Verizon Ups Ante For Small ISPs

A local Internet service provider was told last week he would have to upgrade his broadband line contract with the local telephone company if he wanted to continue doing business with them.

But Verizon Communications officials are saying that was never the case, only that its sales force was to “strongly recommend” that its ISP customers buy an OC-3 level connection to avoid future service issues.

Verizon is planning to tell ISPs that if they wish to continue offering digital subscriber line service to its customers, it’s “strongly recommended” they contract for an OC-3 line, the equivalent to 84 T-1s, when they do business.

While it’s been common knowledge the telco is switching its backbone network from analog-designed frame relay services to the newer digital asynchronous transfer mode (ATM) network, the ante to get on the new network has been kept under wraps.

Neil McNeely, owner of Beldar Associates, a Franklin, VA, ISP, has been trying to get DSL service to his town’s roughly 9,000 residents. He said he was told the OC-3 contract would be a requirement for future business down the road.

“I’ve been doing business with GTE (now Verizon) for years now and just getting started with digital subscriber line (DSL) service,” NcNeely said. “I was just getting used to the fact that I was going to have to change my system over from frame relay to ATM, when I was told that would include the requirement to have an OC-3.”

Larry Plumb, Verizon spokesperson, said the company’s sales force has been told to strongly recommend the OC-3 service, but only require a T-1. There was never a requirement to buy an OC-3, he said.

“No, it’s what’s recommended, because of the kind of volume they might expect,” Plumb said. “The point is, if you start having service issues later it might be because you have a T-1.”

It’s a bitter pill for many mom-and-pop ISPs to swallow, many of whom would not be able to afford the pricetag of such a large broadband pipe.

Frank Tower, chief technology officer at ISP NorthNet in Oshkosh, WI, said the reasons behind the network change make sense, but the line conditions are hard to understand.

“I can understand why they (went with the new network topology), because ATM is a far superior technology,” Tower said. “What I find actually onerous out of that is Verizon saying ‘you must buy an OC-3.’ That’s a gigantic pipe that almost any small, let alone medium, ISP is not going to be able to afford. Not even close.”

Tower said the normal transition from one network to the other is usually handled in stages starting with a T-1, then followed by a DS-3 and later OC-3. An OC-3 line, he said, would handle roughly 2,000 DSL users and is made up of about 84 T-1s.

According to Daryl Schoolar, an ISP strategies analyst at online research company Cahner’s Instat, the move to such a large amount of bandwidth could be the result of the recent failures by DLECs, but he said there are plenty of other companies with which ISPs can reach wholesale agreements.

“It could be very well that Verizon is raising the bar to limit the whole approach (of small ISPs who wholesale Verizon service), and to make sure that those who do approach them are more comfortable financially,” Schoolar said. “(But) from a small ISP point of view, there are still ton’s of different companies they can get a backbone connection with, like the DLECs, or they can go to WorldCom, they can go to Cable & Wireless and they can go to AT&T.”

It’s uncertain at what point the courts or federal regulators would step in to provide relief for an industry dependent on the ability of the incumbent local exchange carriers like Verizon to open its lines in good faith for competitive services.

It’s a hint at of a new broadband policy for the Baby Bell and tests the Federal Communication Commission’s resolve to become more hands-off when it comes to regulating the way information is exchanged

on the Internet.

Michael Powell, speaking at his first public appearance as FCC chairman, said his vision of the FCC lets the marketplace determine the playing field, not regulation.

“I don’t like the knee-jerk assumption that it is simply discriminatory for any carrier or provider that wants to try to maintain some of the advantages, in essense, to capture some of the value,” Powell said. “The real issue is not whether they do that, but whether they do so in a manner that actually then has an anti-competitive affect on consumers.”

The Telecommunications Act of 1996, he said, unleashed broadband but brought in many companies with its “business plan written on a napkin” and particularly unsuited to succeed in broadband deployment.

He was likely talking about data competitive local exchange carriers like Covad Communications and NorthPoint Communications, which have run into financial problems with broadband ISPs who couldn’t pay for the lines they ordered. That forced the DLECs to take a loss, while still paying the telcos for the provisioned lines.

Verizon’s “recommendation” attempts come at a time when many ISPs are having problems getting service for the lines it provisions now, ISP owners maintain, a laundry list that includes stalled installation times and bungled billing procedures.

McNeely said his company has been waiting in vain to deploy broadband services in his community, but Verizon problems have put that on indefinite hold.

“Our first orders in mid-November have still not been filled because there are not enough DSLAM (DSL Access Multiplexer) cards in the central office,” McNeely said. “We got 12-14 customers signed up but we can’t bill them yet. However, we are paying for a $530.00 per month circuit we can ‘t make any money off of.

“Next, our first bill, instead of the $530.00 plus initial $395.00 fee, turns out they bill us for over $2,900.00,” McNeely continued. “Then the next (month’s) bill is $720.00 plus the overdue $2,900.00, which they promised in writing to have resolved.

Line pricing considerations aside, a switch from frame relay to ATM requires new circuitry, a cost many companies will have to accept if they want to continue with the contracts they signed with Verizon.

“They suckered us in to wholesale their service and now they only want the big ISPs to work with,” McNeely said.

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