CEO's Start-Up Toolkit: CLECs

A new kind of telephone company wants your business and will go to great lengths to get it

When Don Holcomb came on as vice-president of operations at Amfinity Business Solutions, in 1998, he discovered the employee-leasing company didn't have E-mail. The 15 employees in the St. Petersburg, Fla., headquarters relied solely on the telephone, the fax, and snail mail to communicate with the company's thousands of leased workers nationwide. "We had no E-mail functions, and we had no ability to tie other locations to us," Holcomb says. That would have been fine except that Amfinity's client base had grown so rapidly since the company was founded in 1996 that staffers were having problems processing the voluminous payrolls, tax statements, and medical and retirement forms in a timely manner.

Holcomb knew he could use the Internet to make the company more efficient, but he found that most existing service offerings were geared for larger businesses and were too expensive for his company. Then he discovered 2nd Century Communications, a relatively new provider known as a competitive local exchange carrier (CLEC). The folks at 2nd Century said they could offer Holcomb's company what more established providers would not: an affordable Internet package that included high-speed Internet access, E-mail, and a hosted Web site. The company also gave Holcomb local and long-distance telephone service and desktop support -- all on one bill, all at a savings of 10% per month compared with the company's previous bills.

By bundling a wide variety of phone and Web services, CLECs can give discounts of 30% or more.

Start-up 2nd Century is just one of more than 200 CLECs that have blossomed since the passage of the 1996 Telecommunications Act, which broke up the local monopolies held by the Bell companies. In 1999, CLECs pulled in more than $26 billion in revenues collectively and served almost 400,000 office buildings nationwide. By bundling their various communications services, these providers can give discounts of 30% or more.

Besides cost advantages, the new providers bring other benefits. For instance, Holcomb found that by replacing the handful of service providers he had previously used with just one, he eliminated some hassle. Now he manages only one vendor relationship instead of seven, so when a problem crops up, he knows exactly whom to call. That has eliminated the previous finger-pointing among providers that he knew only too well. In addition, industry observers claim that small companies typically get better service from CLECs. "As opposed to the incumbents, the CLEC sales reps are Johnny-on-the-spot," says Craig Clausen, senior vice-president at New Paradigm Resources Group, a Chicago-based consulting firm. "They'll go out of their way to give you all the information so that you can compare apples to apples and then give you the opportunity to ask some questions."

Don Holcomb found that by switching to just one service provider, he eliminated some hassle.

Companies may find some CLECs willing to do things that other providers won't, like troubleshooting the network, helping to upgrade equipment, and providing desktop support. George Fajta, chief technology officer at Kadem Capital, found CLEC Winstar willing to undertake some complex technology challenges in order to win his business. Kadem, a two-year-old U.S. equity trading fund with 22 employees, needed a backup connection to the Internet in case its primary one failed. To deliver that, Winstar worked with Kadem's current provider, Eze Castle, to set up a special kind of routing between the two providers.

Although there are many good reasons to sign up with a CLEC, customers may run into a few hitches along the way, especially if they're currently receiving service from a Bell company. In order for a business to keep the same telephone number while switching telephone companies, the providers must follow a complicated procedure to make the transfer. Both the old and the new providers must make changes to their databases at the same time; otherwise the customer could be left temporarily without phone service.

Vince DiBiase, senior vice-president of ICG Communications, a CLEC based in Englewood, Colo., acknowledges that it can be a challenge for companies like his to get new customers up and running. "This is a disadvantage that every CLEC will have unless the particular customer is located in a building that either my company or another CLEC actually has wiring into," he says. If a CLEC doesn't own the wires into a particular building, then it must go through the often lengthy process of ordering and reselling service from a Bell company to serve customers at that site. If a small business calls a Bell company like US West directly, it will likely get service within a couple of weeks, but at ICG it could take as long as a month to 45 days to order that service resale from US West, says DiBiase.

Getting personal service: "If I needed to, I knew I could go pound my fist on their door," says Holcomb.

For CEOs like Kathleen Bagley, the ultimate benefits of doing business with a CLEC typically outweigh the initial wait. About a year and a half ago Bagley relocated her company, Prime Source Lending, to another location in San Antonio. It took three months for ICG to switch her company's service from Southwestern Bell to its own. But Bagley says she switched because Southwestern Bell had told her that because of the move she'd have to get a new phone number for her company and pay a monthly fee to have calls forwarded from the old number. That arrangement would have been renewable on a year-to-year basis, and if Southwestern Bell had needed that number at any time in the future, the company would have taken it back, she says. ICG, on the other hand, let Bagley keep her old number and didn't charge any monthly fees. In fact, Bagley has been so pleased with the relationship that she's also switched her long-distance service from AT&T to ICG.

Initially, even Don Holcomb felt that it was risky to give his business to a new provider. Still, he found comfort in the fact that 2nd Century was located close to his company. "If I needed to, I knew I could go pound my fist on their door," he says. And so far that personalized service has paid off for his company. Recently, several employees complained to Holcomb about slow Internet connections. Before Holcomb could pick up the phone to call 2nd Century, he had already received a call from the company. "They said, 'We've noticed that you've been having problems with your connections today. We're working on it now to take care of the problem, and it should be resolved in 10 minutes,' " he says. "That just floored me."

Rachael King is a freelance writer based in Hoboken, N.J.

Looking for a CLEC near you? A good first step would be to check out, where you can search for providers by city and state. You can also check with your state public-utility commission, which keeps a list of all new providers licensed to operate in your state.

For more on the gear you really need to start and grow your small business, see our CEO's Start-Up Toolkit.

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Published on: Jun 15, 2000