A CLEC Operations Consultant

This ISP CEO has returned to his original calling, being a consultant, and shows that even without reciprocal compensation, being a CLEC can bring in serious cost savings.

by Alex Goldman ISP-Planet Managing Editor [July 28, 2005]

We're talking to Michael Tague, president and co-founder of Lexington, Ky.-based American CLEC and also president and co-founder of the parent company, Louisville, Ky.-based Win.Net Business Internet.

The parent company was founded in 1990 and created one of the first e-mail products for Windows. "Then Al Gore discovered the internet," says Tague, "and of course what changed everything was the web. Windows started integrating everything." And nobody had to buy an e-mail program anymore.

Today, Win.Net provides hosting and business services in Kentucky and Southern Indiana.

American CLEC is a consulting business set up by Win.Net to teach other ISPs the lessons Win.Net learned when the company became a CLEC.

A fire under our feet
For years, ever since the Telcommunications Act of 1996, the company had been researching the potential benefits of CLEC status, but the company didn't become a CLEC because it could; it became a CLEC only when it had to.

"It took us five months," says Tague. "There was a fire under our feet." The company had just acquired an unprofitable ISP in the Frankfort, Ky. area. The ISP's telco costs were ruining it, but Win.Net realized that, with CLEC status, it could reduce the telco costs and make the Frankfort operation profitable. Of course, Frankfort, though the state capital, is smaller than Louisville, and was not the focus of the company's business.

Tague notes that telco payments and salaries are the majority of costs for an ISP. Generally, cutting telco costs is desirable; cutting salaries is not.

Nice surprises
The company was pleasantly surprised by the results of CLEC status. "Usually, in business, surprises are not pleasant," notes Tague. "Projects get to be more expensive, or take longer, or worse. But we were continually surprised as we went through the CLEC process at how beneficial it was, even though it was as hard as we'd been warned."

The largest town in the Verizon portion of Win.Net's Southern Indiana coverage area is Corydon, the state's historical capital, population 2,715, according to the wikipedia. Most of the company's Indiana coverage area is in SBC (Ameritech) territory, but Corydon is in Verizon territory. The company's main operations are in Bell South territory. "We are blessed to lived at the intersection of three incumbents," jests Tague.

But the company only needed to colocate with two. The company uses the local access tandem for Corydon—which is in SBC territory, obviating the need for a colocation with Verizon, an unanticipated benefit of CLEC status.

The right price of costs
The benefit most ISPs are looking for is reduced costs, and Tague says he knew PRI prices would drop, but had not considered other efficiencies. PRI costs dropped from about $800 for an ILEC PRI or $400 for a CLEC PRI to about $120. But in many cases, PRIs were not necessary. at all.

"We get IMT circuits (Inter-Machine Trunks), which are technically identical to PRI lines, but without the D channel (control channel). You don't need to plug them into a phone switch and then into a modem bank—you plug them directly into your modem bank. The trunks are generally T-1s or T-3s. In fact, the 't' in T-1 means 'trunk'. In phone company jargon, 'line' is the customer side and 'trunk' is the back end, but eventually there was demand from big customers from trunk-like services. Also, our T-1s get provisioned in 10 business days."

The signaling comes over SS7 to the modem banks, which are renamed "media gateways" because they are controlled by the Media Gateway Control Protocol (MGCP). Usually, to take advantage of this service, a company would need to own its own softswitch, which is very expensive, "but we're using VeriSign," says Tague. VeriSign's SS7 products are the result of the acquisition of Illuminet.

Then there's T-1 prices. Tague says that UNE T-1 prices are well under $100 per month in urban areas—after you do the interconnect agreement, buy the equipment, and install. Installation itself is not cheap because of RBOC clout. "They managed to preserve about $12,000 in engineering fees."

Maybe it's because they've never worked with a CLEC before? Just kidding.

One oddity is Sprint. "Sprint is the only ILEC that allows colocation to non-CLECs. So Sprint doesn't always charge, but if you became a CLEC you could suddenly find yourself paying that $12,000."

Actual T-1 costs, after figuring in that $12,000 fee plus equipment, are higher than the ultra low prices at the center of urban areas, but when you're talking about buying a T-1 for $28 or $38 per month, you can sell low and still recoup your costs.

The Southern Indiana Chamber of Commerce was up in arms about the lack of broadband service. Being in an Ameritech area is not good, but being in one of Ameritech's most poorly served areas is particularly bad.

"They have DSL but only in a very narrow coverage area," says Tague. "So we put in an initiative with the Chamber of Commerce and called it 'extended reach DSL'—our business DSL product, where available is $80 per month, and this is priced at $199 per month. All of a sudden you have universal broadband. Our only problem is that our prices are so low. People are used to paying $600 per month for a T-1 so their first question is, 'what's wrong with it?'"

1. A fire under our feet

>2. Headaches, not just cuts and roses

3. It's not a recipe, it's a way of life