Kelly Teal, Contributing Editor

December 1, 2006

13 Min Read
No Parking

AS POST-UNE-P COMMERCIAL services agreements with the Bells come due over the next couple of years, former UNE-P resellers are evaluating their options and looking for certainty. Some are finding alternatives to the incumbents in the increasing number of UNE-P replacement offers for large competitive carriers. In many instances, though, Bell contracts remain the best option, and some Bells are working to sweeten their offers. Of course, as one CLEC reminds, the only sure way to survive a shifting regulatory environment is to build a network.

For Granite Telecommunications LLC, signing with the Bells was an imperative. The company, a POTS provider, earlier this year signed up for Qwest Communications International Inc.s new Qwest Local Services Platform, and negotiated a fresh deal with Verizon Communications Inc. A CLEC might have a great solution in Dallas, but that doesnt do you any good once you move beyond the city or the suburbs, says Robert Hale, Granites CEO. Granite says its customers are akin to the Wal-Marts and CVS Pharmacies of the world nationwide customers who, consequently, need a ubiquitous network. Bell commercial pricing certainly is higher than the UNE-P agreements of the past, Hale says, but that seems to be offset by the Bells willingness to roll out more services, such as DSL, to their wholesale customers. My personal opinion is, during the UNEP days, Bell companies tried to limit what they were forced to offer by the FCC because the costs were lower than they wanted to support, he explains. Now that commercial contracts are the norm, they know they have a certain fixed margin and can get a return on the dollar they, in fact, want to drive revenue.

Qwest is getting out in front of the renewal question with its LSP offer, which was announced in October at the COMPTEL PLUS Conference in Orlando, Fla. Speaking at the event, Derek Koecher, Qwest Wholesales director of sales operations and business development, told PHONE+ LSP replaces QPP, which were its original commercial agreements that expire July 31, 2008. The program agreements extend to Jan. 3, 2011, and include financial incentives for growth triggered by volume thresholds.

Qwest LSP shows our commitment to our business partners, says Koecher. We could have taken a different path, but thats not how we treat our customers.

Koecher says existing QPP contract holders of which there are more than 550 (a CLEC can hold more than one) can move to LSP today. To the extent they are growing their business, the terms are better, but if its declining, theres no reason to switch early.

Koecher also says the addition of DSL to the agreements was pending.

Verizon Partner Solutions (VPS), Verizons wholesale arm, also is beginning to renegotiate early agreements, which ranged from three to five years and expire as early as 2008. Unlike Qwest, Verizon has not replaced its program, which is called Advantage, but it has made some changes, including extending the term beyond 2010 and providing financial incentives to grow the base and to bundle Internet services, says Tom Caldwell, vice president of local and switched products for VPS. If they grow, their cost per line decreases significantly, he says, declining to reveal other details.

In March, Verizon added ADSL as an option for Advantage customers on a pilot basis. It was fully operational as of October and available to Verizons 164 Advantage resellers. The Internet product is sold under an agency agreement since it is coupled with Verizon Online ISP offers that cannot be resold, Caldwell adds. He says the volume is slow but building.

Caldwell says renegotiations already have begun and based on those terms, he sees many of the business-focused resellers are growing and expect continued growth. The number of agreements likely will contract since there has been consolidation among Verizons customers and only a few new entrants to replace them, but Caldwell says he is optimistic about overall growth. We are even more enthused about the commercial business today than when we started, he says. Its a very valuable source of revenue to Verizon, and the volume has grown.

In April 2004, AT&T (then SBC) was the first RBOC to strike a commercial agreement, which it made with Sage Telecom. At that time, the company rolled out Local Wholesale Complete (LWC), which is its commercial offering replacing the former regulated UNE-P product. LWC had a three-year term with expirations beginning as early as next year. Since the dialogue is ongoing with our CLEC customers, some of our agreements have been updated well in advance of their original expiration date, says Randall Porter, assistant vice president, channel marketing, of AT&T Wholesale. The company declined to reveal the new expirations or any other changed structure or terms of its agreements. Each customer contract is different and we do not disclose negotiations specific to any customer or in general, Porter says.

Porter did say AT&T has a commitment to serve resellers for the foreseeable future. He would not disclose the number of agreements in hand, but said they included a mix of former UNE-P resellers and some new entrants to the region or business.

So, there is some evidence the Bell companies no longer view network leasing to CLECs as a regulatory handcuff, as Hale puts it, but as good business. They further see competitive carriers as partners in warding off competition from other entities, says Jay Morris, senior vice president of Ernest Communications Inc. (ECI). They are obviously feeling competition and want to work with their wholesale partners … to develop products that can stem that competition by using their own networks, he says. For example, he notes, the Bells have made available DSL, data, PRIs, voice mail and even inside wiring.

One example of such a move might be seen in Verizons recent offer to include a TV component in its local wholesale offer. The company announced in early June an agreement with DIRECTV Inc. that added digital satellite TV services to Verizons Wholesale Advantage voice service and highspeed data services. Verizon will facilitate the relationship between the reseller and DIRECTV, but resellers will sign their own agreements with the DBS provider.

Aside from these overtures, ECI finds the Bell footprint to be a trump card. Like Granites Hale, ECIs Morris likes the idea of using wholesale platforms from CLECs, but finds the coverage limiting. If I gave a CLEC in a certain state a list of all my lines, they cant cover every central office. They can only cover a percentage of it sometimes a high percentage but still a percentage, he says, adding that, in some cases, ILECs are the only choice. Still, ECI is talking to some CLECs as an alternative to ILEC service in certain regions.

Another former UNE-P provider, Trinsic Inc., faces expiration dates in 2007, 2008 and 2010. Yet, the Florida-based company says it is too early to enter formal talks with CLECs about their UNE alternatives. With the extended terms of the contracts in our primary operating territories of SBC and Verizon, we believe that formal negotiations would be premature. Trinsic would certainly consider signing commercial service agreements with entities other than the ILECs if the economics made sense, says Don Davis, acting CFO for Trinsic.

Trinsic also has found the ILECs are extending inside wire plans and DSL to resellers. Indeed, says Davis, the ILECs are showing a greater willingness to negotiate than they did during the UNE-P days. Although obviously they still wield great negotiating power over us, they are starting to perceive that we have value to them in terms of our ability to utilize capacity on their networks and keep at least some revenue flowing to them, Davis explains. If a retail customer is, for whatever reason, not interested in the ILECs retail service, the ILEC fares better if that customer chooses our service than if the customer goes off the network completely.

Todd Smith, a spokesman for BellSouth, says that shift in attitude stems directly from continued deregulation. I can certainly say its a much more positive working environment because were dealing with normal market negotiations, he says.

Of the former UNE-P providers working with ILECs, STS Telecom in southern Florida is one that remains disillusioned with the Bells offers. Keith Kramer, executive vice president, says BellSouth is terminating its new business request (NBR) agreement in December 2007, forcing the company to build out its network in order to survive. I saw the writing on the wall a year ago, so we put the network in and now what were doing is were busy slowly but surely converting our base to IP, Kramer says. He points out the 1996 Telecom Act never intended UNE-P to remain a permanent business model. As a result, he says, STS Telecoms buildout is a natural outcome of the law, but one tainted with the frustrations of perceived inflexibility from BellSouths side.

BellSouth counts itself baffled by STS Telecoms accusations. Smith notes the carrier is barred from discussing its wholesale negotiations, but adds, I can say BellSouth is currently providing services [to STS] under various agreements, and we fully intend to continue doing so.

Trinsic, meanwhile, acknowledges its contract with BellSouth also ends in 2007, yet doesnt seem worried about what happens next. We recently sold the bulk of our access lines in the BellSouth territory to Access Integrated Networks Inc. and intend to focus our efforts going forward on the SBC (now AT&T) and Verizon territories, which have longerterm agreements, Davis says. Trinsic serves some customers in New York and Tampa via our own facilities. However, because our customer base is spread throughout the country, it would be costprohibitive to construct a network to serve all of them.

ECIs Morris does not necessarily buy into the argument that former UNE-P providers have to build their own networks to stay in business. Yes, there are markets where the TRRO changes had a significantly negative effect; however in other areas, they were positive, he says. We also firmly believe that local switching competition has helped to curtail future increases, and trends toward possible lower rates in the future are out of the question. Morris says ECI is looking into facilities-based models, VoIP and other technologies that mean installing and/or leasing switch capacity, but, he adds, building a network is a bit of an overstatement since no one but the incumbent owns the last mile, nor is anyone going to overbuild on a network that is, 20 years from now, going to be at least half its current size in terms of the number of POTS lines.

The overall message is that, instead of facing the oft-predicted end, the competitive telecom industry has risen beyond regulatory relaxation to embrace new technologies and ways of provisioning services. In the end, says Morris, nothing has changed. Great companies are built by great employees who care deeply about the welfare of the customer, not by tariffs, or court rulings.

Alternative Modes of Transportation

Perhaps one of the unexpected results of the 2005 TRRO, which eliminated UNE-P pricing, is that competitive carriers realized they, too, could compete in the wholesale local voice services arena. Heres a look at some of the options:

XO Communications

CLECs serving residential and business customers have wholesale options through XO Communications, which boasts among the largest independent networks in the country. The companys Wholesale Local Voice services platform counts AireSpring, Habla Comunicaciones, Fones4All, PSC1 and Telscape Communications among its CLEC customers.

Our residential customers count on us for highquality, low-cost service, notes Fones4All CEO Bettina Cardona. Paying higher prices to lease facilities, or building our own, would dramatically impact our business model. With XO, weve been able to remain cost-competitive without compromising quality, and our customers are the beneficiaries.

The XO platform gives CLECs a predetermined block of capacity for telephone lines, and a physical connection for transporting voice traffic from XOs 950 colocation facilities in 70 markets to the CLECs voice switches. As a result, XO says, CLECs can provision and manage these lines as part of their own networks. This gives them control over billing and gets rid of central office buildouts.

McLeodUSA Inc.

McLeodUSA Inc. late this year expanded its wholesale local voice and carrier data offering to include two major local voice services to carriers. This expansion of our wholesale local voice product suite will help us add to the more than 100,000 local voice lines we currently have installed, says John Dumbleton, McLeodUSA group vice president.

UNE-P Replacement Services is the first of the two additions. The services target nonfacilities-based CLECs, and resellers serving residents, businesses and payphone locations. The McLeodUSA alternative provides local service, enabling migration from ILEC resale platforms to McLeodUSA. This service provides former UNE-P resellers with an excellent alternative to ILEC commercial resale agreements, says Dumbleton.

The second addition, Wholesale DLC Service, lets facilities-based CLECs operate their own local switches, using McLeodUSAs network coverage and providing transport services from a McLeodUSA central office.

Data Net Systems LLC in Buffalo Grove, Ill., has signed on for McLeodUSAs local wholesale services for its end users in Illinois and Michigan. McLeodUSA is an experienced provider offering a true alternative to the incumbent Bell networks for a CLEC serving mass market customers, says Martin Segal, Data Nets president.

FDN Communications

Having built its own network and installed its own switches, FDN Communications now can serve as a supplier to UNE-P providers. The CLEC shares a footprint with Sprint Nextel Corp., BellSouth Corp. and Verizon Communications Inc. We have a lot of folks that are either currently contracted with us or in negotiations with us to use our network, and switching and infrastructure, says Don Boerema, president and COO of FDN. Its been a whole new business opportunity for us and were pretty excited about it.

Like other suppliers, FDN is restricted by nondisclosure agreements from announcing many of its customers. However, it is able to say Cleartel has signed with the company. Clients see that we can scale with them, we can support their customers, we can bill accurately we do all the things that the ILEC did in the past and theyre getting some significant savings, says Jim DaBramo, vice president of strategic sales. FDN also prides itself on its flexibility. Were very different because were working in more of a partnership than some of our competitors, says Boerema.

On average, CLECs save from 10 percent to 25 percent by using FDN instead of an ILEC, DaBramo says. Contracts typically run for two and three years. FDN further is able to sell DSL now, giving its CLEC customers a real, quality bundled offering, DaBramo notes.

One Communications

In Fall 2005, before Choice One, Conversent and CTC merged into One Communications, Choice One already had rolled out its wholesale platform, UNE-P Alternative Access. One Communications picked up the ball, keeping the name and scope of the service, which reaches both residential and commercial UNE-P accounts.

Jeanne Dale, director of marketing, says the carrier business services unit of Choice One was the only such division brought to the table during the three-pronged merger, so UNE-P Alternative Access now reaches more markets. And instead of singleport pricing, regardless of the end user, One Communications has different price points for business and residential lines, Dale says. Depending on the state, business lines run $6-$9, while residential lines are at about $8-$10.

Since the One Communications merger became official, six more CLEC customers have contracted to use the wholesale platform. Some clients also rely on One Communications wholesale alternative to provision pay phone services. Among Ones clients are Navigator Telecommunications BullsEye Telecom and Tel Tec.


AT&T Inc. www.att.comBellSouth Corp. www.bellsouth.comBullsEye Telecom www.bullseyetelecom.comDIRECTV Inc. www.directv.comErnest Communications Inc. www.ernestgroup.comFDN Communications www.fdn.comGranite Telecommunications LLC www.granitenet.comMcLeodUSA Inc. www.mcleodusa.comNavigator Telecommunications www.navtel.comOne Communications www.onecommunications.comQwest Communications International Inc. www.qwest.comSTS Telecom www.ststelecom.comTel Tec Inc. www.teltecinc.comTrinsic Inc. www.trinsic.comVerizon Communications Inc. www.verizon.comXO Communications

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About the Author(s)

Kelly Teal

Contributing Editor, Channel Futures

Kelly Teal has more than 20 years’ experience as a journalist, editor and analyst, with longtime expertise in the indirect channel. She worked on the Channel Partners magazine staff for 11 years. Kelly now is principal of Kreativ Energy LLC.

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