It has been 20 years since the Telecom Act of 1996 was signed into law. Since then, the CLEC world has been through many ups and downs, while burning through more than a trillion dollars in investment. Agents have benefited greatly from the TA96. CLECs courted agents to sell their wares. Agents made money with the nickel LD minute. Later, both the CLEC and the Agent made even more money peddling the Integrated T1 to small businesses across the land.
It was a squandered opportunity for both. CLECs didn’t take the opportunity to build their own network or get dense geographically, so regulatory changes caused huge hassles. Agents are still out peddling the Integrated T1, only now it may be a cable triple play or a 10MB pipe with SIP Trunks.
Today, the CLEC sector doesn’t look the same. The big names of the era are all gone. The last one – XO – will soon become part of Verizon. Frontier will own more landlines than Verizon by May.
A bunch of things changed that have affected the marketplace. Regulations had an effect, but it wasn’t all the fault of the FCC. Some blame goes to the DLECs – Northpoint, Rhythms, Covad (News - Alert) – who democratized DSL for the small business. AT&T Labs had invented DSL in 1965; it was the DLECs that brought it to market first. (Then they were crushed by the ILECs.) Ubiquitous broadband and cellphones have changed the way people communicate and where they do work. This, more than anything, marked the end of CLEC business as usual.
These two factors were in place just as the financial markets collapsed and capital for SMB became scarce. BOOM! Cloud services entered the scene with No CAPEX Hosted VoIP leading the way. The barn door is open and the horses are loose.
Many CLECs didn’t really move to the cloud because their business model is predicated on resale. It was also why Fiber to the Premises didn’t go anywhere until FiOS, PCOs and Google (News - Alert) Fiber led the charge. Suddenly, the copper T1 wasn’t enough for small business, because DSL was cheaper, VoIP was coming, the cable modem appeared, and the CLEC was left scratching its head.
Move ahead ten years (from 2005 to 2015) to the trade shows, the biggest booths are not CLECs or ILECs. They are ITSPs (VoIP Providers like Vonage (News - Alert) and 8x8) or Microsoft or cloud players.
The price compression for bandwidth and voice that the marketplace is trying to survive right now is an example of poor planning for everyone. How did the CLECs and ILECs not see the cable threat to their SMB golden goose?
Cable has an advantage in a few ways. For one, cable lives under fewer regulations and is not required to share network elements. Next, cable started with the network plant to deliver the least profitable service and moved to the more profitable services – Internet and Voice. (Telcos had to spend billions to build network to provide TV, the money pit.) In addition, the cablecos have CableLabs (News - Alert) to do their research and development – DOCSIS 3.0 anyone? Bell Labs stopped giving the telcos an advantage when Lucent crashed.
Agents have jumped on the cable train. It fits right into the business model of offering replacement services. Luckily, customers are demanding cable, so that makes it an even easier proposition, despite the low prices and low commissions. (Agents have to sell lots and lots of deals to eke out the living they were making in 2005!)
Now in 2016, everyone is looking to the mid-market. Costs to acquire and support the small business on sub-$500 ARPU are unpopular. Everyone is going upmarket, where the competition is bloody. CLECs have morphed or merged.
Vendors have learned that Agents are transactional and sell replacement, like cheap VoIP. Hosted PBX and UCaaS are not replacements; they are about change. Vendors have shifted their focus to VARs and MSPs, hoping they can sell higher up the OSI stack into mid-market.
With Amazon entering the broker space with VoIP, VoIP installation and Comcast (News - Alert) triple-play, Agents are looking at being replaced by websites. The value of Solution Selling that so many miss is that you become a single throat to choke for that business for all things IT and telecom (if you do it right). You become a resource, so even if you don’t know anything about conferencing or SD-WAN or integration, you get the chance to introduce a referral partner, to still own the customer relationship, be stickier and make more money. Everything has evolved since 1996. Has your business model?
Peter Radizeski is President of RAD-INFO INC, a telecom consulting firm in Tampa FL.
Edited by Stefania Viscusi