Special Access

Posted: 06/1998

Special Access
IXCs Seek CLECs for Local Connections

By Ken Branson

Long distance and local exchange companies one day may be integrated communications
providers. But for now, they still operate in an environment that resembles the
regulated-monopoly environment of the past.

For example, long distance companies still typically purchase local network access, or
"special access circuits," from local exchange carriers (LECs).

Seeking Alternatives

The process of buying special access circuits is different for large and small long
distance carriers, but a common thread unites them. Both look to alternatives to the
incumbent local exchange carrier if at all possible.

Don Lynch, senior vice president for local financial operations at MCI Communications
Corp., says he tries to give his company’s local access dollars to competitive local
exchange carriers (CLECs) whenever he can.

"It does me no good to have only the monolith provider," Lynch says. "I
have every incentive to create competitors for the [regional Bell operating
companies–RBOCs]."

For large long distance companies such as MCI, one of those incentives may be
strategic, according to Mike Smith, senior telecom analyst at Probe Research Inc.

"Strategically, [interexchange companies] are going to compete head-on with the
RBOCs, and they don’t want to be too dependent on their competitors," Smith says.
"That competition may happen as soon as the first quarter of next year."

Richard C. Aab, chairman of US LEC Corp., a CLEC based in Charlotte, N.C. agrees. Aab
has been on both ends of the special access transaction, having founded and led ACC
Telecom Corp., a competitive long distance company.

"I think you have to deal with a couple of elements," Aab says. "The
first is that you don’t want to do business with a company you’re competing against.
AT&T and, say, BellSouth are going after each other’s markets. In the other direction,
you want to establish relationships with CLECs, so you have a good relationship for the
originating traffic they provide you with."

Reach and Reliability

MCI’s Lynch points out that, for most circuits, long distance companies still don’t
have a choice of providers.

"You need to understand that one of the issues is ubiquity," Lynch says.
"You don’t have the coverage with a CLEC that an embedded LEC has."

MCI and AT&T both assert that performance and reliability are their No. 1 concerns,
with price coming in second.

"Of course, since access is about 40 percent of every long distance dollar in
revenues, we try to reduce the access cost," says AT&T spokesman Dave Thompson.
"If we can find an RBOC or a CLEC who can provide a good rate, we’ll look at that.
But if customers have problems reaching the network, sometimes those problems aren’t ours.
Sometimes, they’re on the access side of the house. So we need to take a long look at who
[the carriers] are, because if they have networking problems, we have to be ready to
address them. Performance and reliability always are our first concern."

Unlike MCI, AT&T’s Thompson says that competitive issues didn’t enter into his
company’s special-access buying decisions.

"The competitive side of it?" he asks. "No, we can’t look at that right
now. We just need to provide a good level of service to our customers, so we work on that
first."

For smaller long distance companies, the priorities can be different.

"Price is always what initiates business, then performance and reliability keep
the business there," says Larry Dubow, vice president of network planning and carrier
services at ACC Telecom, the Rochester, N.Y.-based carrier founded by Aab and recently
acquired by Teleport Communications Group Inc. "That’s the decision matrix. The real
problem is that, when you’re talking about special access, the [competitive access
providers–CAPs] that come in and compete with the [incumbent LECs–ILECs], though they
may have broad networks, always pale in comparison with the ILEC. So the CAPs–and CLECs
are really CAPs when you talk about special access–often sell you a hybrid circuit, half
theirs and half the ILEC’s. It’s not so much the performance, but the interval [between
order and implementation] and the provisioning that becomes a real problem."

An ILEC is not shy about its ubiquity when selling to long distance companies. Peg
Ricca, vice president of sales for Bell Atlantic Carrier Services, sells ubiquity.

"Throughout our 14 states, we’re everywhere," Ricca says. "We’re very
proud of our network diversity and redundancy, and how reliable our network is."

Ricca says her sales teams spend a lot of time with customers explaining the advantages
of all that ubiquity, reliability and redundancy. She concedes that Bell Atlantic’s price
per circuit is 10 percent to 20 percent higher than her CLEC competitors (average in
Manhattan of $500 per month for a T1; $375 per month on a five-year contract), at least in
the metropolitan areas. But she insists the network bang is greater for the buck.

The Taste Test

She has a hard time convincing Dubow.

"Bell Atlantic is the most miserable, lousy provider of special access in the
world," Dubow says. "Their intervals suck, their systems are lousy, the
reliability is even more pitiful. They miss your due date, lose your order, come back at
the 11th hour and say they have to do special construction. They’re extremely difficult to
work with. Their attitude is, ‘Deal with us or don’t, we don’t really care.’ They don’t
have a spirit of consumerism that we are their customer and they should give us
consideration. I think that’s often the case when you’re a customer and a competitor at
the same time."

Ricca concedes that a 20 percent growth in demand for special access has taxed Bell
Atlantic’s network resources over the last two years.

"We’ve committed $600 million to plow into our network and service our customers
exactly when they want our service," she says. "But we’ve got pockets and areas
where we are just catching up, certainly in the metro areas. Our objective is to have no
‘held orders’ by the end of this year."

Dubow says he uses competitive carriers for special access whenever he can, and has
used TCG (his company’s new owner), MFS Communications Co. Inc. and Time-Warner
Communications Inc. in the New York City metropolitan area.

Size matters in other ways besides network coverage. Large long distance companies have
fairly extensive review processes for adding CLECs to their special-access lists.

"What we generally do, prior to doing a lot of business with a CLEC, is have them
certify that their network is good and works," Lynch says. "We make sure our
operations people are comfortable [with the CLEC]. Once that happens, we have a program
within our provisioning system that distinguishes preferred providers. The provisioner
will be given a choice."

For Dubow at ACC, the process is a bit more flexible.

"What I’ve learned over time, asking this rigid set of questions isn’t nearly as
good as trying [the LEC] out," Dubow says. "We say, ‘All right, you say you’re
so good, let’s see how good you are."

Size Matters

The little guys want the cheapest circuit, says Dan Moffatt, senior vice president and
chief marketing officer for GST Telecommunications Inc., a CLEC based in Vancouver, Wash.
"The big guys want you to join their quality program."

Another size differential comes on the LEC end, where ILECs approach large and small
long distance companies differently.

John Goldman, spokesman for the carrier services group at BellSouth, says his company
maintains a different set of account managers for large and small carriers. Several people
might be assigned to take care of the needs of AT&T, for example.

For smaller carriers, Goldman says, an account manager may be responsible for more than
one carrier.

At Bell Atlantic, Ricca says the process of receiving and processing orders is very
different with large and small carriers. Large carriers such as AT&T, she says, have
mechanized systems which send service orders and receive confirmation "without any
dialogue" between human beings in real time. Smaller carriers may send a fax and ask
for confirmation by fax or by a phone call.

The argument for buying special access from a CLEC, where there is a choice, is wrapped
around responsiveness, flexibility and price.

Sheldon Ohringer, president of ICG Telecom Group Inc., concedes Ricca’s point about
ubiquity.

"We can’t give you special access everywhere," he says. "But where we
have it, it’s better."

Ohringer’s company, based in Englewood, Colo., uses SONET (synchronous optical network)
ring technology to cover central cities and business parks in about 63 cities across the
country. Most heavily concentrated in California, Colorado and Ohio, ICG also offers
service in Charlotte, N.C.; Nashville and Louisville, Ky.

"I don’t buy the reliability argument [of the ILECs] for a minute," Ohringer
says. "We’re based on SONET rings; that obviously gives us reliability. We have no
embedded copper to deal with, no 100-year-old monopoly mentality to deal with."

Most of GST’s network is fiber with redundant routing, which is similar to or better
than what the ILEC has, says Moffatt.

"We have the same equipment, the same or better network configuration, so you can
make the argument that we’re newer and shinier," he says.

The CLEC structure for dealing with special-access customers is similar to that of the
ILECs. GST and ICG, for example, have account teams for large carriers and account
managers who may take care of two or three smaller carriers. They try to take care of
everyone, but Moffatt says large carriers get lots of special care and feeding, because of
the olume of business they produce for GST.

ICG and GST both claim to be quicker and more responsive than any of their competing
ILECs. ICG’s Ohringer claims his company has the best policies and procedures of any
integrated communications provider.

"We have a special 800 number and we confirm every order, and we have dedicated
implementation people who work with carriers," Ohringer says. "We get back to
them with timely info, call them, do testing with them."

The automation at GST may not equal that of Bell Atlantic, says Moffatt, but GST is
headed in that direction "because AT&T [and the other large carriers] insist on
it."