Independent Gateways Bridge Gapsin Capex, Technology, Geography

Posted: 1/2003

Independent Gateways Bridge Gaps in Capex, Technology, Geography

By Khali Henderson

WHILE CARRIERS ARE KNOWN to partition their switches for resellers, doing it as an independent entity has been the province of few -- until recently, really only one. General Telecom Inc. has been serving up ports to carriers since 1990.

"What we saw at the time were new, emerging carriers without funding to buy their own switch," explains Brian Metherall, now president of the company, which was bought by Verestar in summer 2000. "We grew rapidly based on that dynamic. But often, once they grew, they migrated to their own facilities."

The company experienced a setback following Sept. 11, 2001, when it lost 13 of its employees and its Network Operations Center (NOC) in World Trade Center as well as some customers that subsequently went out of business. Metherall says the company has bounced back; it rebuilt its NOC at 150 W. 22nd St., added 50 percent more ports and replaced many of the smaller customers it lost with larger customers. The company claims to serve some 60 service providers.

"In the last year, year and a half, we have been serving larger carriers -- Bells and PTTs --that want to get into the wholesale business, but [have found] it doesn't make sense to spend money up front," Metherall says. He explains General Telecom enables them to match their cost stream to their revenue stream by adding or subtracting ports as they need to.

One of the big things that attracts them is they can "plug into an instant ongoing market, " he adds.

In fact on Oct. 1, the company rolled out the GenTel Village, which offers customers a view into the inventory (connected carriers) at the company's five switches -- two each in New York and Los Angeles and one in Miami -- so that they can easily order "loop-arounds" to the carrier of choice.

"We have an exchange environment, but we just facilitate it. We don't get in the middle of the transaction," Metherall says, contrasting his company's model to the bandwidth exchanges that failed to gain traction in the late '90s. "We want them to buy more ports. We are not an arbitrager."

It is this idea that fueled the emergence of General Telecom competitor Sirius Telecom. The company has been around for about two years but only began selling ports in spring 2002.

"We started out as a minutes player and decided there was a unique opportunity for a farmer's market approach to this high-tech business," says Mike Dyer, president of Sirius, on the genesis of the privately held company, which now owns two switches -- one each in One Wilshire and 60 Hudson that it bought out of the RSL Com and Star Telecom bankruptcies, respectively.

Dyer explains that his then-company, Vanova, had 20 routes but no TDM switch. "We couldn't reach AT&T, Sprint," he said, noting they typically want a "big iron" connection into a DMS switch rather than an IP address.

"We bring VoIP technology back into the TDM world," Dyer says of his newer venture, which he says serves 27 VoIP and TDM carriers. He says they are a mix of new entrants and incumbents or emerging market PTTs and about three quarters are international wholesalers.

Admittedly, the wholesale international market has taken a beating in the last 18 months (click here). While both Metherall and Dyer are concerned about the downturn's impact on their businesses, they say it validates their business models.

Outsourcing, says Metherall, enables service provider to renegotiate terms and even cut nonprofitable services altogether without the burden of leases and employees to consider. They are not stuck with sunk costs if volumes don't materialize or margins on volumes are not sufficient, he says.

In one example, Metherall says a Bell client of General Telecom's went aggressively into international wholesale, but after getting in-region domestic long-distance approvals, the company has decided to pull back and refocus. "It's a loss for us, but they were able to switch resources quickly," he says. "It may sound like a story of failure, but it's exactly [the value proposition] that we pitch -- flexibility."

Metherall adds that pressure on this key customer group is causing General Telecom to expand its business to new markets -- namely retailers. "We are seeing CLECs that want to get a piece of the long-distance revenue -- domestic and international. We are facilitating their entry into the business," he says, noting that a handful have become customers in the last six months.

To accommodate retail traffic, General Telecom has added fraud controls -- proprietary software for call blocking and alarming.

One such General Telecom customer is Enhanced Communications Network Inc., which operates Asian American Association Long Distance. "We partner with GT to take advantage of the ability to strip our international traffic off of the domestic network and terminate them directly to PTTs and afficilated carriers to the countries we specialize in serving," says Jayme Amirie, a spokesman for ECN.

Sirius' Dyer also says retailers are a hot market for his company. "We are going to see the re-emergence of resellers," he says. "Companies like Qwest offer the ability to split off traffic for resellers. So the reseller can bring the network to our switch and go out over alternative carriers. In the past they would have been stuck with what their provider offers. Instead, they can least- cost route."

Dyer explains that this can be particular important in situations where rates change. In China, for example, the government raised the wholesale termination rate to 17 cents where it had been less than 2 cents. Dyer says that means a lot of Tier 1 carriers are charging more than 30 cents to terminate into China -- making alternative carriers more attractive.

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As part of its MyGenTel (above) self-service initiative, General Telecom lists carrier inventory at "GenTel Village."

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Loop-arounds (right) provide fast interconnects by passing local loops.