Competitive local exchange carriers (CLEC) will have to move to customer-centric business models and offer customizable services in order to survive. A recent FCC order declined to force ILECs to provide unbundled access to packet switches and DSLAMs, putting many CLECs at a disadvantage even as it encourages universal broadband deployment.
Shortening local loops helps ILECs at the expense of CLECs, who tend to focus on reselling basic services; the highest potential CLEC profit margins come ironically from facilities ownership. Successful CLECs will offer differentiated services that satisfy customers’ real needs, something carriers have failed to do to date. NO single service can satisfy all customer needs. Mass customization strikes a balance between empowering specific customer segments. Subscriber management in the network core is not a viable model when carriers seek to tailor service packages extensively, and future differentiation will begin at the network edge.
In the new regulated environment, CLECs need to evolve to a customer-centric business model.
ACLEC’s success is contingent upon its access to customers. It achieves this by interconnecting to the ILEC network through either colocation of equipment or access to UNEs (unbundled network elements). Access to UNEs is a more attractive option because it permits a CLEC to leverage existing infrastructure for rapid access to customers.
To further clarify its original interconnection directive, the FCC released an order, FCC99-238, which took effect in May. In the interest of encouraging the universal deployment of broadband services, FCC99-238 restates the commission’s policy on unbundling, but also exempts all new packet-based network infrastructure deployments from unbundling restrictions. Specifically, the FCC declined to impose an obligation on ILECs to provide unbundled access to packet switches and DSLAMs.
At first glance, the order’s clarification on loop and subloop unbundling is highly attractive to CLECs–especially the inclusion of xDSL-capable loops–because it strengthens the service provider’s ability to penetrate the broadband access market. However, as a result of this FCC directive, ILECs will likely accelerate ATM-based access infrastructure deployments that will not be subject to unbundling. In addition, ILECs are expected to mass-deploy high-bandwidth, broadband infrastructure that will extend their networks closer to the customer premises, effectively shortening the local loop and protecting packet-based network investments from arbitrage.
As surprising as this aspect of the order may be to those who have viewed the FCC as the greatest proponent of competition, the commission’s primary focus is to encourage universal broadband deployment–something that competition was expected to achieve but which, by and large, it has failed to effect.
Shortening the local loop is detrimental to the CLEC business model, especially because many CLEC operations are founded on reselling basic voice and data services. More significantly, according to the Strategis Group, CLECs are operating on an average of negative-71 percent gross margin, spending a significant amount of revenue to subsidize access charges and incurring steep capital costs for network buildout.
Ironically, the same research shows that facilities ownership gives CLECs the highest potential profit margins. This raises the question of how a CLEC can create a business model that is both manageable and profitable.
As the effects of the new regulation ripple through the market, the CLECs’ access costs will skyrocket as fewer network elements are made available to them. Furthermore, the acceleration of ILEC buildout will outrun that of facilities-based CLECs. To survive in this new environment, CLECs must recognize incremental revenue through the introduction of new services. At the same time, they must evolve their business model from one focused on network buildout to one that is truly customer-centric. The key will be achieving this goal while maintaining control over facilities.
Offering differentiated services is not a new concept, but many service providers marketing them fail to satisfy customers’ real needs. The cost of provisioning highly differentiated services severely limits the extent to which providers can offer their customers services of great value. As a result, differentiated services on the market today are primarily high-speed broadband services.
While services are critical to differentiation, not all customer needs can be satisfied by the same ones. For example, financial institutions require high, but short-term, bandwidth during the night for data transfer. A medical center frequently needs short bursts of on-demand bandwidth during the day to transfer patient files from one institution to another. Ideally, each of these customers should have access to:
- On-demand bandwidth and guaranteed bandwidth allocation;
- Guaranteed QoS for services to which they subscribe, based on their perception of need;
- Per-use billing.
For CLECs, the key to success is mass customization of services–packaging services tailored to unique vertical small and midsize business markets without sacrificing the ability to rapidly deliver those services to a broad customer base. With mass customization, CLECs can afford to offer tailored services to each vertical market within a large addressable market base. That market could include small and midsize customers from vertical markets, such as the hospitality, legal and financial sectors.
How can vendors and providers enable the mass-customization approach to service delivery? Mass customization is the ability to strike a balance between identifying and empowering segments of similar customers to allow them to select and customize their services dynamically, on-demand and cost effectively.
Current approaches to service differentiation rely on intelligence such as subscriber management in the network core. With this method, the access and customer portions of the network offer no intelligence. This forces the core to manage a great number of elements and logical functions at once, which results in a failure to provide security, scalability and QoS across the access network.
This model falters when carriers seek to differentiate their customers because each uniquely tailored service package represents a large additional core investment. As a result, the core becomes a behemoth of elements and functions that must be duplicated for every new service type.
Differentiation must begin at the network edge: the customer premises. But in today’s typical access network, traffic from tens of thousands of subscribers and applications is funneled toward a single POP. This funneling challenges the relatively few intelligent network elements in the core. It creates bottlenecks upstream and downstream and a heavy burden of provisioning per element.
To successfully achieve mass customization, four key capabilities are required in the access network, including:
- The ability to provide quantifiable and granular QoS on a per-customer basis, starting from the customer premises;
- The ability to streamline the provisioning of tens of thousands of PVGs (permanent virtual circuits) on a single network element;
- The ability to provide application-level transparency and security across the network;
- The ability to treat each customer as if the network is its own.
The access network must, therefore, be treated differently from the core for it to perform as demanded. The above capabilities are achievable with a network architecture like that shown in Figure 3. Such an architecture:
* Distributes intelligence to the customer premises, thereby balancing and scaling access network functionality and costs, and alleviating core bottlenecks;
* Provides a point of convergence for all network functionality, creating service-awareness, and streamlining operations and provisioning on a common platform.
A services-aware access network functions as a collection of virtual wires, extending core network services to an end user’s network or devices. This approach allows service providers to focus on marketing and selling services rather than becoming mired in the network infrastructure itself. It also minimizes provisioning and its associated costs, making mass customization and customer differentiation feasible in business terms.
The New CLEC Paradigm
Just a few years ago, low-cost long distance and high-speed Internet access were the creme-de-la-creme of CLEC’s offerings. Today, market demand for customized services and the rapid change in the regulatory environment means that service providers must look beyond simply providing a fat pipe.
As the definition of service moves into the realm of customized applications and real-time billing, so too must the approach to internetworking begin to focus on services rather than simply transporting a greater built of traffic. Today, broadband access is fast becoming a hindrance for CLECs. Improving the value of the services that can be enabled across these high bandwidth conduits is where the CLEC’s opportunity lies.
Understanding and architecting the access portion of the network for the services era is key to successfully delivering services from the core to the end user. The access network has unique requirements from the core and must be architected to support services. Providers that will become near-term leaders and enjoy long-term success will deploy a network solution that supports services-focused business plans.