As the funeral procession lengthens for the first generation of competitive local communications companies, some industry experts see signs that a second wave could soon arise, even in the current hostile environment.
"Now that were really starting to winnow down the ideas that work, I think youre going to see a new, more focused competitive local carrier emerge from the ashes before the end of the year," said Ed Cox, director of sales at Santera Systems in Plano, Texas.
While some analysts and consumer advocates have questioned whether any local competitors can survive against the powerful regional Bells, Cox is not alone in his vigil for local competition.
Dan Foster, chief sales and marketing officer at Internet service provider MegaPath Networks, thinks survival is possible for a data carrier with a tightly drawn market in a densely populated region. "You cant be so broad as to say [the DSL business] doesnt work," he said.
Even pessimists such as Gary Kim, president of NxGen Data Research, see some chinks in the regional Bell armor. While the Bells focus on large business customers, an upstart carrier might be able to earn a living serving small and midsize businesses, he said.
Some of the experts predictions about competitive models represent what the Bells have called "cherry picking in the past, a focus on lucrative business customers which has marked the successful competitors to date.
The residential battle is over, Kim said. And that represents a complete failure of the 1996 Telecommunications Act to foster local competition.
"Theres absolutely no question that big Fortune-type enterprises have been the clear winners here," Kim said.
For most industry analysts, the question is whether the communications market has bottomed out. Kim doesnt think so.
"I think were nowhere close to halfway through the damage," he said. "In fact my prediction is that three quarters of the damage is yet to come, which is frightening."
If members of the current generation of competitive carriers are to survive, they must withstand a regulatory environment that has become increasingly hostile. The latest blow is the Federal Communications Commissions decision to sharply reduce the fees phone companies pay one another for completing calls, a policy known as reciprocal compensation.
Currently, the average reciprocal compensation payment is about three-tenths of a cent per minute. Under the FCC plan, the fees will drop immediately to fifteen-hundredths of a cent per minute, with additional cuts in six months to one-tenth of a cent, and in two years to seven-hundredths of a cent. The federal rules will apply to ISP-bound traffic only.
"By and large, our members have been anticipating this for years now," said Jonathan Askin, general counsel for the Association of Local Telecommunications Services. He said the new rule might cause Congress, especially House Energy and Commerce Committee Chairman Billy Tauzin, R-La., to back off threats to legislate the issue. Tauzin sent a letter Wednesday to several competitive carriers, demanding to know how much they have collected in reciprocal compensation.