A ruling by the U.S. Supreme Court handed down earlier this month may help to rouse investor interest in competitive local exchange carriers (CLECs) once again.
Recent years have seen the demise of many of the region’s high-profile CLECs, among them Medford, Mass.-based HarvardNet, Waltham, Mass.-based Digital Broadband Communications and California-based NorthPoint Communications, which also served this area.
In a bumpy economic climate, many CLECs have struggled to survive – and the ones who do, according to Rob Shanahan, president and chief executive officer of Marlborough, Mass.-based Conversent Communications, must do more to diversify their services that merely reselling Verizon’s service.
"Businesses who thought they could make money reselling Verizon are gone," he said.
Earlier this month, the U.S. Supreme Court upheld six-year-old federal rules designed to spur local phone competition, rejecting a bid by Verizon Communications Inc. and other established carriers to raise prices for the lines and switches they must lease to CLECs.
The court also sided with the Federal Communications Commission on a second issue, reviving a requirement that regional phone companies, to the extent technologically feasible, combine various parts of their networks upon request by a new rival.
The ruling boosts efforts by long-distance providers WorldCom Inc. and AT&T Corp. to move into the local phone business. Since the 1996 U.S. law that aimed to dismantle the so-called Baby Bell monopolies, CLECs are serving only 9 percent of the 192 million U.S. phone lines, according to figures from the FCC.
Verizon, BellSouth Corp., SBC Communications Inc. and Qwest Communications International Inc. were seeking to collect hundreds of millions of dollars more for use of their facilities. Those companies challenged the FCC’s pricing formula.
Verizon collects about $700 million a year, or 1 percent of its revenue, from competing phone companies that use its network to serve customers.
A federal appeals court had upheld the FCC rules only in part, prompting Supreme Court appeals by both sides. The high court decision leaves intact the methodology that has governed most agreements so far.
"This decision brings much-needed additional certainty to the legal landscape and should advance the commission’s efforts to carry out the statute’s competition goals," FCC Chairman Michael Powell said in a statement.
"In practical terms it doesn’t do much to change the competitive balance of power," Pat Brogan, assistant director of research for the Precursor Group in Washington, said. "It affirms the status quo."
But Allen Levesque, independent technical consultant and professor of digital communications at Worcester Polytechnic Institute, feels the ruling could spark interest in CLECs once again.
"The interesting thing now will be to see if the Supreme Court ruling – which really supports the FCC’s desire to support competition – will encourage the growth of existing CLECs and encourage investors to put their money in new CLECs," he said.
The decision helps WorldCom – based in Clinton, Miss., with offices in Providence – which will rely on leased equipment for its new "Neighborhood" calling plan. That offering promises residential customers a flat, combined rate for both local and long distance service.
"WorldCom’s new ‘Neighborhood’ offering would not have been viable if the court had reversed the FCC pricing rules," Blair Levin, an analyst with Legg Mason in Washington. For long-distance companies, "this stops the bleeding from a wound to their leg, but they’ve still got far more serious wounds to the heart and other places," said Levin.
Levesque identified Conversent and Rochester, N.Y.-based Choice One as the region’s top two CLECs, and predicted the companies’ large network footprints and brand recognition make them likely to continue to survive.
Choice One operates in 30 second- and third-tier markets from Maine to Minnesota – including most of Rhode Island – and credits its staying power to a plan of gradual expansion within its own service areas. Choice One was listed as the "fastest growing CLEC" in a survey by Telecommunications Reports Daily for its 30 percent increase in its local access lines during the fourth quarter of 2001.
But even so, the troubles that have plagued the industry since its boom in 1999 and 2000 mean that customers are cautious.
"We used to go in and say ‘We can save you a lot of money in telecom,’" Ythan Lax, Communications Director for Choice One. "Now, we have to show financials."
Bloomberg News contributed to this report.
