CLECs could not be blamed for feeling deep ambivalence about carrier services. After all, it's a group of products they largely have to buy from their ardent competitors, the regional Bell operating companies (RBOCs).
The buying and selling of unbundled network elements (UNEs), interconnects and collocation space is a flashpoint in the often-contentious relationships between competitive local exchange carriers (CLECs) and incumbent LECs (ILECs). However, one group of carrier services doesn't necessarily have to come from the RBOCs.
Unlike copper loops and DS-3s, intelligent networking products, databases and signaling system 7 (SS7), interconnections can come from many different sources. Several of those companies have stepped up to the plate in recent years, sometimes to directly compete with the RBOCs, especially with SS7, often offering applications not available from the incumbents.
It's an area that's heating up competitively. "There is a lot of activity in that space right now," says Frank Murphy, vice president of telecom equity research for financial firm Wheat First Union, Richmond, Va. (At press time, Wheat First Union was planning to merge with First Union Securities, Inc., Charlotte, N.C.)
"It was inevitable. In telecom there are not a lot of ways to differentiate yourself as a competitor. There have been a lot of new connections recently in the market, but that's not a competitive advantage. The evolution of public networks to more complex infrastructure is the source of opportunity from things like advanced intelligent networking (AIN), where a service provider can create a product-based differentiation that had not been available before," Murphy says.
Smart Builds
One of the driving forces behind the growth of third-party SS7 and database services is the smart-build strategy of CLEC business development. Although the endgame is for a CLEC to own its own network--which Wall Street also demands--companies are starting up with a "lease, then build," approach, says Kieran Athy, director of market development, Allegiance Telecom Inc., Dallas.
While the service provider would establish its own switch in a metropolitan area, the other trappings of a network would be acquired elsewhere. These typically include UNEs from the RBOC and transport from the RBOC and others. The SS7 and database infrastructure includes an SS7 network and connections to other carriers, and an array of SS7 software. That includes a calling name (CNAM) database of the CLEC's own customers and a specialized storage facility to house it, as well as a line identification database (LIDB).
Cyril Matthews, senior manager, product marketing of the leading third-party SS7 and database provider Illuminet Inc., Olympia, Wash., says, "Competitive entrants are going to want to put their capital expenditures closest to where the customers are to provide telephone service, and they will look to a third-party provider, such as Illuminet, to provide other things. That way they can be operational expenses rather than just a capital expense."
Another reason newly minted CLECs may be outsourcing their SS7, databases and intelligent network services is that developing these resources in house is, indeed, rocket science. The programming is complex, not to mention the storage of databases and software, and it is a task that is not a core competence of a typical service provider.
The network itself is even more complex than in the past. "Local number portability (LNP), for example, is terrifically complex at the network level," says Murphy, "but service providers need to be prepared to offer LNP to be a player in telecom. The path of least resistance is to outsource."
SS7
SS7 and LIDB databases have been the bread and butter of the RBOCs carrier service offerings. SS7 networks are sold as UNEs by the RBOCs, but SS7 is also sold as a service, that is, the RBOC owns the signaling connections to its network and, through that, to other networks. Among the RBOCs, GTE Corp., Stamford, Conn., became a leading provider because it also had a national footprint with its interexchange networks.
About 10 years ago, Illuminet came on the scene as a new kind of provider that dealt only with signaling systems and was not a network operator. The company's basic product was an SS7 service with connections to any major SS7 network in the United States and many abroad. In any major city where a CLEC set up shop with a switch, Illuminet was able to provide SS7 connectivity.
Now, Illuminet offers SS7 hardware, beginning with a service transfer point (STP) called the Micro STP, and a box that does SS7-to-IP encapsulation for voice over Internet protocol (VoIP) networks. A chief competitor to Illuminet is Transaction Network Services (TNS), Reston, Va., which built its business on network transport of credit card transactions to processors, and is a more recent entrant to the SS7 market.
Other SS7 connectivity, or hub, providers include ICG Communications Inc., Englewood, Colo., New England Telephone & Telegraph Co., Boston, and BTI Corp., Raleigh, N.C. ICG, which is essentially an Internet service provider's (ISP's) ISP, in addition to long distance and satellite services, has seen demand for SS7 far outstrip its expectations, says Tom Sumbler, senior vice president of ICG's wholesale markets group.
Illuminet is viewed as the dominant third-party player while GTE, "being a national player with a national backbone, has a competitive advantage," Murphy says, especially with services such as LNP. "Given a parity offering, most carriers would opt not to use an incumbent like GTE," he adds.
Some service providers still chose the ILEC. Allegiance uses the local Bell's STPs and service control points (SCPs) for capabilities such as LNP. "Our strategy is to look as much as we can to the Bell end office," says Athy. "Part of that is because we are selling like-for-like services to our customers, so we want to be able to offer a product similar to the Bell product."
John Barnicle, chief operating officer, Focal Communications Corp., Chicago, says, "Today we buy from the ILECs, but we are evaluating the third-party providers." One reason to consider a change, he says, is that the CLEC business has changed. At first, Focal was exchanging mostly local traffic back and forth with the ILEC, connecting directly to them. As the company started offering its own long distance services, traffic went to other carriers, and connecting to them via the RBOC became cumbersome. "So we are looking for a friendlier, easier-to-do-business-with entity, such as [a third party] to facilitate those connections."
IP telephony providers are part of the increased demand for SS7 services, "because," says Sumbler, "they are speaking IP and ATM (asynchronous transfer mode) on the back side and on the front side to the PSTN (public switched telephone network), connecting through SS7 links and standard intercarrier trunks. Those carriers who are really getting into it realize that they absolutely do need to connect to the regular telephone network, because, do you need a ubiquitous telecommunications system or just ham radio?"
Databases
The SS7 network is the basic enabler, the signaling conduit for the entire range of services based on databases. For LNP, LIDB, toll-free calling (800 calling) and CNAM services, among others, the SS7 network carries the queries to the databases to authorize or route calls. Although national 800 and LNP databases are maintained under government contract by Lockheed Martin Corp., Bethesda, Md., many large carriers maintain their own. CNAM and LIDB databases are developed and maintained by carriers in their regions. These services are so necessary for a telephone network today that they are as much infrastructure as copper loops.
These services have traditionally been sold by RBOCs only within their regions. Companies such as Illuminet and TNS have been the providers of services nationwide, building off their extensive SS7 connections. TNS reports it is seeing the most growth in its nationwide LNP database.
In October, however, BellSouth, Atlanta, announced it would offer nationwide databases, beginning with a CNAM product, that would be available to any carrier with a connection to its SS7 network. Ameritech has a national 800 carrier ID service. "We think it is a logical choice for carriers looking for a single source," says Ken Volz, vice president of marketing and business development, Ameritech Information Industry Services, Hoffman Estates, Ill.
RBOCs say the advantages for CLECs are easier setup and faster time to market. Without access to a national database, they would have to strike agreements with each RBOC for its database of caller names, a process that could take months. With a national product, only one agreement would have to be made, and that could be completed in a month.
Other RBOCs have voiced strategic plans similar to BellSouth's. The issue will be execution. "Whoever is incumbent in a territory has the best data," says Athy, "and they don't play well together because they see each other as competitors in this space."
The entry of the Bells into nationwide services does not necessarily sound a death knell for the smaller third-party suppliers. "There are a number of entities offering nationwide database services of one sort or another, and we are looking at all options," says Barnicle. "We are moving toward consolidating the number of entities we deal with rather than dealing with each RBOC. But we have run into some issues when trying to use an RBOC as the national provider, so we are looking toward third parties, such as Illuminet and SCC [Communications Corp., Boulder, Colo.]."
Third parties will likely be hard-pressed to equal the RBOCs on price, at least initially. With the RBOCs' control or their own databases, "they can perform some database dips at lower cost," says Murphy. "But going forward we are going to find price parity because it is going to be based on the flexibility and scalability of service providers' offerings. If [third parties] can customize and can scale to address certain customer needs, pricing will not be a primary differentiator."
Also challenging them is the trend in databases toward increasing complexity and variety in services. With the increasing porting of numbers from carrier to carrier and the development of unified messaging services, which rely heavily on databases to find the subscriber, database providers will face escalating demands for currency and accuracy.
Illuminet's Matthews sees new telephone technology, such as softswitches, creating increased opportunities for third-party suppliers. "We will see a lot more innovation because more developers will be familiar with [the PC] platform. In addition, the cost of entry to being a service provider will be lower. It will be economical to come in and act as a local telco for 2,000 members of a homeowners association, for example."
Applications
As telephone platforms become more open, there will be opportunities to move beyond today's simpler database dips to develop applications based on more complex uses of databases, some even specific to a single customer.
"The whole concept of a telephone number being associated with a particular geographical address is obviously not true anymore," says Ameritech's Volz. "So local number portability is starting to become very popular again, driven by end users who want to keep numbers but change carriers. As customers demand new choices on how they are served and where they are served, databases play an increasingly important role."
In this scenario, the existing AIN infrastructure becomes a way for service providers to differentiate their offerings with unique applications. Key suppliers of those applications could be today's third-party SS7 and database suppliers.
Illuminet has introduced a new product called Carrier Call Management Services that allows carriers to establish profiles of customers to manage calls. Profiles can specify how a call will be routed based on time of day or calling number, giving end users much more control over their incoming calls. Another service, Toll Guard, allows end users to put restrictions on a phone's use. The services are nationwide and can be accessed by any carrier.
Illuminet is also setting up a new alliance program that will allow developers to offer new applications through its SS7 network. Application developers will be able to test new products with service providers. Among those participating to date are XYPoint Corp., Seattle, a provider of wireless E-911 and location-based services, and D&E Telephone Co., a division of D&E Communications, Inc., Ephrata, Pa., which provides subscriber service applications.
Third-party providers may have the upper hand in this scenario. The growing animosity between CLECs and ILECs will turn CLECs toward the noncompetitive vendors, assuming the offerings are similar, says Murphy.
"If you talk to an Illuminet and TNS, not only is their core competency this type of application, but they tend to be much smaller and more nimble in being able to customize applications faster than the RBOCs. If a carrier has a specific need, they can talk to an Illuminet or TNS, and can get a more customized product."
