Why CLECs should build their own. (competitive local exchange carriers)

Constructing competitive networks to serve urban residential customers can generate impressive annual returns.

Since the Telecommunications Act of 1996 was passed, competitive local exchange carriers (CLECs) have employed numerous strategies to enter new markets. The issues associated with interconnection, resale and unbundling have resulted in countless delays and regulatory roadblocks, and caused many carriers to begin building competitive networks. While this activity has occurred predominantly within the business market, the case can be made for carders to build out competitive networks to serve residential customers in densely populated, metropolitan areas. Such a strategy can generate annual returns of 20% for these carriers.

MARKET SATURATION

For more than a decade, CLECs and competitive access providers (CAPs) have sought the high margins associated with commercial accounts by building relatively small, specialized networks to serve medium- and large-sized business customers. In doing so, these carriers have captured a portion of the special access services market from incumbent local exchange carriers (ILECs). Some cities now have four or five competitive carriers marketing services not only against the ILEC but against each other.

With such market saturation, CLECs are seeking opportunities to expand their operations. One option is to maintain their business focus and expand into smaller cities; carriers such as Brooks Fiber Properties Inc (St. Louis, Mo.) and McLeod USA (Cedar Rapids, Iowa) have distinguished themselves this way. Another option is to extend their networks in high-density areas to serve residential consumers in multi-dwelling units; RCN Corp. (Princeton, N.J.), GE-ResCom, and Optel Inc. (Dallas) have been the earliest to implement this strategy.

While many carriers use resale or unbundle services from an ILEC's network to offer competitive residential services, they should consider a facilities-based strategy, where a carrier owns the network from the central office (CO) to the customer premises. Here, a carrier can exploit the latest technology and construct a network focused on a specific customer base. It can focus on dense, lucrative service areas for …