Telecom Wholesalers Invade Internet Space

Posted: 03/1999

Telecom Wholesalers Invade Internet Space
By Denise Culver

If there is any question whether the demand for data products is moving down market, look no further for an answer than to the number of carriers--from the Big Three to tier 3--that have in recent months begun to wholesale Internet services to telecom resellers, which typically service small to mid-size businesses.

No one really is surprised that the trend is afoot, says Clarence Muller, executive manager of MCI's Wholesale Data Marketing group. "Currently, about 97 percent of small and medium-sized businesses are using dial-up capabilities, and the other 3 percent are using dedicated Internet connections," he says. "By 2002, the number of small and medium-sized businesses that want dedicated access is projected to be 28 percent."

With such a money-making opportunity staring them in the face, resellers are looking to their underlying carriers for high-speed Internet access and related Internet services.

"Resellers have so many pressures on them, especially with the continued rate repression that's occurring on the voice side, that they're desperate to find another source of revenue," he says. "They're heeding the warning that they better sell data or sell their businesses. They want the ability to sell data so they can lock their customers into rates that will get them out of the downward spiral."

Wholesale Wares

With the launch of its new dedicated Internet access offering in February at the Competitive Tele-communications Association (Comp-Tel) Conference & Exposition, Frontier Corp. Carrier Services Group, Rochester, N.Y., joined a host of carriers that have announced wholesale Internet products in recent months in competition with large Internet service providers (ISPs), such as PSI Net, UUNET and IBM. Also at the CompTel trade expo, MCI WorldCom Inc., Jackson, Miss., publicized the addition of dedicated Internet access to its integrated voice and data access services.

These announcements followed one in January by Williams Network, Tulsa, Okla., publicizing the launch of its ISP Transit Services, the first phase of Williams' strategy to deliver a full suite of wholesale Internet products. Wholesalers IXC Communications Inc., Austin, Texas; and Sprint Corp. Wholesale Services, New York, announced their Internet service offerings in November and May 1998, respectively.

Frontier's wholesale dedicated Internet services ride the carrier's OC-48 Optronics network, or what Sandy Krishnan, senior manager data services, calls the WHIP (world's heartiest Internet protocol [IP]) network. Frontier is offering resellers dedicated services at DS-1, DS-3 and fractional DS-3. Included in the offer is the IP addressing, primary and secondary domain name service (DNS), news feeds, e-mail, e-mail store and forward, list server and bulletin board access services.

Launched in phases, Frontier's Internet access service will be available initially in Cleveland; Kansas City, Mo.; Los Angeles; New York; Rochester, N.Y.; Seattle; San Francisco; and Washington. These cities represent 40 percent of the nation's local access and transport areas (LATAs), says Anthony J. Palma, director of carrier marketing. By mid-March, another 40 percent of the LATAs will be turned up, and the remaining 20 percent will be live by the end of second quarter, Palma says.

Palma says for now Frontier will focus on the transport part of the Internet value proposition, enabling its resellers to, in turn, offer remote access, data virtual private networks (VPNs), e-commerce, web hosting and voice over IP (VoIP). The company is evaluating offering these services to resellers on a turnkey basis, but has made no commitments, Palma says.

Williams, on the other hand, has said it will combine traditional wholesale products, such as high-bandwidth peering and transit, with a full-service product offering on a private-label basis.

Its ISP Transit Services include T1, T3, OC-3, multiple bandwidth options, flexible upgrade path, fixed monthly pricing, operations support and geographic diversity. In the coming months, Williams plans to add dedicated access, digital subscriber line (DSL), remote access, virtual private networks (VPNs), network management and a range of other services.

Sprint's 10-month-old wholesale offering includes dedicated Internet services, which support more than 320 points of presence (POPs) in the United States. The service also is available internationally via local access ports in Hong Kong; London; Paris; Stockholm, Sweden; Sydney, Australia; and Tokyo. Service is available at varying access speeds from 56/64 kilobits per second (kbps), fractional T1 and T1. The company also offers the option of integrated access for sharing of the same facility for other Sprint voice and data services.

Unlike the other carriers, IXC Communications' new Internet product portfolio includes dial-up as well as dedicated services. IXC offers dial-up access to more than 750 dial-up POPs in more than 500 cities nationwide, and dedicated services in the top 100 metropolitan service areas (MSAs). To simplify Internet connectivity for customers requiring dedicated services, IXC Communications also will offer customer premise equipment (CPE) and management services, and will provide customized solutions for domain name services (DNS), e-mail and USENET news. Web hosting and e-commerce services were expected to be added to the lineup early this year.

In addition to its integrated access product, MCIWorldCom offers Internet services through its UUNET subsidiary. UUNET Carrier Services also offers both dedicated and dial-up Internet access on a wholesale basis under the name Virtual Internet Provider, or VIP. VIP Dial offers resellers the ability to sell access to more than 1,000 POPs worldwide at analog speeds of 56kbps and integrated services digital network (ISDN) speeds of 128kbps. VIP Dedicated allows resellers to private-label UUNET's dedicated services ranging in speeds from 56kbps frame relay to T3. UUNET's worldwide network allows resale from more than 100 hubs in the United States and, in nonhub areas, through frame relay. UUNET also will provide telco-circuit installation and configure CPE for resale.

Pricing and Service

Because the competition is becoming so heated in the wholesale Internet arena, wholesalers hold their pricing structures near and dear to their hearts. Matt Beal, product manager for IP services with Williams, says pricing for resellers is "all over the board," with the cost of a T1 without local loop ranging anywhere from $700 to $3,000.

"We've had a tough time determining what our pricing structures are going to be," he says. "When the cost of competitors' service is four times as much at the high end as at the low end, it's difficult to pinpoint where you want to be."

Leo Welsh, president of the wholesale business division at IXC Communications, says the biggest cost for resellers is--not surprisingly--buying the capacity from their wholesaler. They then must tack on another 25 percent to 30 percent to cover costs. Their margins for profit are limited by the fact that resellers themselves can't set their own price in the market.

"The Big Three are the ones who set the market price," he says. "So the resellers are having to look at the Big Three's price as the highest price they're going to be able to charge. Then they have to factor in that the Big Three can charge that amount because of name recognition and customer loyalty. They have to figure out how much more of a discount they can give and how they can differentiate themselves."

Welsh maintains that IXC Communications helps its resellers by encouraging them to "buy smart"--the more capacity purchased, the more the cost goes down--and by helping them control costs associated with doing business.

Other wholesalers also are taking this two-pronged approach to winning resale customers, says Martha DeGraw, Sprint's manager for data products. She says resellers need to buy their data products from a carrier that can provide them with the type of customer service typically associated with smaller carriers.

"The Big Three's retail service divisions have not been able to service small to medium-sized business customers the way that they want to be serviced," she says. "The reseller niche traditionally has been better at servicing those types of customers, so the Big Three have turned their attention to trying to attract business from the resellers, who can then turn around and service the small and medium-sized business customer."

Not surprisingly, MCI's Muller says large carriers will have no problem exceeding resale customers' service needs. Indeed, he says resellers are attracted to a carrier that can offer Internet, frame relay, voice--a full product suite--as opposed to working with smaller carriers that may only offer one or two of those services. "When resellers have to look at multivendor solutions," he says, "it's not as easy or as appealing."

Scrambling to add more data products to their mix (Frontier, for one, has hinted at a wholesale frame relay product in the offing), smaller wholesalers appear undaunted, however. In fact, they point to the fact that their networks are newer--built to best-of-breed standards--and that their customer service focus always has been targeted toward resale clients.

Supporting the voice and data services reseller is one thing on which wholesalers agree. IXC Communications, for example, has plans to provide data services training to its resellers. And Sprint has modified its entire wholesale model to help resellers to sell data products.

"Resellers already know how to sell voice, long distance and prepaid," says Maria Goulet, Sprint's director of product management and development. "But they don't know data, and they have no idea how to sell it. We're developing training and support that will teach them about differences in the products, how they can best package them for their customers and how to go about selling data."

Denise Culver is a telecommunications freelance writer based in Spring, Texas. She can be reached at dculver@hypercon.com. PHONE+ Editor-in-Chief Khali Henderson contributed to this article.