The Great CLEC Squeeze

As a result of the Telecommunications Act of 1996, the number of CLECs providing telephone services exploded. A CLEC (competitive exchange carrier) provides telephone services by leasing local loops (phone lines) and interconnecting those local loops to their own or sub-contracted long distance services. For most of the past 23 years, CLECs have primarily competed with the incumbent telephone carriers (ILECs) on price. Those days are over.

CLECs are facing increasing competition on four different fronts:

  1. The traditional carriers are reducing the price of dial tone and bundling services into double or triple plays.
  2. Dial tone, or basic phone services from cable companies, independent VOIP startups and industry leaders such as Vonage and Skype are driving down call transport pricing.
  3. An increasing number of homes and business are dropping traditional landlines in favor of mobile devices.
  4. Google Voice is demonstrating the viability of purchasing additional telephone services from an alternative telephone company. If a business has more than one telephone company, lets say Google and CLEC ABC, the CLEC has lost a bit of account control.

In summary, CLECs are squeezed between collapsing transport prices and expanding features. To compete in this environment many CLECs are upgrading their existing telephone switches to gain access to SIP technologies. However, while low cost upgrades to add SIP capacity are available, upgrading an existing switch to provide applications such as Google Voice are very costly, time consuming and disruptive. In fact, sophisticated voice applications are not available for many call-switching platforms.

So what is a CLEC to do? It is well accepted in the world of business that it is less expensive to keep an existing customer than to find a new one. The CLEC community needs to maintain account control and expand the services they deliver to existing customers. They can do this by utilizing SIP trunking to drive down long distance rates and Cloud Telephony to deliver new features to existing customers., Amazon EC2 and others have demonstrated the value of on demand, just in time, shared resources. Cloud Telephony in conjunction with reverse SIP Peering presents the same advantages to the CLEC community. Let me spend a minute to flesh out the Reverse SIP Peering concept. This is best done by an example from the Internet world.

When the first generally available web browser, Mosaic, was released by the University of Illinois, it supported the use of the HTTP protocol to access HTML formatted information. Before long millions of users where browsing the web everyday. But it wasn’t until some very creative technologist realized that HTTP could be used to communicate server to server, and the web we know today developed.

Reverse SIP technologies provide the equivalent for Telco. SIP was initially deployed as a signaling protocol for voice based telephone communications. It has evolved into a signaling and setup protocol for multimedia communications sessions including voice, video and even games. Reverse SIP Peering, takes SIP to the next level, supporting SIP as a protocol for accessing a SIP application warehouse. In fact reverse SIP requires no technology changes and is strictly a new business application of the existing SIP 2.0 protocol stack.

To utilize a SIP Application Warehouse, a CLEC provisions a SIP Peering relationship with the warehouse owner. Once peered, calls into the CLEC are routed to the warehouse, handled by the applications resident in the warehouse and routed back to the CLEC when transfers or additional calls legs are required.

With this new capability any CLEC or Telco carrier with SIP support can resell, Cloud Telephony resident, automated telephone applications. These applications might range from a simple parallel Find Me service similar to Google Voice, to complete IVR call center solutions.

This presents an exciting opportunity for the Telco 2.0 community. The opportunity exists to build hundreds of applications, ranging from basic voice mail to complete IVR business automation solutions and provide access via SIP. In support of this opportunity, SIP Application Warehouse hosting companies need to provide robust telco grade hosting services, fully redundant and easily managed. Application provisioning requires the development of white-labeled customer portals and CLEC management tools.

While for traditional Telco companies these may be difficult times, for innovative Telco 2.0 vendors this is an outstanding time to be in Telco.