As CLEC-ILEC relations become further strained amid regulatory uncertainty, various proposals and offerings are emerging to help wean CLECs off ILEC facilities. The latest one is a neutral platform for intercarrier tandem traffic.
The offer comes from startup Neutral Tandem. The company has been operating behind the scenes since February and is taking the covers off with five markets fully operational and more than 20 service providers in league.
  Neutral Tandem simplifies intercarrier traffic by providing a neutral interconnection point within a metro as a substitute for multiple connections to ILEC tandems. |
Neutral Tandem does just what its name implies; it facilitates the interchange of transit and switched access traffic between wireless, CLEC, IXC and next-gen service providers. The company completed in November 2003 a successful A series funding with Doll Capital Management and New Enterprise Associates on board. The undisclosed sum funded the company’s buildout in five markets — Chicago, Connecticut, Detroit, Milwaukee and New York City. A B round is expected to be completed in the fourth quarter to continue the buildout in seven additional markets —Atlanta; Cleveland; Columbus, Ohio; Indianapolis; Los Angeles; Miami and Minneapolis — by January 2005.
The genesis of the idea was way back in 2001, says Neutral Tandem President and COO John Barnicle, the former founder and COO of Focal Communications. While Barnicle was recruited to the team in 2003, he says CEO Jim Hynes is its brainchild. Hynes is a 30-year telecom and finance industry veteran who might be best known as COLT Telecommunications’ first CEO. He currently serves on the boards of Looking Glass Networks and Mountain Union Telecom.
Barnicle explains that during the CLEC buildout, CLECs didn’t give much thought to how they would exchange traffic with one another and just plugged into the ILEC. “When many of us were getting started, that probably made a lot of sense,” he says. “A very small percentage of our traffic was going to or coming from something other than the ILEC.”
Over time, he says, the number of CLECs, IXCs and wireless carriers has grown, so that greater and greater proportions of traffic are from CLEC to CLEC or CLEC to wireless carrier or IXC. “The traffic patterns evolved but the networks didn’t follow,” explains Barnicle. “They continued, as a rule, to exchange that traffic by way of the ILEC tandems.”
While the Bells charge CLECs for tandem switching, they also compete with CLECs, so the arrangement is necessarily strained. Complicating the issue is that it’s not practical for competitive carriers to connect their switches together, one by one, to exchange traffic directly.
Neutral Tandem provides a patent-pending service based on the Nortel DMS switch to facilitate that interchange, allowing carriers to pay for what they use. “We buy, or build, as the case may be, transport to their switch locations,” says Barnicle. “They route as little or as much traffic as they want to us, and they save on every minute. There are no non-recurring charges or other miscellaneous charges. It’s strictly usage-sensitive.”
Barnicle declined to quote pricing but offered as an example the going ILEC rate is half a penny and Neutral Tandem provides discounts above that. “On the first minute, they would save substantially, and if they route us that much more traffic, there is a sliding scale where they would save that much more,” he says.
The company is tight-lipped about its customers, but quotes Bill Capraro, president/CEO of CIMCO Communications, as saying, "CIMCO uses Neutral Tandem exclusively to interconnect to the PSTN and nearly all of the major wireless carriers and competitive local service providers. Their network saves us time, money, and provides us better service than the ILEC."
“It’s a win-win for everyone, including the ILEC, frankly,” says Barnicle. “The major ILECs across the board have gone on record in [proceedings at] various federal and state commissions as saying they really don’t want to offer this service, [that] they’ve struggled over the years keeping up with the growth and spending capital to facilitate their competitors getting in the business too.”
Verizon Communications Inc., for example, in a filing with the FCC regarding developing a unified intercarrier compensation regime (Docket 01-92), claims that CLEC trunks at the tandem in Virginia grew at the rate of 100 percent in 2000 and “as a result, multiple Verizon tandems have been exhausted or face exhaustion in the near future.” In the same filing, the ILEC maintains that it should not be obligated to provide transit for traffic volumes at the DS1 level or greater. “At this level, the traffic between the carriers is sufficient to justify a direct interconnection trunk for their traffic.”
Neutral Tandem’s public debut comes just weeks after like-minded offers from Global Internetworking Inc. and Matrix Telecom that seek to achieve similar ends through different means.
Global Internetworking’s Unbundled Network Element-Replacement, or UNE-R, service provides CLECs a turnkey and lower cost alternative to buying DS1 and DS3 loops and dedicated transport through LEC special access tariffs. UNE-R is designed to eliminate the hassle of finding multiple alternative providers, making volume purchase commitments, negotiating multiple agreements and dealing with the provisioning groups of numerous other carriers. UNE-R now offers access to about 1,000 buildings in the D.C. area through arrangements with about eight of the 30 competitive providers it works with in the district. Philadelphia was expected to be available at the end of October and Boston and New York City by Dec. 1.
Matrix Telecom’s Network Matrix is designed to give CLECs the ability to offer customers a seamless nationwide service. Described as a CLEC cooperative, Network Matrix serves as a gateway to independent networks across the country. Network Matrix will include a core group of initial network providers forming the national footprint. In addition to reciprocal network partners, Network Matrix will be available for resale by other CLECs that might be too small to be a reciprocal partner.
While part of Network Matrix will be facilitating such contractual arrangements, a second piece will be facilitating the back-office communication.
“Because we’re actually the physical tandem provider, as opposed to a reseller or marketing agent for it, we’re able to do certain things that Matrix [Telecom] wouldn’t be able to do,” explains Jeff Hartzell, vice president of marketing and product development for Neutral Tandem. “One, we control and manage network capacity for the carriers, so we’re not relying on a third party to do that. ... We’re able to manage the capacity, handle any trouble, do network capacity for our customers, hand them detailed management reporting, billing — all of those things that would be necessary for a CLEC or a wireless carrier to help manage their business — is something we can provide one stop without having multiple middlemen across the country.”
