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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

verstand 12/4/2012 | 11:37:23 PM
re: CLECs Rise Again Both Con Ed and FPL are utility company in the East Coast. They are very different from regular CLECs who do not have urban street easement, empty underground conduits or dark fibers, big cash cow mommy and political muscle. Your sotry can not justify your article title in my view.
bonnyman 12/4/2012 | 11:37:23 PM
re: CLECs Rise Again Sorry, I posted bad links in my last post. Here they are again:

Con Ed communications
http://www.electricfiber.com/

Partial list of utilities with fiber
http://www.fiberplanners.com/p...

FPL Fibernet
http://www.fplfibernet.com/

Also, the UTC (United Telecom Council) is the main trade group for power utility-owned telecom companies:
http://www.utc.org
bonnyman 12/4/2012 | 11:37:23 PM
re: CLECs Rise Again "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."

I was selling fiber cable to Con Ed Communications in the late 1990s for my previous employer.

My employer,
techrunner1 12/4/2012 | 11:37:16 PM
re: CLECs Rise Again Easy mistake. The fiber you sold was to the parent company who used it for their internal network. Con Edison Communications is a wholly owned subsidiary. CEC has built and operates a greenfield commercial network, in service only recently.
bonnyman 12/4/2012 | 11:37:07 PM
re: CLECs Rise Again For some reason, Light Reading is having a hard time with html links.

Here are the links again:

Original Con Ed Communications press release announcing new small business services:
http://www.lightreading.com/do...

Telergy's web site no longer exists, but the Syracuse newspaper has a lot of Telergy articles at:
http://www.syracuse.com/busine...

Dominion Telecom:
http://www.dominiontel.com/ind...
bonnyman 12/4/2012 | 11:37:07 PM
re: CLECs Rise Again "Easy mistake. The fiber you sold was to the parent company who used it for their internal network. Con Edison Communications is a wholly owned subsidiary. CEC has built and operates a greenfield commercial network, in service only recently."

I still have the guy's card from 1998; it said "Consolidated Edison Communications Inc." and he did not work in the main Con Ed building at Irving Place. I also dealt with regular Con Ed utility telecom people as well. Both identified Con Ed Communications as a separate entity owned by the holding company and set up to function as a CLEC.

If you read the press release Mary cited in her original article, it says "the new services also mark the company's entrance into the under-served small and medium business markets." Con Ed was already serving large businesses in a big way for years.

As I was told, a particular strength Con Ed had was that they (and their wholesale customer Telergy, now defunct) were the only providers offering fiber using Con Ed's conduit system instead of the Empire City Subway conduit system owned by Verizon, so they could offer clients an extra degree of diversity. (Empire City is not an undergound rail transportation system at all but rather the Verizon affiliate that owns its NYC conduit system).

When Telergy went bankrupt and was liquidated, Con Ed bought their NYC assets, which included a lot of fiber in Empire City ducts as well, so now Con Ed can offer divesity using both duct systems.

Another utility, Dominion Resources (parent of Virginia Power) bought Telergy's extensive fiber network outside NYC that runs throughout the Northeast and Mid-Atlantic, much of it along high voltage transmission lines.
verstand 12/4/2012 | 11:37:05 PM
re: CLECs Rise Again I am justing wondering how can utility using their easement for fiber? Is that allowed by easement agreement with the municipality or private owners? Who gives those utility such free asset to start a deviated service for the bare minimum hardware cost? Is Con Ed supposed to pay the city of New York some fees?

In the past, the rail road companies took lots of public land for free and become filthy rich land owners and developers. They later sold those land supposedly using for rail road, mainly the switch yard for huge profit. Southern Pacific RR spinned out Catellus (now a REIT). Fortunately, it is easement for utility companies and they can not sell thos easement for real estate development. For telecom application, local government should leverage it for their budget shortfall.
BobbyMax 12/4/2012 | 11:37:03 PM
re: CLECs Rise Again There is no practical way that the level of CLEC business can be restored. The argument behind doubling and tripling of stocks is very eroneous as when such announcements are made there is no reference point. This kind of misleading statement draws in investors by providing them with incomplete statement.
rjmcmahon 12/4/2012 | 11:37:02 PM
re: CLECs Rise Again Blessing the world with folks like bonnyman seems required if we are going to lead it.
rjmcmahon 12/4/2012 | 11:37:02 PM
re: CLECs Rise Again Fortunately, it is easement for utility companies and they can not sell thos easement for real estate development. For telecom application, local government should leverage it for their budget shortfall.

Verstand, a couple of things I've learned in the last few years which you may or may not find helpful.

First, the psychological evolution of a municipal leader coming to understand the benefits of real broadband go something like:

1) They see a real broadband infrastructure as potential revenue generator for other municipal projects
2) They start to realize a real broadband infrastructue is required for their own internal network needs
3) They grow to see that muncipal investment in real broadband infrastructure attracts businesses to their community
4) Finally they reach an enlightened state and realize that a real broadband infrastructure is a quality of life requirement for all citizens in their community. (Unfortunately, too many today are stuck in state 1.)

Second, liens for utility improvements which benefit the property owners can be assessed against the improved property. One technique for real broadand may be to do this in a way that a customer takes ownership of her own last mile at title transfer time. It'd be a better deal than home warranty or the other gimmicks real estate agents promote.

The institutiions which delay our future are the status quo who fight to maintain an ignorant citizenry in the name of holding their position. The sooner our industry starts fighting for truth and realism, the sooner we can begin replacing the outdated communications infrastrucutre with something really grand.
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