The End Is Near for CLECs

Despite the frenzied digital subscriber line deployment by competitive
local exchange carriers throughout the nation, Baby Bells will end up the
winners in the long run, according to a Cahners In-Stat report released Tuesday.

The report stated that while this isn’t a done deal for regional Bell
operating centers, the 6-to-1 subscriber gap between RBOCs and CLECs
remains a significant hurdle to overcome.

Mike Lowe, Cahners In-Stat advanced carriers service senior analyst and
author of “DSL Service
Providers and Their Rollouts”
, said the CLECs have kept themselves
in the race so far by capturing some market share, but it won’t be enough
in the end.

“The Baby Bells are not ‘home free’ by any means,” Lowe said. “Competitive
carriers have already won a significant share of the small business market
– that should help keep them in the game for some time to come. However,
in the long run, the CLECs will not have enough leverage to dominate. At
the end of the day, CLECs do not own the network, nor do they own the
customer. As wholesalers, they are somewhat beholden to their retail
partners, and as users of the RBOC’s networks, they are potentially at the
mercy of the incumbent carrier.

The report also mentions the CLECs handicap with its current
deployment. In addition to acquiring subscribers, Lowe said, CLECs have to
build out its infrastructure at the same time. Most have just completed
this process and should compete on more even ground in the near future.

Covad Communications Group, the leading
CLEC in the national DSL deployment race with more than 100,000 customers,
just finished its rollout of DSL services in Provo, UT. It marks the
company’s entry into 96 of the largest cities in the United States. By the
end of 2000, Covad plans to extend its reach to 165
cities through rapid deployment and its recent acquisition of BlueStar Communications.

However, it’s the efforts of SBC
Communications, Inc.
, and Project Pronto that has dominated the DSL
landscape and most likely will continue to do so for the near future. The
telco offers a bundled DSL-enabled Compaq
Computer Corp.
computer with free Prodigy Internet
access in exchange for a two-year contract.

The $6 billion project has helped SBC capture around
399,000 DSL subscribers in the first and second quarter 2000, bringing in
more than $650 million in revenues.

Michael Coe, SBC spokesperson, said SBC has been aggressively pursuing
customers, and now that it has them, can now additionally focus on services.

“This is a service customers have been looking for and we’ve been very
aggressive in our efforts to attract them,” Coe said. “It’s important to
deploy this and make sure it’s done right. Now, we can focus to get
customers value-added services after they get their connectivity.”

Sometimes, it takes a CLEC to do a RBOCs job, as in the case of Monday’s
acquisition of Northpoint
Communications Inc.
, by Verizon
. The deal gives Verizon a 55 percent
ownership stake in the company.

The acquisition marries Northpoint’s experience with
DSL deployment and Verizon’s immense local networks to form a potentially
dominating DSL presence. Northpoint will have access to nearly 63 million
homes throughout the nation, and will be sold through the Bell’s Internet
service provider, pending shareholder approval.

Cahner’s final analysis predicts more mergers and acquisitions similar to

and Northpoint, as reality sets in and the cost of deployment
weakens the smaller players in the industry. What is unknown is how long
before that happens and if there are any CLECs remaining when the dust settles.

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