The CLEC Marketplace Today (cont'd)

Consolidation Landscape: What's Yours is Mine CLECs also have to respond to current ILEC consolidations, including the AT&T/SBC, and Verizon/MCI mergers. Analysts say the resulting entities will dominate the market for enterprise customers.

To cope, CLECs are merging. "We have about 60 carriers today, down from 200 three years ago…today's carriers 'have learned the business' and are doing what it takes to make a go of it, however, there is still a little more consolidation that needs to take place," notes Clausen.

Don't expect CLECs without networks to survive this consolidation. Take KMC, which is selling its CLEC operations, comprising 10,000 customers in 37 markets, in separate deals to CenturyTel and TelCove. "KMC was perhaps uniquely disadvantaged in the fact that we did not have a backbone; we had short-term leases for any backbone services we needed that we'd resell to other customers," says Falvella.

VoIP No Silver Bullet
Another factor often linked to the future health and success of CLECs is VoIP. "From a CLEC's perspective, Voice over IP is a high-growth market that offers them some potential to get good market penetration," says Kelly.

And despite the promise of VoIP, "one of the challenges for the CLEC industry," says Weichselbaum, "is turning features into something relevant for the customer." For example, "the industry has really lapsed into talking about IP without talking about why you should care." Selling points, for example, are that successful IP providers will not only be able to offer better services, but at a lower cost. Also expect a learning curve for all involved. "Anyone with a checkbook can buy the technology, but what you can't buy is the experience. There aren't many people who've been running large-scale networks for IP. CTC has been doing it for six years, and I can tell you it's not easy."

Despite CLECs' head start on the VoIP market, their dominance therein or continued overall success is far from assured, "…they can't afford to putz around…a lot of them already offer the service, and there are vendors who have made it almost a turnkey service," says Clausen who believes CLECs will still be an important part of the business-telephony ecosystem, with larger CLECs serving national markets, and sometimes verticals therein. "They will represent competition; they will help businesses and consumers. Just don't forget, 'the Big Boys' are still formidable competitors. They've been here for a hundred years, and there's a reason."

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