This month’s edition of New Paradigm Resources Group, Inc.’s (NPRG's) CLEC Issues reviews some of the benefits, costs, strategies, and risks for an Internet Service Provider (ISP) making the transition to become a competitive local exchange carrier (CLEC). While some ISPs to date have turned themselves into CLECs, many more have expressed an interest in doing so.

A couple of years ago, the primary objective of an ISP in making such a change was to collect reciprocal compensation. Today, the benefits of becoming a CLEC not only include new sources of revenue from mutual compensation and access charges, but also the ability to attract higher value customers by means of expanded product offerings.

Depending on the strategy an ISP chooses, the costs and advantages can vary significantly. A resale strategy as opposed to a facilities-based strategy, for example, is less expensive to begin, but ultimately gives the carrier less control over the services it offers. The cost of becoming a CLEC can be prohibitive, particularly for those who follow a strictly facilities-based plan. Nevertheless, if an ISP can manage these costs with the right approach or combination of strategies, it can enter the CLEC arena with an advantage over other start-ups, simply by virtue of its existing Internet product line.

ISPs that are considering becoming CLECs should analyze several aspects of the business prior to making such a move. The ISP must first decide what it wants to gain from pursuing such a conversion. Increased revenue? An expanded product offering? More high-value customers? Secondly, the ISP should determine which strategy to use to enter the CLEC market; for example, a resale or a facilities-based approach. Lastly, the ISP must ask itself if the cost of the strategy is in line with its expectations.

The following analysis touches on all of these issues: The benefits of becoming a CLEC, the different strategies an ISP can pursue, and some of the major costs involved. Lastly, being aware of some of the known pitfalls will help an ISP prepare for the move toward CLEC status.