Small telecom carriers focus on providing choices

New business models adapt to changing markets

WASHINGTON - As traditional competitive local exchange carriers (CLECs) retool to keep up with U.S. regulations and battle the huge regional Bells, a range of new business models are emerging.

Bucking the trend toward facilities-based services is Sage Telecom, based in Allen, Texas. The company, with 510,000 customers, focuses in rural and suburban residential areas in 11 of 13 states covered by incumbent Bell carrier SBC Communications. Sage Telecom competes with SBC without owning network facilities through a wholesale network-sharing agreement negotiated with SBC.

In places such as rural west Texas and northern Michigan, it doesn't make sense to build competing networks, said Robert McCausland, Sage's vice president for regulatory affairs. In many rural areas, Sage serves customers who lack cable companies as an alternative to incumbent carrier SBC Communications, he said.

McCausland acknowledged that it can be tough to compete with the company that sells it network access, especially when SBC offers special deals that give residential customers lower retail rates than Sage Telecom pays for wholesale rates. But Sage Telecom executives believe their largely rural customer base wants options and wants personalized customer service, he said.

"No. 1, we give them a choice in provider," he said of Sage's business focus. "We also give them an opportunity to deal with a live person when they call wanting service. We don't have an automated answering service."

On the other end of the facilities spectrum are CommPartners and DynamicCity, two companies deploying their own networks. CommPartners, founded in June 2003, has deployed an Internet Protocol (IP)-based network in about 30 U.S. cities, and the company has focused on providing hosted voice over IP (VOIP) services for Internet service providers (ISPs), cable operators and other CLECs.

CommPartners, based in Las Vegas, announced on Feb. 15 private financing worth US $15 million, on top of earlier funding of $13 million. The company plans to reach 95 percent of the U.S. with its network by the end of 2005. The company will use part of the new money to improve its CommPartners Management System VOIP platform for automated provisioning, billing, user interface and back-office support.

CommPartners President and Chief Executive Officer David S. Clark sees a market for a nationwide network not owned by the regional Bells, and the company has focused on building a network while remaining debt-free.

"We built this company and said if we can't be net positive in 36 months, we just don't need to do this," said Clark, a telecom industry veteran.

DynamicCity, based in Lindon, Utah, has focused on creating a fiber-to-the-premises, open-access network in the Salt Lake City area. With funding through bonds issued by the state of Utah, DynamicCity began building the 14-city Utah Telecommunications Open Infrastructure Agency (UTOPIA) network in late 2004.

The company announced the first service on UTOPIA Monday, with ISP LLC providing 10M bps (bits per second) of Internet access at costs lower than slower cable modem service in the area. DynamicCity plans to offer 100M bps access later this year, according to the company.

In DynamicCity's business model, the company provides the fiber network, and ISPs, CLECs and other carriers can buy wholesale access. The company hopes to duplicate that business elsewhere, said Ben Gould, DynamicCity's chief marketing officer.

Government-run Internet access has met opposition elsewhere, as regional Bells and some free market advocates have questioned their effect on private enterprise. But Gould defends DynamicCity's business model, saying the incumbent Bells haven't moved fast enough to deliver high-speed broadband. The Telecommunications Act of 1996, intended to spur telecom competition, has largely failed, he said.

"We don't compete with private enterprise, we facilitate it," Gould added."When the U.S. is at the back of the industrialized nations for broadband delivery, something's not working. The incentive isn't there; the incentive is to drive profits."