New Directions for UNE-P CLECs

Z-Tel Technologies Inc. typifies the evolution of competitive local phone companies as they move to continue supporting millions of consumers and small businesses in the wake of changing federal regulations.

For months, Z-Tel has been planning to deliver voice services to consumers and small businesses over high-speed networks, diminishing its reliance on the infrastructure controlled by BellSouth Corp. and the other regional Bell phone companies.

The Tampa, Fla., company even announced plans in 2004 to change its name: The new moniker is Trinsic Inc.; shares are slated to be traded on the NASDAQ under the symbol, TRIN.

On Dec. 10 - five days before regulators voted to phase out rules granting local phone companies government-mandated wholesale access to the regional Bell networks - Trinsic announced the initial rollout of an IP-based network designed to deliver voice and data services to residential and small business customers. Trinsic COO Frank Grillo says the company activated the network in Tampa and expected to implement it in New York City in mid-January.

Z-Tel had been the poster child for the government-mandated UNE-P used to deliver service to millions of residential and small business customers over the Bell networks. The company leveraged the platform to help some of the biggest long-distance providers - namely MCI Inc. and Sprint Corp. - compete with the incumbent phone companies in the local residential market. Z-Tel also has offered directly local phone service to consumers and small businesses over the Bell networks.

Regulatory developments have impacted dramatically the retail and wholesale strategies.

A federal appeals court overturned the UNE-P regulations in March 2004, and in a move widely anticipated, the FCC voted before the holidays to phase out the platform over one year.

The developments have left competitors scrambling to find alternative networks. Companies also have entered commercial agreements with the Bells to access their networks in place of the UNE-P arrangements.

Trinsic has done both, beginning to deliver services over an IP network and striking an accord with Qwest Communications International Inc., the Denver-based Bell in 14 states from Iowa to Washington. The pact announced in October replaces the UNE-P and preserves access to Qwest’s network until July 2008.

Compared to UNE-P, Trinsic says it will eventually have to pay an increased monthly charge ranging from $2 to $7 per month depending on the type of line provided by Qwest and the state within its territory. In contrast, Washington insiders have predicted the rates local phone companies like MCI pay for access to the Bells residential networks could increase by $7 to $11 per line once the UNE-P is no longer available.

The arrangement between Qwest and Trinsic was based on a commercial agreement reached between Qwest and MCI.

MCI reports 3.5 million customers subscribe to The Neighborhood, its unlimited local and long-distance calling plan.

The company offers The Neighborhood to residential and small business customers exclusively over the incumbent networks controlled by the four Bells. MCI also has sought alternative networks to reach homes. A day after federal regulators voted to phase out the UNE-P, McLeodUSA Inc. announced a three-year wholesale agreement with MCI to help the long-distance giant continue offering local phone service to consumers.

Under the agreement, MCI will begin migrating at least 200,000 local phone lines onto the McLeodUSA network in the first quarter of 2005, with a goal to complete the transition by the third quarter, according to Cedar Rapids, Iowa-based McLeodUSA. McLeodUSA did not say how many total lines MCI planned to migrate onto its network. McLeodUSA leases the Bells’ local loops at regulated rates to reach homes, but predominantly uses its own network.

“This agreement is designed to help us reach customers in the McLeodUSA service area through a facilities-based approach,” says Wayne Huyard, president of U.S. sales and service for MCI, in a statement. “As the regulatory environment becomes more difficult and we continue to seek alternatives to UNE-P, this kind of relationship can be mutually beneficial.”

Other local phone companies are finding different ways to bypass the Bells’ switched telephone networks. MetaSwitch, a softswitch supplier - representing an alternative to legacy equipment installed to route local calls - announced in December that two service providers are using its gear to continue supporting customers: Utility Telephone and PCS1.

PCS1 provides local and long-distance service to small businesses and has used the UNE-P to build a customer base, MetaSwitch reports, but the company also has been pursuing a means to deliver service over its own facilities. The telecom provider supports roughly 75,000 lines, according to MetaSwitch.

“The FCC’s decision did not come as a surprise. We have been preparing for this day for more than six months,” PCS1 CEO Devin Semler stated in a MetaSwitch news release a week after the FCC ruling. “Our downtown Los Angeles switching center, with MetaSwitch at the core of our operations, is now fully commissioned with both VoIP and TDM services hooked up to the PSTN.”

“Our plan from here is to transition our existing customer base during the first half of 2005, and then to progressively expand our distributed softswitch network with additional MetaSwitch media gateways,” he added.


BellSouth Corp.
MCI Inc.
McLeodUSA Inc.
Qwest Communications International Inc.
Sprint Corp.
Trinsic Inc.
Utility Telephone
Z-Tel Technologies Inc.

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