Competitors will make slow phone-service gains

OUTLOOK

Success to be mainly with area businesses

February 14, 1999|By Mark Ribbing

LAST WEEK, Baltimore's local telephone market gained a new entrant. Teligent Inc. of Vienna, Va., began selling local phone service along with long-distance and Internet access to area businesses. Competitive local exchange carriers such as Teligent, also known as CLECs, have cropped up around the country to challenge Bell Atlantic Corp. and other regional Bell operating companies (RBOCs) for a piece of the lucrative local-service phone market.

Are CLECs succeeding in taking business from the Bells? What will CLECs have to do in order to pose a significant challenge to incumbent phone companies, which still control access to local phone networks nationwide? Finally, will CLECs ever branch out from their business-centered marketing strategy and begin targeting residential customers?

Riyad Said

Analyst, Friedman, Billings, Ramsey & Group Inc.,

Arlington, Va.

Go back to 1984 with the breakup of the Bell system. It was really a few years before you saw other long-distance carriers [besides AT&T Corp.] start to make inroads.

1996 [the year of the landmark Telecommunications Act] really created an environment that lent itself to competitive new [local-service] entrants. You really do have a lot of newer players who have been able to go out since the Telecom Act and tap the capital markets, and this is really a capital-intensive market.

You'll continue to see CLECs pick up market share, but it's not happening overnight. We're going to begin to see this year 3-5 percent of the business market [going to CLECs]. It's still a very small percentage, but that business is growing and they are capturing a bigger percentage of those lines.

In addition, there is tremendous growth in data requirements, and that will be very beneficial for CLECs that can offer those services.

Specialized CLECs that are targeting residential customers are in the minority. I don't see the residential market being a big part of what they're doing.

Michael J. Travieso

Maryland People's Counsel

Bell Atlantic probably still has 98 percent or 97 percent of the business market [in Maryland], and about 100 percent of the residential market. The way in which a competitive local exchange carrier would take away business from Bell Atlantic would be if it already had an infrastructure.

There are buildings that already have fiber in them connected to switching stations CLECs already own, so they can bypass the Bell Atlantic system. If they can do that and have enough customers, they can make a profit.

Bell Atlantic is not making it easy for anyone to compete. It's very unlikely that residential customers will see a lot of competition unless cable companies can break through.

Nancy Kaplan

Vice president, Renaissance Worldwide Inc., a business technology consulting firm, Boston

I think they've started to make a dent, and are about to make a much bigger dent. That's primarily because larger companies are becoming CLECs -- they have a lot of funding.

CLECs really come in three categories. You have the new CLECs, the super-players. They can offer end-to-end service. They're going after the business markets.

Then you have the independent CLECs that have led the market to date. They need to get their house in order so they can play with the big boys.

The third category is the niche players like Teligent. A lot of them are going after the low-cost, broadband sort of position. They need to be really good at segmenting and targeting the market.

Business is clearly the target market.

Mark Phigler

President, Americans For Competitive Telecommunications, a consumer advocacy group in Walnut Creek, Calif.

The only place they are making a dent is in business. There's even a distinction within business; in small business CLECs are not making a dent. In large businesses that are located in the big cities, the CLECs are making some penetration because they're laying their own networks, i.e., fiber and switches. They're serving [large businesses] directly; they're not going through the RBOC.

I think [CLECs] are going to do fine, but obviously you're going to see fallout in the industry and some consolidation and you have to have a customer base to grow your business on.

I don't think [CLECs] can continue to build facilities forever. To expand their business and get to small and medium-sized business and to residential customers, they're going to have to get access through the RBOCs' facilities.

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