Solving Telecom’s Network Gap

Six traders in Suite 2200 of 61 Broadway spend most of their day on the phone aiming to broker deals among carriers needing connectivity to buildings in the Big Apple.

Last Mile Connections, a privately held company employing these traders, is attempting to solve the challenges telephone companies face when they need to extend their networks to a telecommunications hub or a commercial building overflowing with bankers, lawyers, telemarketers and other communications-centric business people.

The nascent solution Last Mile Connections has introduced is not altogether revolutionary: physically bringing together an array of wholesalers and telephone companies at 60 Hudson St. – Manhattan’s king-sized telecommunications hotel – so they can buy and sell pieces of their network. Nevertheless, the trading concept to solve the last-mile crisis is relatively novel.

Selling the Last Mile

Imagine you are a provisioning manager at XO Communications Inc. and need to get from 60 Hudson St. to 85 Broad St., where Goldman Sachs & Co. is based.

You could call up Verizon Communications Inc. But the circuit is going to cost more than you want to spend, and Verizon may not be able to activate it for several weeks. So you tell Mark Wallhauser, the director of the local loop trading desk at Last Mile Connections, what you are willing to pay for that connectivity.

Then Wallhauser, who includes a markup for his company in the price, rings a Time Warner Telecom executive and offers him $200 a month for a T1 circuit. The Time Warner exec has one hour to make a decision, and bartering is not an option.

If the exec needs more money for the circuit, then Wallhauser asks the next supplier whether he will make the deal. If no supplier is willing to provision the circuit at the specified price, the order goes unfilled and XO most likely will be calling Verizon. There is no second round of negotiations.

The actual trading floor has been active since October, and Last Mile Connections president and CEO James Martino says about 50 transactions have been closed in the last 60 days.

All participants sign a two-page standard contract, which includes service level agreements, with Last Mile Connections. Though fifty-five companies have network equipment located in Last Mile Connection’s space on the 9th Floor of 60 Hudson Street, 11 are the key suppliers to the local loop exchange. Last Mile Connections has not publicly disclosed the names of these companies.

Feeding the Enemy

The exchange is designed to stem the enormous costs associated with accessing the last mile, and consequently, threatens to limit the Bells’ easy pickins wholesale revenue. Citing quarterly reports, Martino says competitive phone and data providers spend up to 70 percent of their revenue to access the last mile – that last piece of network extending to a building.

But that is not the irony.

Nine times out of 10, Martino says, a provider buys the access from the Bell, rather than another competitive phone company. The CEO likens the situation to a war enemy distributing 70 percent of his rations to the other side of the front line.

Last Mile Connections aims to change that, or at least, keep the food rations between two rivals that have a mutual disdain for a larger and more formidable enemy: the Bell operator.

“Maybe everyone should come clean and put on their business cards that they are a Verizon reseller since much of the circuit or much of the product they sell is made up of the Bell local loop,” Martino says. “At least kind of keep it within the [CLEC] space so you are not continuing to hurt yourself.”

Completing the Nexus

What Last Mile Connections seeks to accomplish in New York City is part of a larger goal: solve the last-mile crisis nationwide, connecting 20,000 end user buildings, which represents an estimated 75 percent of the market share, according to Martino.

The company is set to launch an alliance program among competitive local phone companies and long-distance carriers to achieve that goal, and the board of directors is scheduled to meet this week to discuss the matter, Martino says.

“We believe the last-mile alliance is one of the few if not the only solution for the industry in terms of emerging from this thing [the telecom meltdown] in a strong financial position,” he says.

Last Mile Connections not only has a proposed solution, “We are bringing the money to the table to make it happen,” according to Martino, whose company is funded by One Equity Partners, the private equity arm of Bank One Corp.

The company anticipates issuing a news release in three to four weeks to outline details of the alliance, Martino says.

Trading Minutes

Meanwhile, Last Mile Connections will continue to operate its last mile exchange as well as another business: an international switched minutes exchange, which it purchased from Band-X Inc., the American subsidiary of the U.K.-based Band-X Ltd.

Martino, who says he founded Band-X’s U.S. exchange, did not say how many minutes are being routed each month. But he says there are 42 members trading on the exchange.

Last Mile Connections has not revealed the names of the participants, keeping consistent with the policy of its competitor, Arbinet-thexchange. Martino claims his minutes exchange is more hands-on and people-oriented than Arbinet’s. In contrast, Arbinet has made a larger investment in automated systems for minutes trading.

“I don’t wake up every day driving everybody to compete and to beat Arbinet,” Martino says.

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