Presents
“How & Why to Become
an ISP/CLEC”
Copyright 1999 ISG-Telecom
Consultants 727-738-5553 www.isg-
1
What Is a CLEC?
• Competitive Local Exchange Carrier
• Essentially, a new local dial-tone provider
 A CLEC has the same rights & responsibilities as the
ILEC (Incumbent Local Exchange Company)
 Important: becoming a CLEC enables a large retail
customer to become a peer wholesale customer
Copyright 1999 ISG-Telecom
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Why Become an
ISP/CLEC
90
80
70
60
50
ISP
CLEC
ISP/CLEC
40
30
20
10
0
1st Yr.
2nd Yr. 3rd Yr.
4th Yr.
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• CLEC's are peers of ILEC's, not just customers
• Arbitration ability in front of Public Utility Commission and
FCC
• Inter-company reimbursements and settlements
• Access and reciprocal compensation revenues
• Opportunity to build fiber networks on local rights of way
• Ability to buy UNE (unbundled network elements) from ILEC
at regulated low rates
• Allows for more flexible set-up of services than regular
customers of the ILEC can get via ILEC tariffed offerings
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•State by State mandated 13 to 25 percent below-tariff
wholesale rates on circuits and services for switchless reseller
CLECs;
•Greater discounts of 20 to 45 percent below- ILEC tariff retail
rates on circuits and services for facility-based CLECs;
•Availability of carrier class services and UNE’s unavailable at
retail levels;
•Most importantly, the ability to profit from the telecom
services used by your existing customer base and community by
taking on the billing and marketing functions
Copyright 1999 ISG-Telecom
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5
CLEC Versus ILEC
• Unlike ILEC's, CLEC's are not restricted to local and
intraLATA business
• CLEC's can offer long distance service bundled with
local service and additional telecom services
• ILEC's have years of cost studies posted with PUC/PSC
to justify their high rates....now they can't lower
them to compete with CLEC pricing
Copyright 1999 ISG-Telecom
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6
Why Should an
ISP Become a
CLEC
Copyright 1999 ISG-Telecom
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The best news is that ISP’s are superbly positioned to
move into the Competitive Local Exchange (CLEC)
business. ISPs have a built-in customer base,
particularly for data access which naturally leads to
gleaming new revenues from the existing customer
base by selling data circuits at retail while paying the
wholesale rate and by adding voice services and
features on a consolidated bill.
The #1 reason that ISP’s should become ISP/CLEC’s is
ADDITIONAL PROFITS!!!
Copyright 1999 ISG-Telecom
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Furthermore, the additional and auxiliary
services that the ISP/CLEC can resell
include long distance, conference calling,
calling cards, full Centrex services, data
and voice circuits, DSL and their own
internet service, on a single convergent
billing platform broken out by customer
identification codes.
Copyright 1999 ISG-Telecom
Consultants 727-738-5553 www.isg-
9
Other Reasons
ISP’s are well
Positioned to
become an
ISP/CLEC
Copyright 1999 ISG-Telecom
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ISPs have advantages in local, long distance, and data
services through strategic alliances, bulk purchasing of long
distance minutes, voice over IP deployment, consolidated
billing, and the ability to deploy the latest in switching
equipment without the expense of legacy equipment that
the ILEC’s have that may not be able to deliver high speed
digital services.
Access to existing ILEC network at discounts on a pure
resale basis as well as in converting their current circuits
from retail pricing to wholesale pricing. ISPs can
additionally configure their systems to deploy tandem
switches in each LATA to gain free inbound T-1s from the
ILEC while consolidating their modem pools at the tandem
for cloud access. Virtual co-location is also available.
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No existing baggage and relatively low
regulatory requirements compared to the
ILECs’ regulated rate of return and cost study
legacies for pricing.
Information services for LAN/WAN customers
including web page design and hosting, help
desk services, configuration, and maintenance
services for company internal communications
systems.
Copyright 1999 ISG-Telecom
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12
Switch Types
Class 4 versus..Class 5
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Tandem Switch vs.. Class 5 Switch
• Tandem Switch
(class 4)
Built for incoming/outgoing
calls to a central point in
the LATA for Data Carriers
& Long Distance
ILEC's must provide
inbound trunking at no
charge to the CLEC’s
tandem switch with CLEC’s
running return fiber to
ILEC's tandem
• Class 5 Switch
Built to handle all voice &
data
• Modules available to
partition switch into voice
switch plus tandem ID
Many CLEC's have one (1)
main switch with small
remotes in the COs
ILEC's tend to have full
class 5 switches in each CO
Copyright 1999 ISG-Telecom
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Equipment Needed
• For Voice:
 Class 5 Switch
 (x) Co - Located xDLCs
 Fiber - installed @ $10 Per
foot (or leased)
• For Data Only:
 Class 4 Tandem Switch
 Fiber
 Router
 (x) CO - Located xDLCs
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Copyright 1999 ISG-Telecom
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Basic Local Call
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Basic Long Distance Call
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Support Services Needed
• For Voice:
Operator Services
Customer Service
Billing
Back Office
Directory Assistance
Repair/Install
E911
Numbering Resources
Switch Maintenance
Regulatory Maintenance
Tax Compliance
• For Data Only:
Customer Service
Billing (simplified)
Back Office
Repair/Install
E911
Numbering Resources
Switch Maintenance
Regulatory Maintenance
Tax Compliance
Copyright 1999 ISG-Telecom
Consultants 727-738-5553 www.isg-
19
How to Become
an ISP/CLEC
Copyright 1999 ISG-Telecom
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Steps in Creating a CLEC
• Step 1-
Form (new) separate corporation
- This prevents the co-mingling of regulated
income from non-regulated income
-Allows the ISP company to be first and largest
customer of CLEC company
• Step 2-
Determine which types of services are
to be offered;
-Data only..........Long Distance, too?
-Voice only........Conference calling?
-Voice & Data....Other telecom services?
Copyright 1999 ISG-Telecom
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21
Steps in Creating a CLEC
(cont’d)
• Step 3- Gather necessary checklist items for state
PUC certification application
-Financials & pro-forma
-Background of principals
-Corporate data
• Step 4- Draft a tariff based on state PUC's
requirements
-Level of detail varies significantly
-Timing varies significantly
-States have individual requirements for free DA
calls & Lifeline services
Copyright 1999 ISG-Telecom
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22
Steps in Creating a CLEC
(cont’d)
• Step 5- Determine prior to tariff preparation if CLEC
will be switchless or facilities based
• Step 6- Prepare state's form for certification and file
with state PUC/PSC either prior to sending or with
the completed tariff
• Step 7- Negotiate or opt-in to an Interconnection
Agreement - connects new CLEC's network & switch
to ILEC's or other CLEC's, spells out how payments,
trouble tickets, network alarms, etc. will be
handled
- sets rates for Resale or Unbundled Network
Elements from ILEC
Copyright 1999 ISG-Telecom
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Steps in Creating a CLEC
(cont’d)
• Step 8- For Non-Facilities Based (switchless)
Resellers, a decision must be made as to whether
to buy out of the wholesale tariff or negotiate a
term and Volume Agreement with the ILEC’s
and/or CLEC’s
• Step 9- If long distance is to be offered, carrier
and rate must be established
• Step 10- If switchless reseller, procedures and
training are established
Copyright 1999 ISG-Telecom
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24
Steps in Creating a CLEC
(cont’d)
• Step 11-
If Facilities-Based, the following
services must be obtained via ISG Partners:
• -Customer service E911
• -Back Office & SS7 connectivity
• -Billing BB Interconnection to ILEC
• -Operator services Connection to Tandem(s)
• -Numbering Resources Equipment set-up
• -Repair/Installation Switch Maintenance/Repair
Copyright 1999 ISG-Telecom
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25
Steps in Creating a CLEC
(cont’d)
• Step 12-
Beta Test System and Update LERG
with new switch ID (3 months)
• Beta test billing
• Beta test new order processing (back office)
• Sales, Marketing & Product training
Copyright 1999 ISG-Telecom
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26
17 support categories every
ISP/CLEC needs to consider
•Business Office
•Accounting Office
•Customer Service Center
•Equipment Provisioning
•Service Activation
•Network Administration
•Network Data
•Administration Maintenance
•Maintenance (Switching / Transport / Access)
Copyright 1999 ISG-Telecom
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Support Categories (Cont’d)
•STP / SCP (Signal Transfer Point / Signal Control Point
A.K.A. SS7)
•Repair Service Bureau
•Disaster Recovery
•Directory Assistance
•Operator Services
•Security
•Facilities
•911
Copyright 1999 ISG-Telecom
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PUC Requirements
The following information will be needed to begin
preparation of the necessary applications and associated
tariffs. All information provided by the company would
be treated as proprietary and confidential by ISGTelecom Consultants. Please be aware, however, that
once an application and tariff are filed with a regulatory
agency, these documents become public documents,
and are generally available to the public, pursuant to
each agencies’ rules or state statute, unless confidential
treatment or proprietary data is sought. From time to
time, additional information may be required, and will
be requested, as it is needed.
Some states have adopted sunshine laws, which prevent
applicants from requesting confidential treatment of
proprietary data.
Copyright 1999 ISG-Telecom
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Elements of a
CLEC Application
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Corporate Data
•The company’s legal name, address and telephone/facsimile
numbers/800 # for customer service issues
•Article of Incorporation - Date of Incorporation
•Copies of evidence to transact business as a foreign corporation filed
with the Secretary of State in each state, if applicable
•Listing of Officers and Directors, including addresses and titles
•Listing of owners, owners’ addresses and percentage of ownership,
number of stocks issued. Also a list of any affiliated interests, if
applicable
•Biographical data or resumes of the company’s senior managers,
highlighting managerial and telecommunications experience
•Identification of who is authorized to sign documents for the
company along with the name, address and contact of company’s
regulatory contact and liaison
•Most recent summarized income statement and complete balance
sheet (Past 2 years - audited if possible).
•Personal Guarantee of principle’s (as applicable in certain states)
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Service Information
•A description of proposed services and associated recurring and nonrecurring rates
•Minimum initial billing increment and additional billing increments for
each service; i.e. 18 second initial billing increment and 6 second
increments thereafter for 800 service
•Proposed service area (if not state-wide)
•A list of underlying carriers and services purchased
•Customer service procedures for refunds, credits and time of operation
including emergency or after hour’s procedures for processing customer
service calls. Please include customer service telephone numbers
•A description of how bills will be rendered and collection procedures, if
applicable
•Will the company provide operator services (e.g. third party billing)
•If offering “1+” services, will the company collect advanced payments or
deposits and if so, what are the deposits/advanced payments policies
•How are the company’s services marketed (e.g. in-house sales staff,
independent agents, a combination of both, network marketing, etc)
Copyright 1999 ISG-Telecom
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Elements of a
CLEC Tariff
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•Check Sheets
•Table of Contents
•Explanation of Symbols
•Tariff Format
•Technical Terms & Abbreviations
•Rules & Regulations
•Service Descriptions
•Service Availability
•Rates & Charges
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Types of Tariffs
CLEC - Local services
IXC - Long distance services
ACCESS - Used to sell
services wholesale to other
CLEC’s
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Types
of
Filings
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CLEC (Competitive Local Exchange Carrier) Allows the company to offer Local dial tone including
all voice and data services
IXC (Inter-exchange Carrier) State Allows the company to offer IntraState/InterLATA long
distance services
IXC (Inter-exchange Carrier) Federal Allows the company to offer InterState long distance
services
214 Federal Allows the company to offer international long distance
services
Copyright 1999 ISG-Telecom
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Types of CLEC
Interconnections
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Physical Interconnection
There are many ways to physically interconnect two
networks, the 3 basic methods are end-point fiber meet,
Mid-span fiber meet, and leased facilities. First we will take
about an end-Point meet, perhaps the most common method
of physical interconnection. Under an End-Point the CLEC
will build fiber from its data center to the ILEC CO and the
ILEC will build fiber from its CO to the CLECs data center.
Each party will install a MUX on its side of the link and
provide a MUX to the other party for the other.
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End-point Fiber Meet
Once an end point meet is established the parties may use it for
local traffic interconnection or for access to unbundled network
elements (UNEs).
Mid-span fiber meet is where each party builds fiber to one
common mid point. The fiber is then spliced together and each
party installs a MUX on it’s own end. The advantage of a mid-span
fiber meet is that the CLEC only need to come up with one MUX
and the fiber build is shorter. In fact many ILECs will just build the
fiber to the CLECs data center instead of going through the hassle
of splicing the fiber.
Copyright 1999 ISG-Telecom
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Mid-span Fiber Meet
The downside of a min-span fiber meet is that
because the facilities are shared they only can be
used for interconnection. If the CLEC needs a T1 to
an end customer it cannot order it as a UNE over a
mid-span fiber meet. Because of this restriction many
CLEC’s opt for an end-point fiber meet or start with
leased facilities and then later expand to an endpoint fiber meet.
Copyright 1999 ISG-Telecom
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Leased Facilities
The 3rd common method of physical interconnection
is called leased facilities. In such an arrangement the
ILEC would most likely build an end-point fiber meet
to the CLEC for the purpose of terminating its traffic
on the CLEC’s network. The CLEC could then lease
facilities back to the ILEC over it’s end-point fiber
meet as standard UNEs. The CLEC also could use a
third party to get its traffic back to the ILEC.
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Logical Interconnection
A CLEC must determine if they require one-way or
two-way trunking. One-way trunks were the 1st
methods used to exchange switch traffic. With a oneway trunk, calls can only travel one way. For calls to
move in both directions between switches two oneway trunk groups would need to be established
between the two switches.
Copyright 1999 ISG-Telecom
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One-way Trunking
If the traffic flows between the two switches
is mainly two-way, then one-way trunk groups
will be very inefficient.
Example: We have two 4 T1 one-way trunks between
switch A and B, each switch and terminate 96 calls on
to each other. If the call volume jumps and more then
96 trunks are needed the call will get blocked (busy)
even if there are only 60 calls moving the other
direction. To account for this trunk groups had to be
over provisioned so that they still could maintain a low
blocking.
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Two Way Trunking
Two-way trunks groups solve this problem, because calls can go in either
direction on the trunk groups, this can drastically LOWER the number of
switch ports. If we have 8 T1s in a two-way trunk group, we can have
more calls one direction one day and the opposite direction another day
on the same trunk group.
A CLEC needs to determine what the traffic flow will be between the
CLEC and the ILEC switch because it can have a huge effect on trunking
cost. When one-way trunks are used each party pays for the trunks
necessary to terminate its traffic on the other parties network, while
the cost for two-way trunks groups are shared between the two parties.
Copyright 1999 ISG-Telecom
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Two Way Trunking (cont’d.)
If the CLEC’s primary business is to supply ISP’s access, most
of its traffic would be from the ILEC to the CLEC. It would
make sense for the CLEC to then use one-way trunking
because the ILEC would bare all the cost to terminate its
traffic on the CLECs network. If however the CLEC is going
after business or residential traffic it may want to use twoway trunk groups and share the cost with the ILCE, thus
lowering the number of switch ports.
Copyright 1999 ISG-Telecom
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Collocation
One of the options is to colo in the ILEC’s central office; from there you have access to
copper plant via UNEs. CLECs that wanted colo space in a CO were using a 10’ by 10’
cage, if the CO had space. Today the ILECs are forced to provide CLECs shared cage
and cage-less colo. If the ILECs say they don’t have space, the ILEC must permit the
CLEC a tour of the entire central office. The ILEC must provide a list of all offices in
which there is no more space. ILECs must also remove obsolete, unused equipment in
order to facilitate the creation of additional collocation space within a CO.
What equipment can be put in a CO is still limited. The ILEC’s may NOT require CLEC’s
equipment to meet more stringent safety requirements then those the ILEC imposes
on its own equipment. This has allowed many CLEC’s to place equipment in COs, but
many times the equipment still must be certified NEBS compliant. Many CLEC’s have
been looking at alternatives to physical colo in an ILEC’s central offices. This is
primarily because of the cost associated with a CLEC gaining access and the limitations
put on them. Another popular method is for the CLEC to place its equipment in a
building (hut) next to the CO or build an equipment shelter next to the CO. The CLEC
then builds a copper cable to the ILEC’s CO. Then the CLEC orders UNE loops like it
would if it was physically collocated. The loop would be run from the ILEC MDF to the
CLEC copper frame. This method of access is still not looked at fondly by the ILECs, but
is technically feasible.
Copyright 1999 ISG-Telecom
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47
How Long Does it Take
to
Become a CLEC
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PUC Timetables
How Long Will My Tariff and Certification Take?
Assuming ALL of the required client documents are
provided promptly at the start of the project, the
estimated processing time at the State Utility
Commissions are as the following chart. This does not
include the three to four weeks, from receipt of the
required documents, to prepare the certification
papers and tariff for your CLEC entity. Please
remember that these are estimated approval time
frames.
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Alabama
4 months
Arkansas
months
Connecticut 4 months
Florida
months
Idaho
30 days
Iowa
months Louisiana
months
Mass.
months Missouri
months
Nevada
days
New Mexico 4 months
N. Dakota
2 months
Oregon
2.5 months
S.C.
6 months
Texas
1 day
Virginia
months Wisconsin
Arizona
3 months
Colorado
4
Not Required
Georgia
4 months
Delaware
45 days
Hawaii
3
Illinois
not required
2 months
30 days
4 months
2 months
4 months
Kansas
Maine
Michigan
Montana
N.H.
Indiana
2 months
Kentucky
Maryland
Mississippi
Nebraska
N.J.
4
2
2
3
45
New York
Ohio
Penn.
S.Dakota
Utah
not required
3 months
3 months
2 months
3 months
3 months
not required
Wash.
2 months
Wyoming 1 day
N.C.
Oklahoma
R.I.
Tennessee
Vermont
5.5 months
5 months
30 days
30 days
4 months
W. Virginia 3
3 months
4 months
Alaska
4 months
California
DC
3.5 months
2.5 months
3 months
not required
not required
4 months
Disclaimer: These time frames can vary dramatically
depending on the work load of the staff at the individual
PUC.
Copyright 1999 ISG-Telecom
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Typical Costs
to become a
“Facility-Based” CLEC
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•State Certification: $5,000-$7,500 (depending on the state and complexity
of service offerings)
•Interconnection Agreement: $7500.00-$25,000.00 (depending on whether
opt-in or negotiations are necessary - arbitration's are extra)
•Obtaining Required Codes: $2,500.00 (CIC, OCN, IAC)
•Tax Compliance Software: $3,000.00 (annual subscription)
•Network Interconnection: $2,500.00
•BETA Testing: $2,500.00
•Tandem Switch: (64 T-1's) $300,000.00
•Misc. Data Center: $275,000.00 (power systems, HVAC systems, Security,
Rack, Fire protection, Raised Floor & transmission hardware)
*These costs are approximate and based on a typical project. Actual final
costs may be less
Copyright 1999 ISG-Telecom
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Process Timing
Phase I (Regulatory) - Generally, Tariffs can be prepared and filed
within 30 days from the time all corporate information is available.
State PUC approval time varies from 1 day to 6 months.
Phase II (Equipment) - The timing here varies tremendously
depending on the equipment selection method and speed at which
the ISP decides on the equipment type and vendor. Delivery time
on switches varies from 1 month to 4 months depending on the
complexity of the configuration. This can be done simultaneously
with Phase I.
Phase III (Back Office) - Again, this is done during the equipment
selection and deployment process. When the switch is being set
up, configurations tie in to various support vendors is established.
Copyright 1999 ISG-Telecom
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Conclusion
Becoming a Switchless Reseller or a facilities-based
CLEC has many benefits - financially as well as to
ensure survivability in a very competitive market
environment, it is not a simple process that can be
done overnight.
Financially, the best operational margins come from
being a facilities-based CLEC, which can require a
significant capital investment in a switch or
tandem/voice switch. Fortunately, this investment is
often more than covered by the savings gained from
reduced ISP telecom costs.
Copyright 1999 ISG-Telecom
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54