- The Washington Times - Monday, April 10, 2000

The opening of Washington's local telephone market has been bad for Bell Atlantic, good for its competitors and a boon to local businesses, in a pattern that is being repeated across the country.
While Bell Atlantic's dominance remains unquestioned, at least 25 competitors are nipping at its heels, taking bites out of the $6.8 billion pie for local calling services in the District, Virginia and Maryland.
The impetus for this activity is the Telecommunications Act of 1996, a landmark federal law that allowed local and long-distance carriers, as well as wireless and cable companies, to compete against one another.
During the past four years, hundreds of new companies nationwide have joined the telecommunications free-for-all. For the first time, many residential and commercial customers have a choice of local-service providers offering lower prices and customized services.
"We had no choice but to stay with one vendor" before 1996, said Angela Searles, an administrator in Hughes Network Systems' Information Technology group. Now the Germantown-based electronics company uses four carriers to handle its local telecommunications needs.
"It helps make our [tele-communications] infrastructure more reliable," Miss Searles said. "Sometimes even the big carriers can go down."
Miss Searles said she gets two or three solicitations per week from competing phone companies. The upstart carriers are gradually encroaching on Bell Atlantic's turf.
In Washington alone last year, competing firms controlled 7 percent of local access lines connecting businesses and homes to outside phone networks, up from 2.7 percent in 1998, said Phylicia Fauntleroy Bowman, executive director of the D.C. Public Service Commission.
She said the number of competing firms increased from 15 in 1998 to 21 at the end of last year, when they accounted for more than $50 million or 4 percent of local service revenue, up from $34 million or 2.7 percent at the end of 1998.
Carriers say Washington is one of the most desirable U.S. markets because of its sheer size, affluence and concentration of bandwidth-hungry organizations.
"It is extremely competitive," said Tim Germain, the local general manager for Focal Communications Corp., a Chicago-based carrier that entered the D.C. market in March 1999. Like many of its peers, Focal spent millions of dollars installing switches and building or leasing transmission lines.
"There's no better market in the country," added Charlie Thomas, CEO of Net2000 Communications Inc., a carrier based in Herndon. "The regulators are here … and it's good to be close to the [government] process. But mostly the economy in this area is just booming. This is one of the key hubs for telecom and Internet traffic."
This high-tech boom means lots of demand for telecommunications services everything from "plain old telephone service" to high-speed Internet access. Many carriers offer customers a full menu of services, including local, long distance, Internet access and data offerings.
Taking on Bell Atlantic is no easy task. Like the politicians here, it has the power of incumbency, and its marketing muscle is hard to beat.
Mr. Thomas said, "Bell Atlantic has tremendous brand recognition, and that's difficult to overcome."
In addition, almost all competitors rely on Bell Atlantic to some degree, by reselling its services, leasing parts of its network and locating equipment in its central offices.
"Bell Atlantic is at once our most important supplier and our biggest competitor. It's a weird re-lationship," said Michael W. Smith, regional marketing manager for Covad Communications Inc., of Santa Clara, Calif.
While many carriers manage to work out their hitches with Bell Atlantic, not all do. Covad is suing Bell Atlantic in U.S. District Court in Washington, claiming antitrust violations stemming from equipment location, pricing and other services. "They have not played fair in some cases," Mr. Smith said.
To fight Goliath, these Davids offer lower prices and a one-stop shopping, one-bill approach. They cede the very largest customers * the federal government, for example * to Bell Atlantic, but the fight is on for everyone else.
Many carriers go for small and medium-sized businesses, those with three to roughly 50 phones lines, a segment they say is underserved and overcharged by Bell Atlantic.
"The real large customers, the Fortune 500, typically have contractual relationships and discounts with Bell," said Brian Miller, the D.C. vice president of Dallas-based Allegiance Telecom. But the beauty parlors and bagel shops have no such pull, so they listen when competitive carriers offer prices up to 30 percent lower.
"We serve these customers face to face, which they may not get from the incumbent provider," added Howard Hempenius, vice president of marketing at E-Spire Communications Inc., of Herndon.
Bell Atlantic is not sitting idly by while competitors eat its lunch. It sells a host of traditional and high-end services to retain its customer base.
"There are a tremendous number of small businesses that have sophisticated communications needs," said Lee Self, vice president of market management for Bell Atlantic's general business division, which caters to small businesses of up to 250 employees. "Our first strategy is to ensure we have as broad a product portfolio as possible."
To do that, the New York-based company tailors a package of services to meet individual customers' needs, she says. Besides the traditional offerings of dedicated telephone lines and networks for connecting computers, it sells services in Web hosting, Internet-based business ap-plications and an on-line advisory of pending government contracts.
Some competitive carriers market to top-tier businesses. "It's a tougher sell. You've got more sophisticated customers," said Focal Communications' Mr. Germain. "You need to show these customers you can provide reliable services. Some [competing carriers] are having a hard time providing customer service … We all get lumped in together."
Mr. Thomas of Net2000 added, "It requires a more robust and diverse product set."
When it comes to products, the bottom line is connectivity. Customers want to call across town and across the world. They want to link multiple offices and telecommuters. They want to jump on the Internet around the clock. The faster and cheaper, the better.
"We see the need for high-speed connections moving down market as data applications become more pervasive and as e-commerce develops," said Mr. Thomas.
Fitzgerald Automall, an East Coast auto dealership, took the high-speed plunge last year. It subscribed to "digital subscriber line" (DSL) service, a fast-growing offering that connects businesses (and homes) to Internet service providers (ISPs) at super-fast speeds.
"We needed to increase bandwidth because we had too many devices coming across the same connection," said Craig Shaffer, Fitzgerald Automall's information technology manager. The company's mainframe computer was overwhelmed. Voice and data traffic were slowing down.
As a first step, Fitzgerald Automall replaced its dial-up Internet access with DSL service in January 1999. Through its Internet service provider, CapuNet, it bought DSL from Covad Communications. "It's been pretty solid. It's a lot faster than any 56K connection," Mr. Shaffer said.
Buoyed by that success, Fitzgerald Automall last October bought an entire DSL network, a private communications system that routes company traffic among 160 work stations at six auto dealerships, including six in Maryland and one each in Pennsylvania and Florida.
Fitzgerald Automall now has "tremendous amounts of bandwidth and manageability," Mr. Shaffer said. Faster traffic means higher productivity. And it's much cheaper. Fitzgerald Automall pays about $1,000 monthly for the new DSL network, compared with $3,500 for another digital data network they continue to use, according to Mr. Shaffer.
But the new system isn't perfect. "DSL is not a guaranteed connection," Mr. Shaffer said. While Bell Atlantic fixes technical problems within hours, Covad may take days, he said. The company uses its digital data network as a backup when DSL service is lost.
Mr. Smith acknowledges that DSL is not for "mission-critical" connectivity. But he adds that DSL's sheer speed and lower cost appeal to many firms.
"Even the most expensive DSL line is a fraction of what a [dedicated line] costs," Mr. Smith said. A single dedicated line costs $1,000 per month, compared with $100 to $500 for business-class DSL service. Covad doesn't sell directly to customers, but through 22 ISPs that operate in the D.C. area, including Cais Internet, Flashcom, UUNet and PSINet.
The D.C. telecommunications market will continue to grow and diversify as Bell Atlantic loses more market share to still more competitors, predicts Daniel Ernst, an analyst at Legg Mason Wood Walker. He pegs the carrier's business market revenue loss at 12 percent since 1996.
Competitors face difficulties, Mr. Ernst added. "The real challenge in this market is sprawl. Every time a new company opens up, they want to build near Dulles, away from other businesses. It makes it more expensive for [facilities-based] telecom companies to serve them." This geographic reality could hand an advantage to fixed wireless companies, such as Teligent Inc. and Windstar Communications, Inc.
"Although downtown is pretty well wired, new fiber (fiber-optic cable) hasn't reached everyone. "There's still a lot more to be done," Mr. Ernst said.


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