Editor’s Note: PHONE+’s August 2004 cover story, prepared in collaboration with consulting firm The Northridge Group Inc., in advance of our jointly sponsored workshop - The Evolution of the UNE-P Provider - at the recent CompTel/ASCENT Convention + Expo, presented real-world scenarios for UNE-P migration for POTS providers. In the intervening months, some of the assumptions, market realities and technological approaches have changed, resulting in a revised outlook for UNE-P migration. This follow-up article focuses in particular on strategies for successfully moving to UNE-L.
Can a consumer CLEC make
the transition off the embattled UNE-P and still be financially viable? That’s the $64,000 question.
According to Sue Platner, CEO of The Northridge Group Inc., the answer is a qualified “yes.” Such a transition, she explains, requires a minimum share of lines per central office and capital to make it work.
To reach her conclusions, Platner has compared - using numbers based on operations in a Chicago LATA - the merits of several alternatives, including “bring your own broadband” (BYOB) VoIP services, UNE-L with TDM switching and UNE-L with a softswitch, against proposed commercial UNE-P rates. Her revised analysis (see table, Comparing the Alternatives) brings in another option: UNE-L with softswitch and broadband loop carrier (BLC), which enables provision of DSL as well as voice services.
The BYOB VoIP model a la Vonage has been a hot topic with press and pundits as an alternative to UNE-P, but recent price wars (see related story) have called its viability into question. While operational costs can be lower than traditional facilities-based service models, Platner says retail prices that now hover around $20 per month for local and long-distance service erode margin potential for such providers.
Andre Temnorod, president and CEO for VoIP provider Broadvox Inc., agrees. He says he no longer believes it’s viable for standalone companies to be in the residential VoIP business. “Maybe [it is for] AT&T with its marketing dollars, but I don’t believe [players like] Vonage can survive in the market.”
“It’s a no-brainer for the cable company to take away the customer for even a higher rate [than the customer is paying to Vonage or someone else.]”
In response to the changing dynamics, Broadvox, Temnorod says, is realigning its business away from consumer retail toward wholesale services. One target is resellers seeking a transition from UNE-P that can leverage Broadvox’s platform in combination with other services.
“You either do both [voice and broadband] or you do none. I don’t think there is a middle ground,” says Haji Munshi, director of strategic marketing at CIENA Corp., aptly describing the challenge standalone providers face.
Indeed, the analysis from The Northridge Group supports the power of offering voice plus DSL. The net margin performance of UNE-L with softswitch and BLC improves when DSL is provided to the end-user customer. According to the analysis, the incremental profit for voice with DSL is driven by better efficiencies and software-enabled capabilities provided by a BLC. Specifically, a BLC allows a CLEC to provision DSL from a centralized location via software rather than to dispatch a service technician to each colo cage every time a customer orders DSL service.
In addition, a CLEC now can serve economically smaller-end offices. In the Chicago LATA used in The Northridge Group study, the minimum line-share threshold per end office required to break even is reduced by nearly 20 percent when compared to a voice-only CLEC, the analysts calculate.
Platner says some of the data in this scenario was provided by CIENA, which makes a BLC. CIENAs CN 1000 is a next-generation access platform wherein every line is voice-, data- and video-ready and activated remotely. “The fact that we can turn up and turn down services remotely is very attractive,” says Gary Bolton, vice president of product marketing for CIENA’s broadband business group, noting that in addition to this opex savings, the CN 1000 matches revenue to capex since service providers don’t pay for the DSL service until they have subscribers.
The CN 1000 also fits into existing TDM networks while offering line-by-line migration to packet-based networks. Only software activation is required to make the shift.
Bolton says the opportunity to assist in-transition UNE-P resellers came on the company’s radar screen last spring when the courts signaled a decision was on its way. “It was not a market that we were chasing; it was actually a market that came to us,” he says.
Nevertheless, CIENA has taken up the cause and it has done some economic modeling of its own . “The advantage that CLECs have by going with the UNE-L approach, and specifically our product, is that they’re not tied to the legacy solutions and legacy platforms, nor are they tied to legacy operations,” says CIENAs Munshi. “It is the combination of next-gen equipment, as well as next-gen operations that helps drive the profitability of the business case.”
Being able to add data is a ”very, very important incentive” to migrate from UNE-P to UNE-L, according to Larry Williams, CEO and chairman at ITC^DeltaCom Inc. “We would be able to give the customer a better bundle if we were able to move them to our facilities,” he says. “We could give them DSL or voice over IP eventually or whatever.”
One of the obstacles is the conversion process itself. In The Northridge Group’s analysis, $28 per line is assumed to switch from UNE-P to UNE-L. While a significant cost, it does not reflect duration of the process, which can take two to four weeks when done manually.
ITC^DeltaCom executives are hoping to cut that down to three to five days with automated software from Florida Digital Network Inc., the company it announced plans to acquire in September. The deal was expected to close by the end of the year.
“It’s that system and process that we expect to expand through our territory, which would allow us the option to move more quickly and less expensively to a UNE-L product,” says Williams, who notes that ITC^DeltaCom quit supporting UNE-Ls long ago because of the inefficiencies and overhead required by the installation process. He estimates the savings to be around 50 percent using FDN’s automated process.
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Assumptions: UNE-L unit cost CLECs pay RBOCs per month is $15; monthly ARPU (voice and DSL) is $80; central office size is 30,000 lines; market share is 4 percent to 13 percent; and annual churn is 40 percent. Source: Ciena Corp.
Mike Gallagher, CEO of FDN and expected president of business services for the newly merged company, says his company developed its Rapid Integrated Ordering system, or RIO, about six years ago and has been refining it ever since. The process eliminates human intervention from line qualification to local service request to number translations in FDN’s Class 5 switch. The only manual steps are live calls out to Bell reps and the customer at cutover to make sure the lines are working. Once confirmed, a single mouse click sends the order into the billing system.
RIO already is compatible with BellSouth and Verizon systems, but would take some tweaking to work with SBC or Qwest, says Gallagher.
“That’s not the focus day one; it’s just to get all the ITC^DeltaCom UNE-P lines where we can,” he says.
Williams says the transition decision is not as clear-cut as it might seem. “If you had unlimited capital, you’d probably put [UNE-L colo facilities] everywhere …, but that doesn’t make practical business sense,” he says. The company already has some 250 colocations and picked up another 200 with its recent acquisitions of FDN and Network Telephone.
“It still doesn’t cover the full footprint [we have] in the BellSouth territory, but it covers quite a few of the places we sell UNE-P today.”
|Comparing the Alternatives
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Williams says ITC^DeltaCom seeks to transition away from the resale model as much as it can. He estimates today $100 million of the company’s $800 million in annual revenue (after the merger) is from UNE-P. The post-merger integration plan includes the UNE-P-to-UNE-L conversion question. “There will be a lot of considerations related to that,” says Williams. “One of them will be the cost of additional capital required to make those conversions. The No. 1 driver will be what kind of arrangement we are going to have on a go-forward basis from UNE-P.”
He is referring not only to the possibility of commercial agreements with the ILECs but also clarity from the FCC on the transition period.
“Until all of those rules are finalized, we’re going to be sort of flexible in the process or the planning. We’re going to have the plan ready, but it’s going to be optional on how we implement it,” he says, noting a reasonable commercial deal would enable the company to allocate capital to other projects than putting in colos for UNE-L.
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November 21 2019 @ 17:50:32 UTC