CLECs Rise Again

The CLEC crop withered two years ago. Now, a more vigorous strain has taken root

August 8, 2003

3 Min Read
CLECs Rise Again

A handful of feisty alternative local carriers say they're growing fast, despite the foggy outlook.

Today, for instance, New York City CLEC Con Edison Communications Inc. (NYSE: ED) released a statement boasting customer growth of more than 125 percent (see Sales Soar at ConEd Comms). The carrier now serves 142 buildings in the Manhattan vicinity, compared to 118 at the start of this year. Working circuits number over 600. While unwilling to give its total number of customers just yet, VP of product development Russ Kohn says it numbers "in the hundreds."

Granted, Con Ed Communications just opened for business this year (see Con Ed POPs In on Enterprise Market), so it had nowhere to go but up. Still, Kohn says business customers are responding well to its services, which range from T1-based voice and Internet access to wavelength and Sonet services for corporate data. An Ethernet LAN service is also available.

Other emerging carriers say business is solid, and some say it's better than that: A spokesman for OnFiber Communications Inc. says the company hopes to double last year's revenues of about $15 million (see OnFiber Boosts Revenue 500%) by the end of 2003.

Claims of progress also come from Cogent Communications Group Inc. (Amex: COI), which recently restructured (see Cogent Investors Ante Up (Again)); and Fibernet Group plc (London: FIB). Both companies announce their earnings next week, which could offer some further insight into the state of this market.

While it may be too soon to call a CLEC resurgence, signs are that smaller carriers are finding a slightly more stable foothold than before in metro areas (see Report: CLEC Fiber Still Growing, CLEC Stocks Double in 1H03, and Metro DWDM Renaissance? ).

There seem to be several reasons for new CLEC vitality. For one thing, the market's already consolidated. Last year saw many of the aforementioned providers swallow weaker fry (see OnFiber Takes Over Telseon, OnFiber Scoops Up Sphera for $2.3M, and Cogent Munches Midwestern ISP).

The survivors are wiser and stronger than before. These aren't your father's CLECs, which often operated on the premise that almost any alternative to local incumbents was saleable. "They're focused on tightly defined metro areas with targeted markets," says Nancy Bedard, director of wholesale communications research at Yankee Group.

Here are some of the characteristics they seem to share:

  • Solid differentiators
    The new CLECs have smart angles that are clearly of value to customers. Con Ed Communications, for instance, offers its own fiber routes, built along the electrical rights-of-way of its parent company. This enables it to claim redundancy that can't be offered by carriers that must share the same old fiber routes with dozens of other carriers in New York City.

  • Good timing
    Con Ed Communications was late to market, Bedard says, which actually helped its cause. By the time it rolled out its products, some competitors had already succumbed to the downturn or were significantly weakened by it. OnFiber, for its part, shifted its plans the instant the downturn loomed, Bedard points out. By reining in costs and picking over the scrapheap wisely, it managed to build its business instead of hemorrhaging.

  • Not locked into vendors
    New CLECs are relatively open about how they're continuously testing and retesting new vendors in an effort to get the best technology possible. Nothing's written in stone, and they can afford to move quickly, without endless cycles of testing and retesting. Fibernet, for instance, has supplemented Nortel Networks Corp. (NYSE/Toronto: NT) gear with other solutions (see Internet Photonics Scores at FiberNet).

  • Pricing
    Cogent's the prime example here. Touting "100 Mbit/s for $1,000 a Month!" has helped win customers. Whether the stance makes sense in the rest of the balance sheet remains to be seen.

— Mary Jander, Senior Editor, Light Reading

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