CLECs still face hurdles in bid to become large national players: Lemay-Yates

Technology may advance and companies may change, but the basic CLEC market is staying the course, a new study finds. Montreal telecom consulting firm Lemay-Yates Associates Inc (LYA) has issued Canadian CLEC Markets and Strategies 2000, a 220-page report on the evolution of the domestic CLEC market. Johanne Lemay told Network Letter there have been many changes since her company released its previous study, Canadian CLEC Strategies for Business Tele-communications back in 1998 (NL, January 18/99). Like its predecessor, this report was written by Lemay, Robert Yates and Leonard Eichel, all of whom are principals at LYA. "Since the one that was published in late 98, things have changed quite dramatically," she says. "What used to be IXCs are at the forefront of the CLEC market. You have AT&T merging with MetroNet. We have the DSL market really becoming a force unto itself." Despite that, Lemay finds the predictions on market share have remained fairly true to the earlier study. CLECs currently hold about seven per cent of overall business lines, she notes, but since not all business markets are targetted by the newer telcos, the penetration in their core areas is higher. The Montreal consultant didn’t find many surprises in the way the industry is mutating, but did notice trends developing. "Some business plans are obviously better than others and I think we are beginning to see the results of that. And that in itself is not necessarily a surprise. So there is some good news for some people and some less good news for others," she remarks. "The re-pricing activities on the part of the ILECs is having some substantial impact on the CLECs. There’s still a lot of regulatory issues out there that people may have thought were resolved a couple of years ago but which are not, which I think do impact the development of the CLECs." Lemay agrees with many telecom executives who pinpoint the LD contribution scheme as a source of their problems, although not the only one. "Contribution is definitely one of them. It is having some impact on the integrity of competition in long distance. And since our major CLECs are also IXCs it is certainly having an impact on their viability," she states. "It’s not only contribution, there’s co-location, the sunset on the unbundled loops, (and) the prices for the unbundled loops. All these things are having quite a significant impact on the CLEC market." The recent turmoil at Call-Net Enterprises Inc is another concern. CEO Kevin Bennis resigned recently and Lemay wonders how the company will right itself over the next nine months to a year. Axxent Inc has a substantial share of the voice lines, but its presence on transmitting data over the Internet has yet to be developed. "There are many very significant challenges for the CLECs to overcome, for some of them to become national and large players. So that’s not going to be done within the next six months. It will take more time than that," she predicts. She suggests GT Group Telecom may be shopping around for more properties to buy. Her forecast for the next few years involves consolidation among existing companies as well as the entry of new firms into the market. Thus the total number of competitors should remain fairly constant, she says. The CLECs have been concentrating on the business market, with only tentative forays into the residential sector. "There is some activity. It’s still limited at this point in time. There’s Futureway, obviously, and there are the cablecos that have made announcements and are preparing in cases such as Vidéotron to commercially launch very shortly," she notes. "The cost and technology issues are still there to address the residential market. It’s not something that you can do on a viable basis using unbundled loops. So that, I think, is slowing down the pace of competition in residential. As you saw, Sprint had started to offer its service to residential customers and then stopped, and I think for a good reason. Because they don’t have a cable TV network, for example, that already reaches those households, it makes it very difficult for them." The study contains five-year forecasts on prime segments of the telecom industry and of market share. Lemay does not feel daunted about making long-range predictions in a field where change is so rapid. While technologies may develop over a matter of months and business and regulatory hurdles may rise and fall quickly, the essential share of the market and the effect of trends on the industry remain constant. She expects a greater role for cable firms and for fixed broadband wireless. She believes it is too early to assess the impact of established telcos like Bell Canada and Telus setting up as CLECs and moving into each other’s traditional territories.

CLECs still face hurdles in bid to become large national players: Lemay-Yates

News | 08/28/2000 4:00 am EDT

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