CLECs Click With Customers

Making inroads on incumbent service providers' territory as competition heats up, studies show

As choices among telecommunications service providers dwindle with the tightening economy, incumbent telephone companies are in the best position to thrive. But studies are beginning to show that rival service providers are leaving a mark not only on the customers bottom line but also on deeper sentiments of business propriety.

"Before we switched providers, if we had a problem of any kind, we basically couldnt get anyone to help," said Amy Wood, office manager at Yellow Rose Landscape Services Inc. and a former SBC Communications Inc. customer.

"There would be an automated recording when we called, even with a service problem," Wood said. "Thats just craziness." One year ago, Yellow Rose Landscape switched from incumbent carrier SBC to CLEC (Competitive Local Exchange Carrier) Birch Telecom Inc., which was founded in 1997. In addition to finding the incumbents response to problems slow, the Dallas landscaper found its bills too frustrating to decipher.

"We couldnt make heads or tails out of the charges on our bill," Wood said. "One time, we went through three months worth of trying to get one of our bills straightened out—to no avail."

A new study by The Yankee Group, in Boston, shows what the laws of supply and demand suggest: The more suppliers there are to choose from, the more competitive a service becomes. A survey of 799 small and midsize businesses found that more than three-quarters were more satisfied with a CLEC than with their previous provider.

"What was surprising to me was just how well the CLECs are doing and how much greater loyalty theyve engendered," said Michael Lauricella, an analyst at Yankee Group. "Typically, the cut-over process is painful. Price helps you get over that, but the only way someones going to stay in business is to offer superior quality."

Many industry observers place the blame for the recent CLEC shakeout squarely on the CLECs business plans, which they say made them too dependent on incumbents. Others argue that the regulatory environment allowed the entrenched telephone companies to block rivals from taking root.

Clearly, the demands of a growth-obsessed Wall Street spurred many startups, including Teligent Inc. and Winstar Communications Inc., to overextend their resources by trying to create nationwide footprints too soon. "You dont build a telco in 90 days," Lauricella said. "People who put a stake in the ground and stuck with a region are clearly doing a lot better."

It is also becoming apparent with the downfall of pure DSL (digital subscriber line) providers that voice service remains an important element in local exchanges.

This week, Broadview Networks Holdings Inc., a New York voice and data service provider founded in 1996, will start offering voice over DSL. Using a gateway and other technologies from CopperCom Inc., Broadview will be able to deliver 16 voice lines over a single twisted copper pair on its 100,000 lines.

"In the market today for service providers, about 80 percent of total revenue is coming from voice," said Ron Nash, vice president of marketing at CopperCom, in Boca Raton, Fla. "With our system, the bandwidth on a loop is used dynamically. If there arent any voice calls up, the loop can be used exclusively for data."