COMING SOON

Pros and Cons of CLEC registration

By Joseph Isaacs

   
 

Until recently, the physical connection to the 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're 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 ISP’s, "TAKE THE PLUNGE" and file to become a CLEC? Here are a few of the reasons:

State by State mandated 15 to 24 percent below-tariff wholesale rates on circuits and services for switchless reseller CLECs;

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

Lower long distance costs as an interstate/intrastate/international IXC (Inter-exchange Carrier)

Reciprocal Compensation (fees paid between carriers for traffic on their networks)

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

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

Your telecommunications costs are way out of control and account for the single largest company expense.

There are basically two types of CLEC’s. The first is a switchless reseller and the second is a facility based provider.

Becoming a CLEC/IXC is very beneficial 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 would be obtained as a facility based CLEC/IXC or by entering into a term and volume agreement with the long distance carrier at lower prices than available as merely 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. 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 within its markets. The savings on local loop and long distance charges will translate into higher profits and/or lower price, 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 compensationwith the carriers and further reduce their line costs. Reciprocal compensation is the term used to describe 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 the telecom industry suggests that any firms who want to remain competitive must take a serious look at becoming an CLEC/IXC. Becoming a CLEC will be a critical step in positioning itself competitively.

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, ISP’s are superbly positioned to move into the competitive local exchange business.

-You have 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.


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 many operations costs

-Less complex -- Avoid the 6-9 months 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:

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

Define legal issues: choose counsel, review legal factors

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

Define the operational process: network model, resource requirements

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

Detailed network design: detailed architecture, personnel requirements

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

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

Operations and Integration: sales and marketing, operations support systems


With proper consultants you can attain CLEC status quicker than you think.

Although CLEC status has been achieved in as little as three months, in general you should anticipate a 6 to 9 month process depending upon the individual states that you intend to establish service. Some states require only that you satisfy the requirements of the Telecom Act of 1996 and may have no other filing requirements. You should 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 you register as an "eligible telecommunications carrier" entitling you to "universal service" support. If you do not choose to register your serving area will be limited. Also, several states have additional requirements for providing service. You must request a copy of these requirements from each state's PUC where you plan to provide service.

The regulatory filing process can be very time consuming and expensive, particularly if you are establishing a multi-state operation. An experienced consulting firm will help:

-Speed you through the filing process

-Assist in post-certification filing

-File annual updates about your company and its operations

-Respond to requests for miscellaneous information

-Protect your right to privacy when filing confidential information

Becoming a Competitive Local Exchange Carrier (CLEC) is not as difficult as one would expect. Although there are a myriad of state and federal regulations to adhere to, ISG-Telecom takes the hassle and burden out of becoming a CLEC or an IXC. This article has a follow-up to Part One.

Part 2:  The steps to take

The following steps are designed to give the a firm who wishes to plunge into the telecom business an idea of the processes and procedures necessary to become a CLEC.

PHASE I:

Step I:
Hire a good telecom regulatory consulting firm. There are two different approaches to the regulatory processes. The first is to find merely a telecommunications attorney who will help with the certification process. The second, and more recommended avenue would be to hire a telecom consulting form that has regulatory attorneys on staff. This methodology will not only get you through the certification process but also help the new entity negotiate agreements, set up the ILEC accounts, engineer equipment contingencies, obtain operating codes, etc. Internet searches can yield many good consultants but few have the ability to handle a client project on a turn key or end to end solution. Key word searches such as ISP-CLEC or ISP/CLEC can be helpful.

Step II:
Make a determination whether becoming a "switchless reseller" CLEC or a "facility-based" CLEC is best for your overall business plan in order to maximize existing internal network infrastructure and also cost savings. The major determining factors here are the following:

1)                  How much are the ISP’s current trunking needs

2)                  What type of technical staff does the ISP currently have

3)                  How solvent is the ISP – do they have large positive cash flows

4)                  What types of services are to be offered to the general public after CLEC licensing is obtained

5)                  What types of credit lines are currently in place

6)                  What type of existing  is in place. How many remote POP’s are there. How many LATA’s do they currently cover. How many markets are they in and what type of market concentration is there.

Step III:
Analyze the current telecom costs. Take a close look at both local loop and long distance. Inbound and outbound analysis inclusive of 1+ dialing, 800 service and number of trunks as well as their size. Comparative examples do not exist. Any ISP with telecom costs in excess of 20K monthly can not afford to remain merely an ISP and not an ISP/CLEC. For those with much greater costs  - facility based certification is more in order.

Step IV:
Plan your strategy sessionwith the team of experts (principles, regulatory and project management personnel). This will help determine the pricing and service elements that will be set into your tariff. The strategy session is used to determine things like pricing elements, interconnection ILEC’s, whether resale or facility based certification is warranted, and to gather all of the necessary information required to start the certification process. For a list of data required to start a CLEC certification go to: http://www.isg-telecom.com/checklist.htm

Step V:
D
raft your CLEC application. The following information will be required for certification and can be found at: http://www.isg-telecom.com/checklist.htm.

Step VI:
D
raft your tariff. There are no typical costs in drafting a tariff. Many company's such as ISG-Telecom's (www.isg-telecom.com) tariff costs are  included in the certification process. All tariffs must contain service descriptions, terms and conditions and prices. The prices are determined by the company wishing certification but in most cases the terms and conditions are dictated by the Public Utility Commission in which certification is being applied for. Drafting a tariff can be complicated when attempted by someone who has never done it before which is why a good telecom regulatory consulting firm is recommended.

Step VII:
B
egin negotiations for your interconnections agreement (or resale agreement) (Approx. $2,500) This cost is usually if the MFN (Most favored Nation) or section 252i of the Telecommunications Act of 1996 is used. The FCC also allows utilization of the “pick and choose” methodology – meaning terms from many agreements already approved can be combined to formulate a new agreement. The negotiation process has been streamlined over the past few years . In most cases a new carrier can opt-in to an existing agreement to eliminate total negotiation. A complete negotiation of a new interconnection agreement can involve hundreds of hours and costs up to $50,000. per agreement. This methodology is usually not necessary in today’s marketplace.

Step VIII:
All documents are approved by client and sent to the appropriate Public Service Commission. Typical costs to draft the application and tariff and file with the Utility Commission are $9,500.00. Using a professional telecom regulatory consulting firm can usually have documents prepared in ten days or less, ready for client approval and signature. After the client signs off on the documents they need to be filed with the Public Utility Commission. A single point of contact will be necessary in the event the Commission staff has questions, concerns or requires changes. The rules constantly change and staying abreast of such changes is not a talk that an individual ISP owner will want to undertake alone. Approval timeframes take between 1 day and 6 months depending on the state. Sometimes the PUC will reject all of the documents if not prepared properly and sometimes they will merely request additional information. A good consulting firm will act as the single point of contact and should see the process from start to certification and not just draft documents for the client to undertake filing of. Also many states, depending on the type of certification required have specific minimum financial requirements. Many states require a hearing to finalize certification. This is another reason a competent telecom regulatory consulting firm is required.

Step IX:
Repeat steps V through VIII if client wishes to sell long distance services as an IXC

PHASE II: (For facility based projects)

Step X:
C
ontact our Strategic Partners and begin organizing equipment layout and quotes.  Engineers will do an analysis of existing infrastructure and make determinations as to whether equipment upgrades are necessary. There are many different types of equipment available to become a facility based CLEC. Some of the vendors include Cisco, Nortel, Siemens, Lucent, Convergent and many more smaller soft switch manufacturers. This process of selecting a vendor can be tedious and long if one is not knowledgeable of the options . Costs can range from 50,000 to upwards of millions depending on the service offering .

Step XI:
Equipment is ordered. Typically it takes 3 months to have equipment delivered and installed with another 30-60 days for testing and final turn-up. Installation costs vary dramatically depending on where the equipment is being installed.

Step XII:
Follow-up with the PUC/PSC/FCC on certification process. The follow-up time varies depending on the agency and the state in which certification is being applied for. Your telecom regulatory consulting firm will typically do  on a regular basis with staff in order to assure prompt replies and expeditious certification.

 
PHASE III:

Step XII:
S
tarts setting up the back office procedures (Billing, customer service, operator services, DA & 911) Set-up accounts with the ILEC’s you wish to purchase or interconnect with. (Approx. $4-5,000). This cost is affiliated with sifting through, completing and doing follow up with the ILEC on a massive amount of paperwork necessary to implement account status as a certificated carrier.

What billing systems and software are in use?  Can this be outsourced?  What is the $5,000 for? 

Step XIII:
Certification is received

Step XIV:
Equipment is delivered, installed and turned-up for Beta testing

Step XV:
Back office functions are put in beta to co-ordinate with switch

Step XVI:
Hire and train your sales, operations, marketing, & product marketing teams

Typically speaking most state certifications can be achieved in approximately ninety (90) days. Federal certifications can be achieved in approximately forty-five (45) days. For a complete listing of all state certification time tables go to http://www.isg-telecom.com/puc.htm

ABOUT THE AUTHOR:

Joseph Isaacs is President of ISG-Telecom Consultants, a consulting firm specializing in state and federal certifications, tariffs,  resale and interconnection agreements, collocation issues/ applications and obtaining operating codes for both CLEC's & IXC's.
http://www.isg-telecom.com
This email address is being protected from spambots. You need JavaScript enabled to view it.
Phone:727-738-5553

Hypoint Company

 

Direct Links to State Public Utility Commissions

 

Alabama|| Alaska|| Arizona|| Arkansas || California || Colorado|| Connecticut || Delaware
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Maine || Maryland || Massachusetts|| Michigan || Minnesota || Mississippi || Missouri || Montana
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North Dakota ||Ohio || Oklahoma || Oregon || Rhode Island || Pennsylvania || South Carolina
South Dakota || Tennessee || Texas || Utah || Vermont || Virginia Washington || Washington DC
West Virginia || Wisconsin || Wyoming

Alabama

Alaska

Arizona

  • Corporation Commission; 1200 West Washington; Phoenix, AZ, 85007; Phone: (602) 542-4251; Fax: (602) 542-2105

Arkansas

California

Colorado

Connecticut

Delaware

  • Public Service Commission; 861 Silver Lake Boulevard, Ste. 100; P.O. Box 457; Dover, DE, 199030457; Phone: (302) 739-4247; Fax: (302) 739-4849

District of Columbia

  • Public Service Commission; 450 Fifth Street NW, Suite 800; Washington, DC, 20001; Phone: (202) 626-5110; Fax: (202) 393-1389

Florida

  • Public Service Commission; 2540 Shumard Oak Boulevard; Tallahassee, FL, 32399-0850; Phone: (904) 413-6600; Fax: (904) 487-0509

Georgia

  • Public Service Commission; 244 Washington Street, Suite 155; Atlanta, GA, 30334-5701; Phone: (404) 656-6558; Fax: (404) 656-2341

Hawaii

  • Public Utilities Commission; 465 South King Street, Suite 103; Honolulu, HI, 96813; Phone: (808) 586-2020; Fax: (808) 586-2066

Idaho

Illinois

  • Commerce Commission; 527 East Capitol Ave., PO Box 19280; Springfield, IL, 62794-9280; Phone: (217) 782-7295; Fax: (217) 782-1042

Indiana

Iowa

  • Utilities Board; Lucas State Office Building, 5th Floor; Des Moines, IA, 50319; Phone: (515) 281-5979; Fax: (515) 281-5329

Kansas

Kentucky

Louisiana

Maine

  • Public Utilities Commission; 242 State Street; 18 State House Station; Augusta, ME, 04333; Phone: (207) 287-3831; Fax: (207) 287-1039

Maryland

  • Public Service Commission; William Donald Schaefer Tower, 6 St. Paul Street; Baltimore, MD, 20202; Phone: (410) 767-8000; Fax: (410) 333-6495

Massachusetts

Michigan

  • Public Service Commission; Mercantile Building, 6545 Mercantile Way; Lansing, MI, 48909; Phone: (517) 334-6445; Fax: (517) 882-4474

Minnesota

Mississippi

  • Public Service Commission; Walter Sillers State Office Building, PO Box 1174; Jackson, MS, 392151174; Phone: (800) 356-6429; Fax: (601) 961-5469

Missouri

  • Public Service Commission; Truman State Office Building, PO Box 360; Jefferson City, MO, 65102; Phone: (573) 751-5606; Fax: (573) 751-1847

Montana

  • Public Service Commission; 1701 Prospect Avenue, PO Box 202601; Helena, MT, 59629-2601; Phone: (800) 646-6150; Fax: (406) 444-7618

Nebraska

  • Public Service Commission; 300 The Atrium, 1200 N Street, P.O. Box 94927; Lincoln, NE, 68509-4927; Phone: (402) 471-3101; Fax: (402) 471-0254

Nevada

New Hampshire

New Jersey

New Mexico

  • State Corporation Commission; 1120 Paseo de Peralta, Pera Bldg. Rm. 536, PO Drawer 1269; Sante Fe, NM, 87504-1269; Phone: (505) 827-4500; Fax: (505) 827-4387

New York

North Carolina

  • Utilities Commission; 430 North Salisbury St.; Dobbs Building; Raleigh, NC, 27603-5926; Phone: (919) 733-2810; Fax: (919) 723-7300

North Dakota

Ohio

Oklahoma

  • Corporation Commission; 2101 N. Lincoln Blvd., P.O. Box 52000-2000; Oklahoma City, OK, 73125-2000; Phone: (405) 521-2211

Oregon

Pennsylvania

Rhode Island

South Carolina

  • Public Services Commission; 100 Executive Center Drive, Saluda Building, P.O. Drawer 11649; Columbia, SC, 29210; Phone: (803) 896-5199; Fax: (803) 896-5246

South Dakota

  • Public Utilities Commission; Capitol Building, 1st floor; 500 East Capitol Avenue; Pierre, SD, 57501-5070; Phone: (605) 773-3201; Fax: (605) 773-3809

Tennessee

  • Regulatory Authority; 460 James Robertson Parkway; Nashville, TN, 37243-0505; Phone: (615) 741-2904; Fax: (615) 741-5015

Texas

Utah

  • Public Service Commission; 4th Floor, Heber M. Wells Building, 160 East 300 South; Salt Lake City, UT, 84114-6751; Phone: (801) 530-6651; Fax: (801) 530-6512

Vermont

  • Public Service Commission; 112 State Street, Drawer 20; Montpelier, VT, 05620-2701; Phone: (802) 828-2358; Fax: (802) 828-3351

Virginia

Washington

West Virginia

Wisconsin

Wyoming

  • Public Service Commission; 2515 Warren Avenue, Hansen Building, Suite 300; Cheyenne, WY, 82002; Phone: (307) 777-7427; Fax: (307) 777-5700

 

FEDERAL LINKS


Federal Communications Commission

 

 

 

 

 

 

 

 

 

 

ISG-Telecom and Industry News

These are some of the press releases we've issued over the years.
You may want to search for topics by keyword.

April 1996 - ISG-Telecom is recreated from an expense management consulting firm to one specializing in CLEC issues.

November 30, 1998 - Joseph Isaacs joins the "Meet the Experts" at Internet Service Providers Business Forum (ISPBF) in Monterey, California

November 30, 1998 - ISG Telecom & NetCon Corp. team up to form NetCon TelCom and file for ALEC status with the Florida PSC. ISG-Telecom receives equity interest and Mr. Isaacs is appointed to the Netcon Board of Directors.

January 12, 1999 - NetCon TelCom (a partnership between ISG-Telecom & NetCon Corp.) files with the Florida PSC to be a facility based ALEC.

January 14, 1999 - RE/COM SIGNS "STRATEGIC PARTNERSHIP" WITH ISG-TELECOM CONSULTANTS TO PROVIDE A "TOTAL TURNKEY SOLUTION" TO ISP's WANTING TO BECOME CLEC's.

February 23, 1999 - INTERNET FINANCE + EQUIPMENT SIGNS "STRATEGIC PARTNERSHIP" WITH ISG-TELECOM CONSULTANTS TO PROVIDE A "TOTAL TURNKEY SOLUTION" TO THE ISP/CLEC MARKETPLACE

March 17, 1999 - ISG-TELECOM TEAMS UP WITH SIEMENS & ADDS ADDITIONAL EQUIPMENT TO ITS ARSENAL

March 25, 1999 - ISG TELECOM receives equity interest in TELEfriend, Inc. and Joseph Isaacs is appointed to their Board of Directors. ISG-Telecom begins certification process for Telefriend.

April 1, 1999 - ISG TELECOM CONSULTANTS TEAMS UP WITH CISCO SYSTEMS, CISCO LAUNCHES NATIONAL PROGRAM FOR ALL REPS TO OFFER ISG SERVICES.

April 9, 1999 - Florida Joins Georgia in Ruling for e.spire Under e.spire's Region wide Agreement.

April 16, 1999 - ISG Telecom celebrates completion of its 3rd year and hits milestone on client filings . Not a single client ever taken on by ISG has been denied certification approval.

April 17, 1999 - ISG Telecom discusses strategic distribution agreement with GST Communications for Western USA bandwidth solutions.

April 20, 1999 - ISG Telecom gets approval for Rehook1, from the Florida PSC, to operate as a Florida ALEC.

April 28, 1999 - ISG Telecom becomes a member of the Nortel Networks Consultant Liaison Program

May 2, 1999 - ISG Telecom signs distribution agreement with major CLEC Tax software company.

May 4, 1999 - ISG Telecom signs Master Agreement for National Directory Assistance program.

May 13, 1999 - ISG Telecom takes an equity interest in TeleFriend, Inc.

May 19, 1999 - ISG Telecom signs partnership with Tax Partners to provide its ISP/CLEC clients tax compliance services.

May 30, 1999 - ISG Telecom takes an equity interest and seat on the Board of Directors of Crystal Clear Connections, a new North Carolina CLEC

June 5, 1999 - ISG Telecom takes an equity interest and seat on the Board of Directors of Diversified Communications, a new CLEC

June 8, 1999 - ISG Telecom attends SuperCom in Atlanta

June 9, 1999 - ISG Telecom negotiates partnership with Newbridge Networks for advanced networking systems

June 21, 1999 - ISG Telecom takes an equity interest in Rehook1

July 17, 1999 - ISG-Telecom negotiates an equity interest in Verity at CityDAT.com, the internets new interactive portal company and CLEC.

July 28, 1999 - ISG-Telecom CEO, Joseph Isaacs selected to speak at Telecom Business '99 in New York on August 25, 1999.

August 3, 1999 - ISG-Telecom CEO, Joseph Isaacs selected to speak at the 1999 National Communications Forum in Chicago on October 28, 1999.

August 11, 1999 - AltaVista offers free internet services, causing the ISG-Telecom ISP/CLEC market to explode. ISG-Telecom takes on 14 new clients.

September 30, 1999 - ISG CEO, Joseph Isaacs to attend ISPcon in San Jose, California with its strategic partners Palomar Network Systems and Internet Finance & Equipment. Two exciting booths on the ISP/CLEC market.

October 1, 1999 - ISG takes a 1% equity interest in ShareGain, a new ISP network and soon to be national CLEC. ISG-Telecom selected to handle a 50 state (nationwide) roll-out on the CLEC program for ShareGain. ISG CEO, Joseph Isaacs to sit on the ShareGain "CLEC Advisory Board".

October 15, 1999 - ISG CEO, Joseph Isaacs selected to be a guest speaker at the 3rd annual ISPF (Internet Service Provider Forum) conference in New Orleans, Louisiana on the subject of "How and Why to become an ISP/CLEC".

October 22, 1999 - ISP/CLEC In-a-Box Turn-Key Solution offered through Palomar Network Systems and ISG-Telecom Strategic Partnership. 

November 7, 1999 - ISG-Telecom selected to handle a 40+ state CLEC roll-out for Maxcess Communications. ISG-Telecom to handle all CLEC and IXC filings, tariffs, interconnection agreement negotiations and co-location agreements.

November 11, 1999 -ISG-Telecom CEO, Joseph Isaacs selected to speak at Telecom Business 2000 in Santa Clara on April 4, 2000.

January 5, 2000 - ISG-Telecom CEO, Joseph Isaacs selected to speak at the ISPBF (Internet Service Providers Business Forum) in Orlando, Florida in May 2000.

February 20, 2000 - Who's Who Register of Executives and Business Award

February 29, 2000 - Wall Street Reporter Interview & Press Release

March 17, 2000 - ISG-Telecom launches ISP, ASP, Web Portal and becomes a Local Exchange Carrier (CLEC) in Florida. Nationwide deployment set for end of 2002.

June 20, 2001 - American Teleservices Association Article

July 17, 2001 - ISG enters into a Strategic Alliance with Teletron in order to Provide Turn-key CLEC solutions to the Teleservices industry through the ATA.

August 31, 2001 - ISG-Telecom partners with Teletron to offer Telemarketing firms a CLEC Special program!

October 15, 2001 - ISG CEO, Joseph Isaacs writes Articles for Hypoint.com

May 1, 2003 - ISG and Neustar Form Strategic Alliance

June 2005 - ISG files its 1000th CLEC application and maintains a 100% approval status for the past nine years.

October 2008 - ISG takes a piece of The New Telephone Company and prepares for its public offering.

February 2009 - ISG revamps international web presence and add "Broadband Initiatives" thus creating its own Stimulus plan to tap into President Obama's 7 Billion in additional funding. ISG creates a grant/loan program for rural America.

 Web Changes

New sections were added in June 1998 regarding management, investor relations and employment. Check these sections out for interesting new facts about ISG-Telecom. As of July 31, 2001 we are creating a completely new look with additional features and pages. Please browse the entire site.

ISG-Telecom Consultants launches NEW & IMPROVED website on March 1, 2009

ISG-Telecom Consultants launches NEW & IMPROVED website on October 5th, 2001

ISG-Telecom Consultants, Int'l. Establishes Internet Presence April 1999

 

Past Media Coverage for ISG-Telecom

Bundling Begins to get its act together, RCR Magazine, January 17, 2000
Should Your ISP Become a CLEC
, Internet Industry, January 2000
Customers Call for It All
, X-CHANGE, December 15, 1998

(September 2002)

LOWER TELECOM COSTS MEAN HIGH PROFITS
by Joseph Isaacs

Until recently, the physical connection to the business (the "local loop") has been the sole responsibility of the incumbent local exchange carrier (ILEC). An ILEC is the carrier from whom you currently purchase your telecom trunks from such as T-1s, T-3s and local loops. Some of the U.S. ILECs are Southwestern Bell, BellSouth, Verizon.

The Telecommunications Act of 1996 enabled new telephone companies called Competitive Local Exchange Carriers (CLECs) to be formed in order to compete with the ILECs and change the face of local service. Many companies with huge telecom costs have become Competitive Local Exchange Carriers (CLECs) to cut costs and declare their independence from retail pricing and from the incumbent LECs (ILECs) they must otherwise rely on for access. They're 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 Prepaid Companies, Debit Card Companies, ISPs, Telemarketing Firms/Call Centers and Utilities "TAKE THE PLUNGE"and file to become a CLEC? Here are a few reasons:

• State by State mandated 15 to 30 percent below-tariff wholesale rates on circuits and services for switchless reseller CLECs

• Greater discounts of up to 45 percent below-tariff wholesale rates on circuits and services for facility-based CLECs

• Lower long distance costs as an interstate/intrastate/international IXC (Inter-exchange Carrier)

• Reciprocal Compensation (fees paid between carriers for traffic on their networks)

• Availability of carrier class services (UNEs) unavailable at retail levels

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



There are basically two types of CLECs: switchless reseller or facilities-based provider.

Becoming a CLEC can be very beneficial to an IXC. 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 by a facilities-based CLEC. In a facilities-based environment, the CLEC also has the opportunity to receive all of its inbound trunks to the Tandem Access Switch, at no cost from the ILEC and/or CLEC. This can translate to a savings of 15 to 24 percent across the board, under a negotiated agreement or by the use of switching facilities. The savings on local loop and long distance charges will translate into higher profits and/or lower price, both of which are key ingredients for a growing and competitive organization.

Furthermore, as a facilities-based CLEC, the company can now participate in reciprocal compensation with the carriers and further reduce its line costs. Reciprocal compensation is the term used to describe 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 the telecom industry suggests that any firms that want to remain competitive must take a serious look at becoming a CLEC/IXC.


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.


NON-FACILITIES-BASED CLEC

As a Non-Facilities-Based CLEC, you are registered 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 many operations costs

• Less complex – Avoid the 6-9 months 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 9 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 quicker than you think.

Although CLEC status has been achieved in as little as three months, in general you should anticipate a 6 to 9 month process depending upon the individual states that you intend to establish service. Some states require only that you satisfy the requirements of the Telecom Act of 1996 and may have no other filing requirements. You should 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 you register as an "eligible telecommunications carrier" entitling you to "universal service" support. If you do not choose to register your serving area will be limited. Also, several states have additional requirements for providing service. You must request a copy of these requirements from each state’s PUC where you plan to provide service.

The regulatory filing process can be very time consuming and expensive, particularly if you are establishing a multi-state operation. An experienced consulting firm will help:

• Speed you through the filing process

• Assist in post-certification filing

• File annual updates about your company and its operations

• Respond to requests for miscellaneous information

• Protect your right to privacy when filing confidential information

The following steps are designed to give a firm who wishes to plunge into the telecom business an idea of the processes and procedures necessary to become a CLEC.

STEP I:

Hire a good telecom regulatory consulting firm. There are two different approaches to the regulatory processes. The first is to find merely a telecommunications attorney who will help with the certification process. The second, and more recommended avenue would be to hire a telecom consulting firm that has regulatory attorneys on staff. This methodology will not only get you through the certification process but also help the new entity negotiate agreements, set up the ILEC accounts, engineer equipment contingencies, obtain operating codes, etc. Internet searches can yield many good consultants but few have the ability to handle a client project on a turnkey or end to end solution. Key word searches such as ISP-CLEC or ISP/CLEC can be helpful.

STEP II:

Make a determination whether to become a "switchless reseller" CLEC or a "facilities-based" CLEC. Which is best for your overall business plan in order to maximize existing internal network infrastructure and also cost savings?

What type of existing equipment is in place? How many remote POPs are there. How many LATAs do they currently cover? How many markets are they in and what type of market concentration is there?

STEP III:

Analyze the current telecom costs. Take a close look at both local loop and long distance. Inbound and outbound analysis inclusive of 1+ dialing, 800 service and number of trunks as well as their size. Comparative examples do not exist. Any ISP with telecom costs in excess of 20K monthly cannot afford to remain merely an ISP and not an ISP/CLEC. For those with much greater costs, facilities-based certification is more in order.

STEP IV:

Plan your strategy session with the team of experts (principals, regulatory and project management personnel). This will help determine the pricing and service elements that will be set into your tariff. The strategy session is used to determine things like pricing elements, interconnection ILECs, whether resale or facility based certification is warranted, and to gather all of the necessary information required to start the certification process.

STEP V:

Draft your CLEC application.


STEP VI:

Draft your tariff. There are no typical costs in drafting a tariff. Many companies include tariff costs in the certification process. All tariffs must contain service descriptions, terms and conditions and prices. The prices are determined by the company wishing certification but in most cases the terms and conditions are dictated by the Public Utility Commission in which certification is being applied for.

STEP VII:

Begin negotiations for your interconnections agreement (or resale agreement – approx. $2,500). This cost is usually assessed if the MFN (Most Favored Nation), or section 252i of the Telecommunications Act of 1996, is used. The FCC also allows utilization of the "pick and choose" methodology – meaning terms from many agreements already approved can be combined to formulate a new agreement. The negotiation process has been streamlined over the past few years. In most cases a new carrier can opt-in to an existing agreement to eliminate total negotiation. A complete negotiation of a new interconnection agreement can involve hundreds of hours and costs up to $50,000 per agreement. This methodology is usually not necessary in today’s marketplace.

STEP VIII:

All documents are approved by client and sent to the appropriate Public Service Commission. Typical costs to draft the application and tariff and file with the Utility Commission are $9,500. Upon your sign off on the documents, they need to be filed with the Public Utility Commission. Approval timeframes take between 1 day and 6 months depending on the state. Sometimes the PUC will reject all of the documents, if not prepared properly, and sometimes they will merely request additional information. Also many states, specific minimum financial requirements, and may require a hearing to finalize certification.

Typically speaking most state certifications can be achieved in approximately ninety (90) days. Federal certifications can be achieved in approximately forty-five (45) days.

Obviously, this is only the beginning of the process. A facilities-based CLEC will now need to undertake a second phase of due diligence and planning to properly implement its network. But, hopefully, the above information will assist you in making the right business decision for your company, and set you on the path to increased profitability.

Joseph Isaacs is president of ISG- Telecom Consultants. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it. .

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