A Broken Record (Part I of II)
January 26, 2010
Here we go again. I really don’t enjoy sounding like a broken record but the constant badgering of the FCC and ILECs by the CLECs needs to stop.
My posts this week focus on the recent petitions filed with the FCC about regulating special access, and include my response and “Sensible Seven Point Policy Plan.” But first, let’s go back to the Communications Act of 1996 and have a quick history review.
It has been 14 years since the Communications Act of 1996 was passed into law—an attempt to bring consumers greater choice and lower prices as the result of increased competition. In theory, CA 1996 would offer pieces and parts of the incumbents’ networks for rent so new entrants could enter the market through various business models ranging from collocation to building one’s own network. No one that I know of had their arms broken by choosing their business plan/model based upon CA 1996…no one.
What we have watched unfold over the past 14 years iss Wall Street stepping in to promote companies with co-located DSLAMs or T1 IADs, but no revenues, cash flow or profits were valued in the hundreds of millions (if not billions of dollars)–and the IPO flood began. The same went for leasing UNE-P or UNE-L ILEC platform components. Special access in and of itself is a transport service also made available albeit regulated.
In theory, Congress was trying to encourage the idea that reasonable business people would enter the local market, build a customer base by renting pieces and parts from the ILEC network (until such a time a customer base was built) and the ensuing profits could then be invested into new facilities to gain independence from Ma Bell. The logic was that no one wants to continue to pay their largest competitor, because eventually it just won’t work. Well…so much for logic.
Those companies that elected to go a mile wide and an inch deep with the business model of renting ILEC parts were pretty much destroyed when the Internet bubble burst. High-yield debt became callable, and of course, the Telecom accounting shenanigans were flourishing. This opinion is not hindsight–going a quarter mile wide and eight feet deep would have been a better strategy to pick ILEC low-hanging fruit and build a customer base (and eventually build your own network to port these customers onto it while lowering your operating costs and increasing margins). The results, however, were rampant bankruptcies with few survivors.
Alternatively, after the CLEC had built a base of customers, they could have begun to rent or buy services from companies that build fiber networks and offer wholesale services that do not compete with a CLEC on a retail basis. AFS is one of those companies along with a handful of others. Speaking for AFS, here is the pushback we would get from CLECs: Unless we are priced 30-40% below the ILEC, they would stay with the ILEC. Now how dumb is that? A reasonable business person might expect that I would rather pay the alternative to the ILEC the same price as my largest competitor. Why? Because the CLEC becomes meaningful to a company like AFS while the CLEC, in comparison, is a pimple to the ILEC.
What we have at play in the non-ILEC sector is more about egomaniac CEO’s and which King or Queen CLEC was bigger amongst the CLEC fleas. As I have suggested before–and this should be sobering–is to first add up the market caps of public CLECs and private valuations of companies (like AFS). Then, envision a super-mega, double-secret merger IPO of all non-ILECs. We would still be lucky to have a total market cap approaching 15% of the ILECs.
Some CLECs continue to believe that other CLECs are the competition. So, they continue to badger the FCC and ILECs for renting pieces and parts plus special access because prices have fallen and they are squeezing margins for carriers still relying on Ma Bell for infrastructure. Ma Bell’s infrastructure rental prices are regulated so the squeeze is on…big time!
Now that we’ve brushed up on the Communications Act of 1996 and the state of ILECs, CLECs and Congress, please join me in a few days as I dive into what really ticked me off—-this 127 FCC filing on special access.
Written by Dave Rusin - Telecom Executive
Loading ...Comments
2 Responses to “A Broken Record (Part I of II)”
Got something to say?
Feeds
I look forward to part II, Mr.Rusin. It ought to be interesting. AFS has always been very intriguing to me as you as a company have limited your prospective client base so much that I always wonder how you grow your bottom line. There are only so many on net and near net clients to make a dent in the market.
Here is the deal on AFS — we are focused. We grow our bottom line every year by double digits. We haven more demand for what we do than capital available — a bank problem not an AFS problem — one color painting if you will of all telecom carriers.
Simple formula: stay out of over built markets. Build your networks alone so you have a unique footprint advantage. We offer Data IP services only and an occasional dark fiber lease to loyal customers. We stay away from legacy services and try to avoid Type 2 IILEC heroin.
Connect buildings and towers to your unique fiber footprint and bypass the ILEC. Sell reliability, price the same as the ILEC. Provide better customer service then the ILEC, faster quotes than the ILEC, faster delivery/provisioning than the ILEC, on-time/on-budget delivery and understand 90% of business buildings in America still need provider #2 let alone a provider with fiber.
Keep your business model simple and sell solutions not technology to prospective customers. Stay out of the retail end of the business with all its complexities, usage based billing, churn, low price-only and regulatory dependencies (battles).
Oh crap, I just gave away our secret sauce!
PS: You can call me Dave, Mr. Rusin was my father. I gave up the CEO ego game years ago after being around/observing so many phony’s that don’t recognize that a service business is about the quality of its people and, quite frankly, the CEO is the least likely to value-add on a daily basis.