I had a meeting with a potential client the other day and he asked me how my prices can be less than the phone company, "how do you make money Mike?" He wasn't the first person to ever ask me this question and I doubt he will be the last so I thought it a good idea to talk a little about how this industry works.
The place to start would be the Telcom Act of 1998. Without bogging down in details, the United States government passed a law requiring the local Bell operators to allow access to their network so that other companies can compete. So lets do a couple quick Definitions: RBOC, Regional Bell Operating Carrier. In short the country has "territories" assigned to specific providers. Here on the east coast we have Verizon that is our RBOC. The west coast is mostly At&t and you also have Qwest filling out some of the west coast and parts of the Midwest. This is important because in these areas that specific RBOc is responsible for being the phone company. They have specific tariffed pricing and they are required to provide some sort of service to virtually every location in their territory. You will also see them referred to as the ILEC, the Incumbent Local Exchange Carrier. This second name is much more common and has greater relevance because every one else is considered a CLEC a Competitive Local Exchange Carrier. To add another layer, Verizon can be the ILEC on the east coast and can operate as a CLEC everywhere else. Confused? good... Now we can proceed.
Now to be clear, before 1998 it was not "illegal" to offer services in competition to the RBOC, it was just a real pain in the neck. If you wanted to offer someone service you would have to build your own separate network ( permits, tearing up the streets, buying fiber and gear etc) and after all that was done the RBOC still "owned" all the phone numbers. So the telecom act was important because it allowed other companies the right to access the RBOCs network and then rent space to set up their routing and switching equipment. This was a much lower cost and efficient route for creating a network and servicing customers.
So here is a quick rundown of how things are mapped out. You first start with a LATA: Local Area & Transport Area. This tends to be a large chunk of a given state and covers what appears to be a fairly random coverage area. Looking at a LATA map is not unlike looking at a map of your state. For the most part, no clear straight lines. Then each LATA has many central offices that services specific areas. Think of a central office or C/O as a county within your state,. Again, somewhat random but they are static (for the most part).
"Why is all of this important to me as a telecom customer Mike?" on the day to day stuff, it isn't. But if you ever consider moving or opening a new office a whole host of things come into play. First, is that these C/O's and LATA's all service specific areas and specific phone numbers. Depending on your provider of choice this can mean paying a premium to use certain numbers. Let's say your office is in the heart of a major metro city and you are moving to a business park just outside of city proper. There is a very good chance that you moved to an area served by a different C/O and possibly even a different LATA. Faced with this you may have to A) pay a premium to keep you phone numbers or B) choose another provider altogether.
Lets adress A) first. when you move from one central office to another the RBOC will charge you a foreign exchange fee as a premium on top of your basic line charges. The main reason for this is the calls are still being routed through the old C/O and their are costs associated with routing all in and outbound calls through two C/O's instead of one.
As for option B) the CLEC's offer very competitive pricing but they are also very specific in their service areas. So while your current provider may do a lot of business downton they may not have built their network to service the suburban area you moved to because there were not enough business opportunities to justify installing gear in that specific C/O. In other words, CLEC's are normally built on a porfit model to determine where they can make the most money with the least amount of equipment.
In some ways the industry has come full circle. The RBOCS were promised (via the Telecom act) to be able to sell long distance service again, a feature taken from them in the early 80's when Ma Bell was broken up and the Baby bells or RBOCs cam into existence. So now your local phone company can offer you local & long distance on one bill from one carrier. In addition, many enterprise level companies have grown tired of dealing with the RBOC's for their needs and are now looking to nationwide level CLECs to bring fiber directly to their place of business, thus bypassing the RBOCs and giving them truly one company to deal with. For the SMB customer you are going to deal primarily with the RBOC and a regional niche CLEC that offers all services to a very specific C/O or C/o's within a Specific LATA or small cluster of LATA's. There are some exceptions to these rules. The cable companies have created both SMB and enterprise level telephone and data solutions that target specific regions and bypass the RBOCs. In response, many of the RBOCs have initiated products to cut into the TV market of the cable companies.
All seems rather cannibalistic... dontcha think?
Thanks for reading today,
Mike Shelah
BTW, follow me on twitter @mistertelecom
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