The media tends to portray the CLEC strategy as monolithic, each player has a certain amount of fiber and leases the rest via special access from the ILEC. But it is quite interesting just how wide ranging the various strategies out there are.
For instance, Cogent (CCOI) has metro fiber IRUs connecting up some 1100 buildings. They very publicly state that their main desire is to sell deeper into that footprint, discouraging their own salesforce from spending much time off-net. But they sell only IP access to these customers, no phone services of any sort, not even VoIP. This strategy leaves them less vulnerable to ILEC pricing, but on the other hand it leaves their revenues much smaller, being somewhat of a one-trick unmanaged IP pony.
On the other end of the spectrum is Paetec (PAET), which until its recent acquisition of McLeodUSA controlled basically no fiber at all, leasing everything from others. But they sell everything to them, which means they have lots of revenue (great!) of which nearly all is vulnerable to ILEC special access pricing changes (hmmm).
In the middle you have TW Telecom (TWTC), which starts serving new buildings with special access and only brings them on-net later as the traffic justifies doing so. This seems like a smart approach, and TWTC is often thought of as the gold standard in this sector. Their focus is the SME, so of course they still use lots of special access even though they have 8,355 buildings on-net.
Then you have players like Level 3 (LVLT), which seems schizophrenic in the business market sometimes. They want to serve only high margin on-net opportunities, but not the small ones, and not the ones needing managed services, and not this and not that. If you limit yourself to on-net buildings and sell deep into them (e.g. CCOI) or if you limit your target customers but sell anywhere (PAET) then ok that makes some sense, but if you limit your target customers *and* the buildings you will sell to, you seem to limit your growth potential and your depth per on-net building can never get very high. Just how many perfect customers are there per building?
XO is another hard one to figure out. XO has 3000 on-net buildings, but seems to have little interest in adding more. They don’t seem to focus on this footprint at all, and depend heavily on special access while complaining loudly to the FCC about it. But then their strategy has been inscrutable (or perhaps inexplicable) for years.
Zayo, one of the newer entries into this market, is employing a brand new strategy – fully separating the entity (Zayo Bandwidth) that lights new buildings from the entity that sells anything other than basic access to the SME (Zayo Managed Services). This is attempt at a ‘best-of-both-worlds’ solution, where both entities maintain a tight focus on their target markets but sit on a common physical infrastructure, with the tradeoff perhaps of some overlapping costs. Zayo’s progress should be interesting to watch.
There are others of course, but my point is that these companies may seem similar and it is easy to lump them together – but they are really very different. But in this buzzword-laden sector it is often quite hard to see the differences.
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