Cleared for Takeoff

By Khali Henderson

Posted: 2/2003

Cleared for Takeoff
OSS Interconnection Service Bureaus Redux

By Khali Henderson

THE CONCEPT OF A THIRD-PARTY
administrator for OSS interconnection has been floated almost as long as there
have been competitive local service providers. In reality, the OSS
interconnection clearinghouse business model has few successes primarily due to
lack of attempt — it was a much more arduous business than some software
vendors wanted to take on when licensing deals were easy to come buy. Now, with
the downturn squeezing CLEC capex, vendors may be more likely to win business
for this kind of subscription-based electronic bonding service. At the same
time, analysts say the CLEC shakeout and the expected pullback in the
availability of certain unbundled network elements to local service resellers as
a result of the FCC’s Triennial Review expected this month may sufficiently
shrink the addressable market for such a service so as to make it unviable.

OSS interconnection was identified
early on as a candidate for outsourcing, even in the days of free-flowing
capital when competitive LECs and local service resellers could afford to buy
their own gateway software to manage one-off connections to the ILECs. The
complexity of managing each carrier partner’s interfaces and data protocols as
well as changes to business rules and software makes for a headache most
companies — startups and veterans — are keen to avoid.

Some gateway providers released
managed services based on their software solutions to address this problem. With
the telecom downturn and the CLEC shakeout, most of these companies like Ablion
Connect Inc., Extant Inc. and Quintessent Communications Inc. went out of
business. Survivor DSET Corp. announced in fall 2002 it had signed a definitive
agreement to be acquired by a newly formed subsidiary of OSS vendor NE
Technologies Inc., leaving NightFire Software Inc. as the primary
interconnection gateway provider.

These solutions while outsourced
were point-to-point and based on bilateral agreements. Multilateral solutions
included a fall 1999 offer from Telcordia Technologies and GE Information
Services (now Global eXchange Services) called ExchangeLink. ExchangeLink still
operates according to information at the Telcordia Web site, but PHONE+’s
requests for updated information about the number of trading partner connections
supported were not returned. Available data indicates support for pre-order
requests, local service requests (LSRs) and access service requests (ASRs).

Illuminet Holdings Inc. also
developed an OSS interconnection service based on the Quintessent platform.
Illuminet was acquired in late 2001 by VeriSign Inc., which continues to operate
the service, but only for ASRs. "We still see potential in the
administration of pre-order, LSR and PIC/CARE exchanges and we continue to look
at potential vendor partners for those components," says VeriSign
spokesperson Penny Thomas, who adds, its clearinghouse clients number around a
dozen.

Accenture also continues to operate
its interconnection exchange, Launch-Now, which debuted in September 2000. It
processes pre-orders, LSRs and PIC/CARE requests, and now covers all trading
partners in 35 states. Among its clients is UNE-P reseller Z-Tel Technologies
Inc.

In 2002 another company, BizTelOne,
entered the fray. President John Malone says it was fortunate to have received
its funding just before the capital markets dried up — a circumstance that he
says also has prevented more competitors from jumping into the business.

The company launched in February
2001 and conducted a successful beta trial of its American Communications
Exchange (ACX) with Verizon Communications Inc. – East in late first quarter
2002. BizTelOne is in production mode for pre-orders and LSRs with Verizon East,
SBC Communications Inc. and BellSouth Corp. and Malone expected to be live with
Verizon West and Qwest Communications International Inc. in January 2003. ASR
support for all ILECs is expected later in 2003.

The playing field is expecting yet
another player in NeuStar Inc., which announced in fall 2002 that it would
launch LSRexpress, an LSR clearinghouse, as a complement to its CARE
Clearinghouse. Sang Lee, director of OSS implementation for the company, says
the service will be modeled after the CARE Clearinghouse and will be operational
sometime in first quarter. Lee says the rollout will be phased to correspond
with ILECs interconnection agreements as they are inked. He also said the
company hoped to penetrate its existing customer base for the service,
particularly since LSRexpress was created at their urging.

While later entrants like BizTelOne
may seem to be recreating the wheel, Malone says in fact what it is doing is
taking the cost out of the business by using newer, more efficient technology in
XML that can be up and running in four to six weeks. ExchangeLink, by contrast,
is challenged by dependence on EDI and a client-server architecture that’s
capital intensive, he says. ACX customers pay per transaction. An LSR, for
example, is about $3, Malone says.

He adds the company has about 25
customers — a mix of new entrants and and existing CLECs that tried to do it on
their own or that are using the ILEC GUI — and is adding five to seven per
month.

One of BizTelOne’s early customers
is UNE-P reseller Xtel Communications Inc. Xtel president Don Flynn says the
company has been using ACX since it began reselling UNE-P from Verizon in August
2002, selecting the service bureau as an alternative to both software-based
solutions and the Verizon GUI. The decision, he says, was prompted by the
historical problems of orders being rejected by the ILEC. "With ACX, the
vast majority of orders go through on the first pass," he says.

Another BizTelOne customer, UNE-P
reseller InfoHighway Communications Corporation reports 95 percent of its orders
are going through on the first try. The company has been working with ACX since
May 2002. The company, which operates primarily in Verizon territory, has been
making a hard push with UNE-P since mid-2001 and previously used the ILEC’s GUI.

InfoHighway CIO Bob Iorizzo, who
previously was the lead manager on interconnection for KPMG Consulting, says the
company decided against the software license solution because of change
management costs. "We kind of came to the conclusion that the ongoing
maintenance and support of keeping the interface current and dealing with all
the various ILECs — I remember from doing it, I built it once already — it’s
huge," he says. "That maintenance just eats your lunch over time so I
was really looking for someone to give me a service bureau type
arrangement."

Ron Angner, general manager of OSS
for consulting firm The Management Network Group Inc. (TMNG) says even if you
buy software, the maintenance fees are upwards of 20 percent of the original
license.

He says local providers addressing
20,000 to 25,000 lines want to outsource, but at 100,000 lines, "the
decision gets more dicey about whether to pay per transaction."

Angner says the value proposition
also goes up with integration between billing companies and clearinghouses to
provide an end-to-end solution. BizTelOne has several such agreements, including
one with Profitec Inc. and another with CustomCall Data Systems Inc. With ACX
integration, carriers can enter orders through the billing system or e-commerce
application, screen them, and pass them to ACX. Orders are placed with the ILEC
and the information is then electronically downloaded into the billing system.
Further, ACX can be engaged from within the billing system so there is one
interface.

Angner suggests other apps like CRM
also could be wrapped around the combined order-gateway-billing functionality
for a complete outsourced solution.

While advances in technology can
make it easier to be in the competitive local service business, analyst Robert
Rosenberg, president of Insight Research Corp. says the current "political
scene means there is less and less competition not more and more," making
"the whole idea of easing access to LECs" less viable. "In the
last few weeks, they have been raising trial balloons that the FCC may rule
against the competitors in its Triennial Review," he says and notes should
that happen there will be fewer competitors requiring access to such services.

At the same time, he notes the RBOCs
have been securing in-region long-distance approval in droves.
"[Regulators] are reneging on their promise of quid pro quo,"
Rosenberg says. He asserts the Telecommunications Act of 1996 called for the
Bells to open their local markets to competition before receiving in-region
long-distance authority. "They are abandoning that requirement."

NeuStar’s Lee says, although some
CLECs have gone out of business, there are plenty of network players remaining
and the number of new entrants is steady. In addition, he says, the
clearinghouse’s pay-as-you-go proposition fits much better into startups’ models
since they are leaner organizations than their predecessors.

Xtel’s Flynn, whose company would be
considered new to the local service business with just six months under its
belt, underscores the model’s value to managing the carrier’s risk. "I
don’t want to spend six figures for software and have the Bells go out of the
UNE-P business in six months," he says, referring to high cost of licensing
given the uncertain regulatory climate.

InfoHighway’s Iorizzo says if the
switching UNE is repealed, there still are loops that need to be provisioned to
CLECs. Further, the transition likely would happen in a phased manner so moves,
adds and changes for existing UNE-P customers will need to continue until there
is a replacement service for those customers. Such a replacement, he suggests,
could come from facilities-based CLECs that will take on the wholesale provider
role for nonfacilities-based companies.

Considering both the industry’s
challenges and opportunities, it is likely consolidation among the competing OSS
interconnection service bureaus is in the offing.