such re-registration frees these entities
from the constraints of existing regulations. As a result, the newly formed
entities have committed to massive programs to build out next-generation
infrastructures that will support a whole new generation of broadband services
such as high-definition TV and conference services.
In each case, ILECs and IXCs–now CLECs in their own right–are planning to
leverage their knowledge of telecom and data technologies to propel them into
new markets within the United States and throughout the world.
Clearly, regulations are a fact of life in the telecommunications industry.
Even though these regulations can tip the scales in favor of one carrier or
another, the effects are almost always temporary. To stay successful, carriers
must be prepared to meet the challenges these regulations raise, either through
alliances or alternative strategies.
One thing is certain in the checks and balances of the regulatory process:
The system always will return to a competitive model.
Whitney T. Weller is the director of business development for Astral Point
Communications Inc. (www.astralpoint.com)
in Chelmsford, Mass.
ROUNDTABLE
On delivery mechanisms for today’s e-commerce market …"E-commerce will
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"Leadership, people and metrics are the keys to success. You need to
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Emilio Fernandez-Martos, CEO of Kairos Europe (www.kairoseurope.com)
"ASPs are important. ASPs come to us to use our gateway to Europe."
Michiel Van Eldik, vice president of Internet Hosting Services, FirstMark
Communications Europe (www.firstmark.net)
"Lucent has set up a multitude of partnerships to provide end-to-end
solutions. Big business cannot do it alone."
Hari Haran, New Carrier E-commerce Solutions, Lucent Technologies Inc. (www.lucent.com)
