Next generation CLECs focus on rural advantage

ISPs may be able to make a go of the competitive local exchange carrier market where their national counterparts have failed by starting small and targeting rural communities.

ViaNet Internet Solutions, an ISP based in Sudbury,

Ont., just received approval to operate as a CLEC from the Canadian Radio-television and Telecommunications Commission (CRTC) last week.

ViaNet’s initial goal was to provide its own internal phone service to save costs, but plans to extend that service to its Internet customer base within the next six months. The company will start with its subscribers in Sudbury, then move into other areas like North Bay, Parry Sound and Huntsville.

“”By having the cost savings, it’s allowed us to pay for the equipment that has basically put us into another industry,”” said ViaNet network manager Jesse Gasteiger. “”We’ve been able to start another business which complements our existing business without a big capital outlay out front.””

Brockville, Ont.-based ISP RipNet Ltd. is waiting for its CRTC approval to offer phone service, which could take another six months. The company offers Internet service to 10,000 subscribers — residential and small business — in the Brockville area. The Canadian ISP market is getting crowded, said new business manager James Wilson, so offering phone service is a natural opportunity for RipNet.

“”We’re looking at value-added (service). Any way that we can add value is what we want to do — add value for our residential subscribers (and) business subscribers and anything in between,”” said Wilson.

Gasteiger credits Richardson, Tex.-based Taqua Inc. with helping to keep network costs down. Taqua manufactures an OCX Class 5 switch which it has successfully sold to ViaNet, RipNet and about 30 other ISPs across North America. The appeal of the product is its small footprint, said Gasteiger. “”Our complete telecom operation fits into about six relay racks, whereas if you look at a conventional central office, you’d be looking at a whole room for the switching equipment — 20, 30, 40 racks.””

Eastern Independent Telecommunications Ltd. (EIT), a network engineering company also based in Brockville, is doing the equipment installation for both ViaNet and RipNet. Jack Kenny, vice-president of marketing and sales, said he’s using RipNet as model for how the conversion from an ISP to a full-fledged CLEC can work. It’s also convenient since both RipNet and EIT are located in Brockville.

“”They’re local and we’re local and we think it makes a lot of sense to combine our capabilities. Our mission would be to work with RipNet in the design of the network,”” said Kenny.

“”The government wants competition, supposedly. A number of large companies had a go at becoming cross-Canada big CLECs, and they’ve failed, basically,”” he added.

There’s a laundry list of national CLECs that have succumbed to market pressures and ill-conceived business plans in the last few years. Norigen, Axxent and C1 Communications are no longer operating and Group Telecom has filed for bankruptcy protection. “”Quite frankly, the CLEC market in Canada has been decimated,”” said Elroy Jopling, analyst with Gartner Group Canada.

Rural markets may prove more fertile ground. “”That may be the exception because what they can do is provide local service, they know (their customers) and it’s not a market Bell or Telus is going to be overly concerned about. As a result, they may have the opportunity to get started,”” said Jopling. But it may a balancing act: the bigger you get, the more Bell might try encroach on your territory.

Many of the national CLECs failed by building their businesses on credit, said Yankee Group in Canada analyst Mark Quigley. ISPs have their Internet connectivity business to fall back on if the phone service business doesn’t take off.

“”If you look at a company like RipNet, they already have a sustainable business underneath all of that on the Internet side of the equation. They have an established brand. People know who the company is, they know who the people running the company are,”” said Quigley.

Quigley pointed to another ISP that has successfully sold local and long distance service by bundling it with Internet service. EastLink sells services in Halifax and other parts of Atlantic Canada.

“”So far they appeared to have had success. They’ve been able to go in and take 10 to 12 per cent of the market from Aliant, which I think proves the point that when consumers are presented with a choice, that there is a certain willingness to explore it,”” said Quigley.


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