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C is for competition.


More than a year ago, Oracle Corp. decided that its 1,000-employee call support center in Colorado Springs needed a major upgrade. But instead of turning to entrenched the then stalwart US West, Oracle looked to Englewood-based ICG Communications Inc. for the bulk of the center's voice and data services.

Oracle wanted a telecom provider that could meet its aggressive timeline and evolving needs. US West had the services, but ICG's package and service levels were superior, said Paul Zawacki, senior network engineer for Oracle.

"We saw a younger, more aggressive company that could keep up with us," he said, describing ICG as "hungry and very responsive."

ICG is one of many Colorado competitive local exchange carriers (CLECs), or local, regional and national companies that compete with incumbent carriers - typically the Regional Bell Operating Companies (RBOC) -- for telecom service business in a given area. Colorado's RBOC is US West, which became part of Qwest Communications International at the end of June, following completion of a $48 billion merger.

US West has been besieged with complaints of poor service, and as recently as April, the Colorado Public Utilities Commission ordered US West to refund $12.7 million to its customers for quality of service violations, including lengthy waits for repairs and responses to customer calls, according to Terry Bote, a Public Utilities Commission spokesman. PUC requires that 85% of trouble calls be repaired within 24 hours and 85% of calls answered within 60 seconds, he added. The order is under appeal, Bote said.

"We will put our service quality up against any competitors' in the state, and we will put our commitment to service against any competitors' in the world," said US West spokeswoman Audrey Mautner. "Ninety-eight percent of the time US West installs service when, where and how a customer wants it, as promised and on time."

But for those companies leery of US West's service history and unsure of Qwest's impact, CLECs are the choice for next-generation communications providers. They bring affordable, high-speed Internet access and advanced communications services to even small businesses, said Adam Guglielmo, an analyst with the Denver office of Tele-Choice, a telecom consulting firm.

With such services as local dial-tone, long-distance, Internet access and private data lines, CLECs offer web hosting, wireless connections, website design, consulting and more. Often a CLEC's pitch promises personal and responsive service for 10% to 30% less than US West.

CLECs vary their offerings too: Some specialize in broadband or Digital Subscriber Line (DSL) high-speed data transmission; others offer only dial-tone or local voice options; and still others offer a combination. Some are facilities-based, meaning they own some telecom lines and switches, and lease the rest from US West. Other CLECs buy bulk services from US West, and repackage and sell them, typically at a discount. CLEC coverage areas differ from one another, because, unlike US West, CLECs can pick specific areas.

Congress creates an industry

CLECs originated with the Telecommunications Act of 1996, which opened incumbent local exchange carriers' (ILECs') lines to competition and required incumbents to prove they've complied with the competition order before they can provide long-distance, interstate service. To date, only Bell Atlantic and SBC Communications Inc. have met these conditions.

"Winning long-distance service approval is crucial for US West (now Qwest)," if the company is to compete with CLECs targeting select customers with packages of local, long-distance and Internet access services, said Mautner. (Qwest sold its long-distance services and will not be allowed to offer long-distance again until it can meet the Act's conditions.)

The PUC does not regulate CLEC prices as closely as it does US West's. Unlike CLECs, US West has a "floor" under which prices cannot be lowered, preventing predatory pricing, according to PUG's Bote.

Nationwide, CLECs represent only about 5% of the telecom market, but they are growing. Last year, facility-based CLECs reported almost $29.2 billion in revenues, up from $5.6 billion in 1997, and about $7 billion of that was for switched local service.

This year, switched local services should bring CLECs about $9 billion, and that number is expected to rise to $27 billion by 2004, according to Nancy Bedard, an analyst with Boston-based Yankee Group.

The industry won't break out or divulge state numbers, so Colorado's CLEC market is tough to gauge. Even participants fluctuate, going in and out of business, or merging. The market is highly competitive.

As of mid-June, PUC listed 50 certified CLECs with approved tariffs and the ability to offer local service in the state. But the list excludes companies offering highspeed data and other unregulated services, such as certain private line offerings. That includes Denver-based Jato Communications Inc., a provider of high-speed Internet access and broadband services, and three national DSL players in Colorado: Covad Communications Corp. of Santa Clara, Calif.; Rhythms NetConnections Inc. of Englewood; and NorthPoint Communications Group Inc., San Francisco.

That said, Colorado and the Front Range are "ground zero" in the CLEC market, said Tom Freeburg, a telecommunications analyst for Tucker Anthony Cleary Gull Investment Banking in downtown Denver. The attractions:

* Two of the foremost enabling companies for the CLEC market are based here (Qwest and Level 3 Communications Inc.);

* National players are headquartered in the Denver Metro area; and

* Colorado's Front Range attracts high-tech business, a CLEC's prime customer.

The opportunity to reach business customers makes the Denver-metro area a magnet for CLECs, said Louise Atkinson, vice president and general manager of Reston, Va. -based NextLink Communications Inc. Between downtown Denver and the Denver Tech Center alone, there are about 300,000 access lines, with CLEC penetration to date at only about 10%.

A distinct advantage for CLECs is their ability to choose -- or cherry-pick -- which customers they want to serve. US West, conversely, is a provider of last resort and must service all comers, regardless of how lucrative they are.

But it can be tough for a competitor to challenge an incumbent. Last year, there were about 500,000 DSL lines in service nationwide, according to the Association for Local Telecommunications Services (ALTS). US West had 110,000 of those lines, second only to SBC, which includes the former RBOCs Southwestern Bell, PacificBell and Ameritech, as well as CellularOne, SNET and Nevada Bell. The two nearest CLECs in numbers are Covad with 57,000 lines and North-Point at 23,500.

Growing pains

CLECs do have their problems.

Their infrastructures and lease agreements with ILECs may limit where they can do business, meaning US West generally has a farther reach than the CLECs, said ICG's Vince DeBiase, senior vice president and chief sales officer.

Some CLECs also may not offer the features and options of ILECs. US West's voice mail gives customers a distinctive dial tone with new messages. With ICG, users dial in to check. But, said DeBiase, his service is 15% to 20% cheaper.

Businesses wanting one source for all telecommunications needs will find few CLECs can do that, added Jato President and CEO Jerry Dinsmore.

There also may be delays switching from the incumbent to a CLEC, said ALTS general counsel Johnathan Askin. Incumbents don't always relinquish the service smoothly.

Finally, because CLECs' cutting-edge technology means customers sometimes undergo service interruptions or failure, especially with smaller CLECs, "You are basically beta testing technology for them in some cases," said TeleChoice's Guglielmo.

Susan J. Marks is a Denver-based journalist who writes about technology, personal finance, health care and small-business issues.


How have businesses handled CLEC service -- or vice versa?

* HVH Transportation of Denver reported better service and 10% to 15% savings with NextLink, a national CLEC. HVH, a transportation and shipping company, has used NextLink's long distance for nearly 10 years and local dial-tone service for the past year, said Bruce Holder, president and owner.

* Elite Auto Glass of Commerce City was fed up with US West. "It's just so big, you could never get good customer service," said Bill Bryant, Elite IS manager. Jato offered free equipment and installation, and now provides a private high-speed DSL connection, letting Elite connect its Commerce City server to 10 stores for less money and higher speeds than US West would provide. When Elite needed system repairs from US West, Bryant said Jato, which leases the infrastructure from US West, speeded things up.

* Jefferson Pilot Communications chose Winstar Communications Inc., a New York-based wireless provider, for Denver service. "We fought with US West for 10 years," said Mike Morrissey, assistant chief engineer. Jefferson, which employs 200 at five metro radio stations, broadcasts phone calls on the air and needs premium voice quality. Older US West lines experienced interference, Morrissey said. An updated T1 system was installed, but the company had problems getting certain lines and systems in place. Winstar made an offer, agreeing to pay reconnection charges if Jefferson Pilot decided to return to US West service. But Morrissey said voice quality with Winstar is phenomenal, and its service costs less.

* Patrick Allen, a technical recruiter with Allen Consulting in Denver, turned to Winstar when the three-man office in construction-heavy Cherry Creek found severed telephone cables were costing him money. "Lines would be cut and down for up to six hours at a time. The nature of my business is that there was just no way I could survive." That was 1 1/2 years ago. Allen has been a wireless customer since. The service, including voice and high-speed data, looks and feels just like US West at 30% less. Service is delivered through a small dish on the roof. His one service question got a response in 30 minutes and follow-up calls on service quality.

* Lehrer's Flowers, on the other hand, is satisfied with US West. "I know US West gets a bad rap, but they have been really reliable for us," said Chris Golden, Lehrer's systems administrator. Nonetheless Lehrer's turned to Jato for high-speed, point-to-point connections between its 17 locations. Jato approached Lehrer's with a good offer: the latest technology and three times the speed for the same price it paid US West.


US West, now Qwest, is in the process of selling 530,000 rural access lines in nine states, including 60,000 lines here, to Stamford Conn.-based Citizens Communications Inc. The deal makes Citizens an ILEC in Colorado and will be completed in January 2001, according Citizens spokeswoman Martha Alcott.

Citizens' niche for 65 years has been providing rural telephone service, often in areas without much competition. Communities that Citizens is stated to serve include: Salida, Gunnison, Buena Vista, Crested Butte, Alamosa, Monte Vista Del Norte, Meeker, Oak Creek, Yampa and Julesburg. Initially the company is expected to offer the same services as US West/Qwest, but also may consider offering other services like Internet and high-speed Internet products, depending on the available infrastructure, customer demand and other issues, said Alcott.

Citizens also has a CLEC presence in the state in the form of a stake of more than 80% in Electric Lightwave Inc., which provides high-speed, private point-to-point data and Internet connections in the metro Denver area.


Do Competitive Local Exchange Carriers sound good for your business? Try shopping around and asking questions before signing up with any company or service.

Does the company explain its technology and how it can help you do business better? That is key, said Jerry Dinsmore, president and CEO of Jato Communications in Denver.

Even before you start, know what you want the technology to do, added Keith Bennett, Jato's Denver-based president of direct markets. "All too often, when I talk to businesses they are seemingly confused about the technology. It's not the technology they are confused about. It really comes down to assessing what their priorities are."

Ask for references and do your homework, added Vince DeBiase, senior vice president and chief sales officer at ICG Communications Inc. "Sometimes you get what you pay for. This is your lifeline. When your local phone line goes down, you stop making money." He suggests asking a CLEC for a trial run before sealing the deal.

Make sure the CLEC has a well-established relationship with an ILEC, added Nancy Bedard, an analyst with The Yankee Group consultancy in Boston. "This is important in switching service from the ILEC to the CLEC, and also in resolving repair or change of service issues after the service is switched."

Finally, look at company leadership, said Louise Atkinson of NextLink Communications Inc. Her company was founded and backed by wireless leader Craig McCaw. "I don't think a lot of the players in the industry are going to be able to survive. It's capital intensive business."


Covad Communications Corp.:

ICG Communications:

Jato Communication:

Level 3 Communications Inc.:

NextLink Communications Inc.:

NorthPoint Communications Group Inc.:

Rhythms NetConnections Inc.:

U S West:

Winstar Communications Inc.:
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Geographic Code:1USA
Date:Aug 1, 2000
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