Five reasons why certain CLECs may be in jeopardy - and why businesses should make contingency plans for their local exchange service

Five reasons why certain CLECs may be in jeopardy - and why businesses should make contingency plans for their local exchange service

(PRWEB) October 12, 2000

Five reasons why certain CLECs may be in jeopardyÂ…and why businesses should make contingency plans for their local exchange service

ICG's troubles most likely a precursor of challenges to all CLECs

[October 9, 2000 -- LOUISVILLE, KY] QCI, a telecommunications consulting and management company based in Louisville, Kentucky, is closely watching the struggles of ICG Communications, Inc., a major competitive local exchange carrier (CLEC) that provides facilities-based voice and data services to large businesses and Internet service providers (ISPs). ICG recently warned that it expects operating losses of $25 million during the second half of 2000 and that its earnings and profits estimates for 2001 are approximately half of previously forecast levels. ICG stock has plummeted from almost $40/share to under $1/share, and its capital expenditures for next year have been cut by $500 million. QCI believes this to be a warning bell for some CLECs who face the same major challenges confronting ICG – not to mention a red flag to current or would-be CLEC customers who may be headed for significant customer service and network reliability problems. Businesses should develop a contingency plan for their local exchange service in the event that service from their CLEC begins to deteriorate or fails altogether.

Bob Thurmond, QCI's vice president of advisory services, says ICG's challenges are not isolated. "Similar challenges promise to confront most if not all CLECs and give business customers reason to worry about the their local service provider's ability to support them today and into the future." QCI cites five major reasons for some CLECÂ’s shaky ground:

(1) Regulatory Issues: The 1996 Telecom Act opened the doors for competition in previously closed markets by establishing parameters that would, in theory, allow the regional Bell operating companies (RBOCs) into the long-distance markets if they would, in turn, permit unrestricted entry into their local markets. "Unfortunately," says Thurmond, "after five years of legal harangue involving state and federal regulatory agencies and courts, only two states have approved RBOC entry into the long-distance markets, and few consumers have any real choice in who provides their local exchange carrier service." Thurmond continues, "As a result, many CLECs have not been able to garner the market share they need to be profitable."

(2) Network Expense: Ed Hancock, senior research consultant with QCI, explains that, unlike carriers such as AT&T, WorldCom and Sprint which have developed local service offerings based on existing networks already in place for long-distance service, "Non-carrier affiliated CLECs like ICG are forced to spend significant capital on new fiber cable and switches just to compete with the existing large network carriers."

(3) Reciprocal Compensation: Some CLECs have managed to capture a large portion of the ISP customer base and have greatly benefited through "reciprocal compensation" – payments from the incumbent LECs for terminating customer calls to a CLEC customer (the ISP). Hancock explains, "Now, ISPs are demanding more of the benefits from this arrangement, while the rules governing reciprocal compensation are becoming less favorable to the CLECs."

(4) RBOC Response: Traditional monopolies are often slow to respond to market developments, including the introduction of competition. According to Hancock, "The RBOCs initially had to overcome certain state and federal regulatory constraints that prevented them from competitively pricing services to large business users. Now, they have removed or found ways to maneuver within those constraints. For instance, they now offer large business users significant discounts off of their local exchange service and associated local toll calls, which are often tied to long-term service commitments."

(5) Market Saturation: Hancock says that many CLECs are struggling with customers who are reluctant to move their local service from the incumbent LECs. While the CLECs have been able to quickly capture a respectable share of their select market areas, the rest of the market may require a much greater marketing effort to convince.

Because of such obstacles faced by CLECs, business customers need to be very proactive in assessing their local exchange service provider. If they already receive service from a CLEC or are considering one, Thurmond recommends that businesses call these carriers to get an understanding of their financial health to determine if they will be able to meet their needs into the future. "At the very least, business customers should be aware that an undercapitalized and financially unstable CLEC will have poor customer service, network service problems, and billing errors – all because it is not able to stay adequately staffed to maintain optimal operations."

Hancock advises businesses to ask their CLECs to provide documentation to assure them of network reliability and quality customer service levels. He continues, "No matter what, businesses should have a contingency plan. If something were to happen to their CLEC, switching over to another provider might be a delayed process. Oftentimes, there are waiting lists. Or, depending on what market theyÂ’re in, it may take time for another provider to 'ramp up' to be able to provide comparable services."

For more information about the state of the local exchange industry or to receive the analytical report titled, "A Warning Bell for Local Competition," visit our Web site at www. qci. net (hotlink at end of press release) or contact Ed Hancock at 1-800-732-1937.

QCI is an unbiased telecommunications consulting and management company, headquartered in Louisville, Kentucky, with regional offices in Chicago, Dallas, and Tampa. QCI's telecom expertise includes data, Internet, voice and video communications. Among its services, QCI offers benchmarking, RFP management, and vendor negotiation services to business customers which may need assistance in assessing their local service provider options.

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