CLECs as ISPs – Exploring Connectivity Options

By Joel Maloff

December 15, 1999 – In the last article, we began discussing various Internet-related services that CLECs can offer.  Specifically, we divided Internet services into the following categories: connectivity, hosting, geography-specific portals, value-added services and consulting and design.

Now, let's talk connectivity -- and particularly broadband connectivity. Specifically, in this column we'll cover DSL and cable access.

DSL as an Access Technology
Most facilities-based CLECs are familiar with Digital Subscriber Line (DSL) technology. This is the ability to transmit high-speed data and Internet services via traditional copper pairs. CLECs that aren't facilities-based may be somewhat less familiar with DSL and may wish to partner with one of the major DSL providers such as Northpoint, Covad, and Rhythms NetConnections.

DSL comes in a variety of flavors. Symmetrical service means the bandwidth is the same in both directions and asymmetrical service means the bandwidth normally is greater for downloads than uploads.  In addition, bandwidth available to end-users decreases the farther away from the serving central office. For example, a customer within a quarter-mile of the serving central office might be able to get 7 Mbps x 1 Mbps asymmetrical service while another customer 4 miles away could only get 128 kbps x 128 kbps symmetrical service.

Non-facilities based CLECs or ISPs must have dedicated connectivity to their DSL provider to gain access to the DSL customer. Once installed, the customer is linked through the DSL provider to the ISP/CLEC for transit to the Internet.

Normally, the ISP/CLEC maintains the domain name server and therefore has control of the customer with the DSL provider, such as Covad or Northpoint, remaining reasonably transparent.

DSL offers the ISP/CLEC some significant advantages.  First, it is a dedicated service, so customers won't be dropped or disconnected as frequently as occurs with dial-up or ISDN. It also means the elimination of busy signals. This will therefore reduce the number of calls to your customer service group.

Another advantage is that DSL appeals both to residential and business customers.  If priced competitively, it should displace most of your higher volume ISDN business, at least for customers within the distance limitations of DSL. This means less need for modem pools, access lines, and dedicated support technicians. All of that equates to better profitability.

Another advantage is that DSL requires a small number (beginning with one) of connections to your DSL vendor. All consumers will then connect to them and be processed through to you via the T-1 or T-3 link connecting your networks. This again means that adding modems and access lines becomes less important.

Finally, DSL allows the ISP/CLEC to compete with cable Internet access.

However, the downsides of DSL are also important to consider. These include:

• DSL is not universally available, and therefore may not cover a sufficient portion of your customer base.

• You may be forced to deal with the ILEC as your only alternative, and this can be challenging. Various groups of ISPs including the United States Internet Service Providers Alliance (USISPA) (http://www.usispa.org) have been lobbying the FCC regarding complaints about basic service provisioning challenges, including DSL, with ILECs across the United States.

• The costs associated with interconnection to a DSL provider may be prohibitive. You may not be able to afford a T-3 connection.

DSL is here to stay. If you have network facilities, you must consider DSL as an offering. If you are not facilities-based, you should carefully research the various providers currently or planning to enter your area. Shop around, compare rates and check references. DSL is likely to be an important part of your Internet access services for the foreseeable future.

Cable Internet Access
Cable television networks are similar to traditional local exchange carriers in that they had a franchise to build facilities in a specific geographic area. The distinction, obviously, is that they were offering television signals rather than voice or data.

With the advent of companies like @Home (now Excite@Home) and MediaOne Roadrunner, cable access to the Internet is becoming ubiquitous. In addition, some cable providers are beginning to look at the provision of telephony services and becoming CLECs themselves.  For example, MediaOne has already launched voice service, primarily in the Northeast. 

Remember that cable TV was focused mostly on residences rather than commercial environments. For anyone competing with cable Internet access, targeting businesses or areas not served by cable is a smart strategy.

Another approach for an ISP/CLEC is to partner with an existing cable Internet service. The ISP/CLEC could “private label” the cable Internet service and the cable company could benefit from the coverage areas – and services - of its partner. This may be a short-lived strategy but it helps both organizations. Anyway, “Internet years” go by very quickly so capture the market share you can as fast as possible.

In our next installment, we will cover leased lines and wireless services for Internet access.

Joel Maloff is founder of Maloff Group International, an Internet business consulting organization. Maloff has been an executive in local exchange and interexchange telecommunications since 1973, and has been involved in various aspects of the Internet since 1987. Maloff is the author of four books and hundreds of articles regarding Internet.