ISP Technology

Serious About Voice?

Become a CLEC


Becoming a CLEC is complex, but it is an option well worth investigating. For starters, you'll save big bucks on trunk rates compared to what you're paying now. And you'll be able to offer voice over DSL.

by Gerry Blackwell

Using VoIP to get into the telephone business through the back door may be one way to hold on to your customers and generate some additional, higher-margin revenues. But actually turning your ISP into a CLEC and competing directly with the local telephone company by offering PSTN-based services could be an even better way.

As a CLEC, you're eligible for trunk rates from the ILECs that are 13 to 45 per cent below the retail rates you pay now—savings you can pass on to your ISP operation. We'll explore the option this month and next.

The voice connection
Becoming a CLEC also opens up the possibility of offering voice over DSL services. It is fast becoming clear that voice over DSL is far more attractive than voice over dial-up. To be sure, becoming a CLEC requires a more complex transformation and means learning the ins and outs of a whole new business. There are also some regulatory hurdles. But while it's not cheap, it doesn't cost as much as you might think.

Thousand Island Communications Co., a new CLEC operating unit owned by Geographic Internet Services Company (GiSCO), a 9,000-customer ISP in upstate Watertown NY, is doing exactly that. According to Thousand Island president Howard Bastedo, GiSCO will in effect be in a break-even position on day one when it launches service in a few months.

Savings on ISP trunking will cover the costs of the complex CLEC network the company is building. "Even if we didn't get any other customers," Bastedo says, "we'd still break even. And how many Bell Atlantic customers do you think we can convert?"

With virtually every ILEC and many existing CLECs now getting into the ISP business, going the CLEC route may no longer be just an attractive option for ISPs.

Be -LEC or be gone?
It is becoming an essential survival strategy, argues consultant Joseph Isaacs, CEO of Palm Harbor FL-based ISG-Telecom Consultants International. ISG and a few other firms offer turnkey ISP-to-CLEC solutions. If you stick with the traditional dial-up business, Isaacs says, you'll find yourself competing against ILECs with zero trunking costs, and CLECs with costs substantially lower than yours."How can you compete?" he asks. "The truth is, you'll either have to become a CLEC, partner with one, sell out—or go away." "And if you want to sell DSL as an ISP," he adds, "you've really only got two choices—resell service from a big national carrier, or become a CLEC."

Voice over DSL will be a brilliant option for some business customers of the new Thousand Island CLEC operation, Bastedo says. And the Nortel network equipment the company chose will make it easy to do. For example, instead of offering a small business with 16 stations 16 separate incoming lines, Thousand Island could offer an IP-over-DSL bundle that would provide toll-quality voice at each station, plus Internet access and other services, at substantial savings to the customer.

To switch or not to switch?
But going the CLEC route is not really about voice over IP. It's about going in through the front door to get into the phone business. For ISPs that want to start small as switchless reseller CLECs (you resell services provided by ILECs or facilities-based CLECs) ISG can get you up and running for as little as $10,000. If you want to become a facilities-based CLEC—install a central office switch and manage it yourself—it will cost at least $300,000, and possibly much more.

GiSCO's multi-year plan calls for expenditures of $6 million on network equipment and consulting services.

Let an expert do the walking
ISPs can learn the hard way how to navigate the shoals of regulatory procedure, network architecture strategy and ILEC relations. Or they can hire a company like ISG to make it easier for them. "It's like learning how to fly a plane," says Isaacs. "Would you go up alone in one your first time out? If you do you're nuts, because you're going to crash and burn."

For the past couple of years ISG has been helping about 70 new CLECs a year get up and running, Thousand Island among them. As a result, Isaacs and his associates have the ISP-to-CLEC transformation process down to a science, he says. For example, just completing the CLEC certification process might take an ISP team working on its own three months and hundreds of man hours. ISG can do it in 90 days for about $10,000, Isaacs says.

Next issue: the steps to becoming a CLEC, and more about Thousand Island.