Service Delivery Modes

In today's market, a CLEC can provide switched local services such as POTS and Centrex to its customers in three different ways: TSR (Total Service Resale), UNE (Unbundled Network Element), and On-Net. The latter two modes are applicable to only facility-based CLECs.

1. TSR
Providing service to a customer in TSR mode doesn't require any CLEC facility or network infrastructure. This mode can be viewed as merely a change in billing responsibility from the ILEC to the CLEC. For reselling ILEC local services, a CLEC establishes an interconnect agreement with the LEC. When a customer wants to switch service from the ILEC to the CLEC, the CLEC sends an "assume" order to the LEC. This type of order is unique to resale services. In fact, ILEC facilities and switches are still supporting the end customer's service. For resale services, any change in service (moves, adds, changes) are all propagated to the ILEC. The customer is still consuming service from the ILEC, except they now see the CLEC as their service provider and obtain their bill from the CLEC.

This is the easiest way for a CLEC to get into the business of competing with the LEC for local service customers, and typically the order completion time is the smallest. Also CLECs don't have to worry about issues such as local number portability (LNP), since no number change is involved in reselling services, and E911 and directory services changes can all just be transmitted to the ILEC. The downside to reselling is that the margins for resale services are typically in the range of 7-10 percent.

2. UNE
Although UNE includes a number of options such as unbundled loop, unbundled switch element, and unbundled common transport, unbundled loop (UNE-L) is the most common. UNE in this article refers only to the unbundled loop options. In a UNE scenario a facility-based CLEC installs its own telephony switch, either co-located in an ILEC central office or in its own separate CO. Besides installing the switch, each UNE CLEC also installs access equipment (usually a digital loop carrier or DLC) co-located in ILEC COs in areas where it wants to serve customers. All traffic from these access devices is hauled back to the CLEC CO, usually using SONET, or in some cases leased circuits. Serving a customer using UNE typically involves obtaining an unbundled loop from the ILEC, assigning line equipment termination on the switching infrastructure, and configuring the requested features on the telephony switch. UNE is attractive since the cost of obtaining access to local loops in wholesale is cheaper than re-selling the entire service. Typical margins on UNE-based services are around 25 percent.

3. On-Net
In an On-Net scenario, a customer is served entirely using the CLEC network, i.e., no loops are required from the ILEC. There are two ways to achieve this: a CLEC can install facilities (such as DS1s) directly to buildings to serve customers, or order point-to-point leased circuits (T1s) that connect the CLEC switch to the customer facility (e.g., PBX). On-Net completely bypasses the ILEC facilities (considering leased T1 is now the CLEC's logical facility) and hence generates higher margins, typically around 35-40 percent. However, the cost of building facilities directly to customer premises can only be justified in high-density areas where the demand is high. Many CLECs are building facilities in metropolitan areas. Traditional alternate service providers, such as CAPS (e.g., TCG and GTE) used this method to compete with ILECs for high-paying business customers.

A typical CLEC will use all three modes of providing service to its customers. A number of facility-based CLECs convert customers over using re-sale (since this is usually faster)-these are called service "migrations," -and once they have enough customers in a given area, they convert them over to their own facilities (UNE or On-Net). CLECs are also prewiring (laying facilities) in certain key business locations in a metropolitan area so they can directly convert an ILEC customer to an On-Net customer, bypassing the UNE stage. About 80 percent of all orders processed by CLECs today are migration orders.

As depicted in the figure, UNE and On-Net modes require significantly higher CLEC OSS investment, because the provider needs to be concerned with issues of telephone number assignment, local number portability, switch translations, inventory and assignment, E911, and directory services. These functions, typically fulfilled by different vendor systems, need to be integrated to form an end-to-end OSS. On the other hand, CLECs reselling ILEC local services need to communicate mostly with the ILEC. This level of interaction reduces cost for facility-based CLECs.