Posted: 4/2003
Can CLEC Cooperation Break the Last-Mile Bottleneck?
By Tara Seals
Martino's dream is to create a national alliance of CLECs and IXCs, with a detailed model for avoiding the Bells' last-mile bottleneck through interconnection of the alliance members. By physically bringing together an array of wholesalers and telephone companies' fiber, last-mile connectivity can be traded -- those that have built it out to a desired building can offer capacity in exchange for access to another building where they may not have a footprint. By thus avoiding the incumbent, Martino says competitive players can save billions, since hefty access payments to the Bells average 70 percent of access costs.
"You don't have to read 'The Art of War' to figure out you're going to lose [under the current model]," says Martino.
Martino's vision requires buying services from other CLECs instead of the RBOC. "So the result of that is significant billions of dollars that flow from CLECs to RBOCs cease and start to go from CLEC to CLEC," says Martino. This redirection of cash flow gives the competitive industry more money and long-term viability, he adds.
"Disruptive events [like this] paint a brighter future," says Martino, "and can save the dreams and desires of the competitive telecom industry."
The key to the proposed national alliance working is meeting carriers' stringent business case for deploying fiber to a building. That requires a demonstrable return on investment.
"You need contracts with customers in place so as to guarantee payback, and it's hard to meet the hurdle," says Martino. "It used to be that people built on spec, making it work on future expected revenues. But now, they need an under-nine-month payback guaranteed, and very few business cases pass that hurdle, so they need signed contracts."
Building out is an expensive proposition, and so is the sales effort. Martini says it averages a $200,000 outlay to capture 5 percent of a building's business, using one sales force.
Last Mile Connections' system gives participants a better proposition: Several sales forces coming together and capturing 50 percent market share for the building, which will offer a seven- to eight-month payback cycle. Last Mile Connections' patent-pending technology knits together different providers' systems for clearing, payment, revenue, orders, pricing, specs for buildings to qualify and returns, allowing companies to work together towards building penetration -- in effect, more companies will be selling the footprint provider's capacity, and everyone wins.
"So you grow the marketplace with minimal risk and an understandable payback on a building-by-building basis," says Martino. "This allows you to make the numbers with Wall Street, and everyone starts to look healthier more quickly. Our solution makes for a new investment vehicle for Wall Street to come back in."
Last Mile Connections raised $150 million in funding through One Equity Partners, the private equity arm of Bank One Corp., and says it will actively fund some of the buildouts created through the alliance.
"We will bring cash into a marketplace starved for cash," says Martino. "These charters in the end-user buildings look like individual investments with an easy-to-understand ROI, so we'll provide financing to alliance members to add and upgrade buildings, which opens up a whole new door of financing. Today there's not a tremendous appetite out there."
The goal is to create a 20,000-building, nationwide network, which means a "predictable cost structure and shorter provisioning cycles," says Martino. Last Mile Connections has been holding a series of high-level meetings to get the alliance going, and has test-driven the idea with its Local Loop Exchange in New York City, a trading floor for local loop access to more than 650 end-user buildings connected with fiber by a CLEC.
| Links |
| Last Mile Connections Inc. www.lastmileconnections.com |
