Lower Telecom Costs Mean High Profits -
Storming the Competitive Local Exchange Market (CLEC) Part ONE
By Joseph Isaacs, President ISG-Telecom Consultants

Until recently, the physical connection to the telecom business (the "local loop") has been the sole responsibility of the incumbent local exchange carrier (ILEC). An ILEC is whom you currently purchase your telecom trunks from such as T-1's, T-3's and local loops. Some of the US ILEC's are Southwestern Bell, BellSouth, Verizon, etc. However, the telecommunications Act of 1996 enabled new telephone companies called Competitive Local Exchange Carriers (CLEC's) to be formed in order to compete with the ILEC's and change the face of local service. Many companies with huge telecom costs have become Competitive Local Exchange Carrier's (CLEC's) to cut costs and declare their independence from retail pricing and from the incumbent LECs (ILEC's) they must otherwise rely on for access. They are cashing in on the benefits of reciprocal compensation and taking advantage of wholesale carrier pricing to resell services and reduce their own line costs. It's a strategy for success that can pay big rewards.

Why should Telemarketing Firms and Call Centers "TAKE THE PLUNGE" and file to become a CLEC? Here are a few of the reasons:

1. Direct savings on telecom costs: State by State mandated 15 to 24 percent below-tariff wholesale rates on circuits and services for switchless reseller CLECs;

2. Greater discounts of up to 45 percent below-tariff wholesale rates on circuits and services are available for facility-based CLECs;

3. Possible lower long distance costs as an interstate/intrastate/international IXC (Inter-exchange Carrier)

4. Access to Reciprocal Compensation (fees paid between carriers for traffic on their networks)

5. Availability of carrier class services (UNE's) unavailable at retail levels;

6. Ability to be a "Peer" to the ILEC instead of just a customer.

7. Control of telecommunications costs that are way out of control and account for many companies' single largest expense.

There are basically two types of CLEC's - switchless resellers and facility-based providers.

Becoming a CLEC/IXC can directly impact your bottom line because it allows the Switchless Reseller CLEC, under it's Resale Agreement (Agreement to purchase services at wholesale prices with a predetermined discount structure) to obtain discounts on the lines purchased by the CLEC. Much greater discounts can be obtained as a facility based CLEC/IXC or by entering into a term and volume agreement with a long distance carrier at lower prices than available as a retail customer. In a facility-based environment, the CLEC also has the opportunity to receive all of their inbound trunks, to the Tandem Access Switch, at no cost from the ILEC and/or CLEC. This can result in a savings of 15 to 24 percent across the board under a negotiated agreement or by the use of switching facilities. This puts the client in a much more competitive position in numerous markets. The savings on local loop and long distance charges will translate into higher profits and lower costs, both of which are key ingredients for a growing and competitive organization.

Furthermore, as a facility based CLEC, the client can now participate in reciprocal compensation with carriers and further reduce their line costs. Reciprocal compensation are the fees that interconnecting local carriers pay to terminate traffic on each other's network.

Looking at the CLEC arena from the bigger perspective, the direction of both telemarketing firms and the telecom industry suggests that firms who want to remain competitive must take a serious look at becoming an CLEC/IXC. Becoming a CLEC is a critical step for a telemarketing firm to remain competitive and assert control over telecom costs.



Why Become A CLEC?
Because the opportunity is truly vast, analysts are predicting that incumbent local exchange carriers (ILECs) will lose up to 25% of the local exchange market. Providing competitive local phone service was a $1 billion business in 1996. By 2006, that is expected to grow to $30 billion -

The best news is, telemarketing firms are superbly positioned to move into the competitive local exchange business.
Advantages in local, long distance, and data services
Access to existing ILEC network at discounts
No existing baggage
In 1996 there were 50 CLECs. By 2006, there will be at least 500. Will you be one of them?

Become a Non-Facilities-Based CLEC
Register as a CLEC, but resell ILEC services obtained at wholesale rates rather than provide services on owned equipment.

PROS of becoming a non-facilities-based CLEC:
Lower entry cost - Avoid equipment expenditure and operations costs
Less complex - Avoid the 6-9 month wait to complete an interconnect agreement with the ILEC
Potential xDSL entry strategy (data-only service option)

CONS of becoming a non-facilities-based CLEC:
Difficult to add value to core services
Differentiation depends on envelope functions: sales & marketing, customer service, etc.
Thin margins
Dependent on difference between wholesale and end user pricing
Balance of power lies with ILEC

Follow These Nine Steps to Ensure CLEC Success:

1. Define the business: business case, market strategy, and service definition

2. Define legal issues: choose counsel, review legal factors

3. Define regulatory issues: choose counsel and review state, federal, Bellcore requirements, negotiate interconnect agreements

4. Define the operational process: network model, resource requirements

5. Prepare the business plan: market characterization, strategy, risk assessment, financials

6. Detailed network design: detailed architecture, personnel requirements

7. Procurement: acquire access, switching & transport facilities, operations support systems, and human resource acquisition

8. Installation: site selection, site readiness, equipment installation and provisioning

9. Operations and Integration: sales and marketing, operations support systems

With proper consultants you can attain CLEC status quickly.

Although CLEC status has been achieved in as little as three months, in general this is a 6-9 month process depending upon the individual states in which service will be offered. Some states require satisfaction of the requirements of the Telecom Act of 1996 and may have no other filing requirements. Consider seeking experienced and knowledgeable legal counsel to help expedite this process and ensure proper filings are done on a state-by-state basis.

Section 214(e) of the Telecom Act requires that CLEC's register as an "eligible telecommunications carrier" entitling "universal service" support. Serving areas will be limited without this registration. Also, several states have additional requirements for providing service. Request a copy of these requirements from each state's Public Utilities Commission in the state where service will be offered.

The regulatory filing process can be very time consuming and expensive, particularly when establishing a multi-state operation. An experienced consulting firm will help:
speed the filing process
assist in post-certification filing
file annual updates about the company and its operations
respond to requests for miscellaneous information
protect the company's right to privacy when filing confidential corporate information


ISG-Telecom is ONLY focused on "Next - Generation Telco's" and end-to-end "Turn-key CLEC & IXC solutions" for ISP's, call centers/telemarketing firms and other utilities. Our regulatory experts, project managers, consultants, engineers, trainers and strategic partners are the glue that holds together the different levels of expertise for those who are entering the telephony (CLEC-Competitive Local Exchange). We specialize in state and federal certifications, tariffs, resale and interconnection agreements, collocation issues/ applications and obtaining operating codes for both CLEC's & IXC's. With over 100 years of combined telecom experience, the ISG-Telecom TEAM can take the hassle & burden out of becoming a CLEC
http://www.isg-telecom.com/ mailto:isaacs@isg-telecom.com
Phone: 727-738-5553 Facsimile: 727-738-5554