Merrimac Move Hints at End of ISPs

Wisconsin-based ISP Merrimac Communications is about to find out whether the grass is greener on the CLEC side, a move analysts think more ISPs will make next year when new Federal Communications Commission (FCC) regulations kick in (see ISPs Hit Back at FCC).

To briefly recap on the regulatory shenanigans, the FCC ruled this summer that line-sharing must be phased out over the next three years. This means ISPs will no longer be able to get low-cost access lines to their customers by sharing the high-frequency portion of copper local loops with competitive carriers (see FCC Rumbles on the Rules ). So basically, they have everything to lose and need to try something different.

The FCC’s aim in this is to try and force facilities-based competition. Merrimac is halfway there, as it already owns its own points of presence (POPs) in 12 cities. However, it believes it can make more money selling telephony services or voice-over-IP on top of its dialup and cable TV services and thus has taken the plunge and become a CLEC.

”ISPs need to take control of their destiny like this,” says Kris Tworney, a telecom lawyer based in Washington. “Within the next five years all ISPs are going to have to become CLECs or get real tight friends with a CLEC, as the Bells have no intention of cooperating with them on line-sharing."

But before going CLEC crazy, ISPs have things to think about. Lisa Pierce, telecom analyst with Forrester Research Inc., warns ISPs to check out what happened in the late 90s to many ISPs that attempted this move and failed. “They went into it blind without any experience of providing a telephone service; the backend OSS issues were impossible, the equipment costs killed many of them, and the wholesale pricing was too complicated,” she says. "They better have a lot of cash to do this as the climate still isn’t that favorable."

Tworney disagrees. He reckons most of the OSS and wholesale pricing issues have been ironed out and believes the equipment vendors have dropped their prices and are much more willing to make deals now. “The environment is different today… Waiting and crossing your fingers is a bad idea,” he says.

Merrimac’s president and founder, Bart Olson, says it’s been a challenging process but believes he’s over the worst of it. The toughest part is negotiating collocation arrangements with SBC Communications Inc. (NYSE: SBC), the ILEC in Merrimac’s territory. “We’ve got a contract of over 200 pages that covers everything but the kitchen sink… It’s going to take them 90 days to give us approval.”

Secondly, Merrimac is ditching about $700,000 worth of dialup equipment from 3Com Corp. (Nasdaq: COMS) and Cisco Systems Inc. (Nasdaq: CSCO) for a softswitch-based infrastructure that it claims will cut its operational expenses in half. Merrimac is consolidating 12 POPs down to two, using Sentito Networks's softswitch (see Wisconsin ISP Picks Sentito).

Sentito’s New End Office (NEO) Services Switch (NSS), centrally terminates V.92 dialup modem traffic, eliminating the need for external RAS equipment in multiple POPs. At the same time it sets up Merrimac to offer voice services to its customer base of about 14,000 residential users.

Merrimac is a snapshot into America's dialup Internet connection picture, as approximately 80 percent of the 168 million Internet users in the United States still use dialup connections, according to Sentito.

— Jo Maitland, Senior Editor, Boardwatch

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