CLEC 2000 Report 12 Edition

That being said, as NPRG sifts through the hundreds of competitive carriers certified each year to determine which are facilities-based, we notice a number of trends that we believe effect the industry as a whole. In the past year, ILECs have entered the CLEC arena, CLECs continue to receive financing at breakneck permitting extensive network build-out, and data services continue to drivehas emerged as a growth driver. The 12 th Edition of the CLEC Report 2000™ chronicles these changes for each facilities based company. And as always, NPRG will continue to monitor the competitive telecommunications industry as it matures.

Enter the ILECs

Since the passage of the 1996 Telecommunications Act, incumbent providers have recognized the opportunity to poach customers from their neighboring ILECs through a CLEC subsidiary. Although most have done so on a resale basis, choosing to backhaul traffic to their ILEC switch, a few CLEC subsidiaries have purchased their own switching equipment. CTSI (a subsidiary of Commonwealth Telephone), Logix Communications (recently spun off from Dobson Communications), and XIT Communications (a subsidiary of XIT Rural Communications), are three examples of this trend. During 1999, three more ILECs jumped into the CLEC fray. ALLTEL Communications, an ILEC with sizable wireless interests (with 1999 revenues of $1.6 billion and a market capitalization of $20 billion), announced intentions to offer CLEC services in 19 markets. On a smaller scale, CTC Exchange Services, a subsidiary of CT Communications, began offering services in suburban Charlotte, NC. But the biggest giant to enter the CLEC game is SBC through its CLEC subsidiary, SBC Telecom (SBCT). When SBC completed its merger with Ameritech Corporation in October 1999, it created the SBCT brand to market CLEC services nationally, competing with its fellow RBOCs. As part of the merger agreement, SBCT will enter 30 out-of-region markets, the first by the end of 2000. It could be argued that the ILECs are bringing to the table a proven ability to run a telecommunications company. Thus, by leveraging management teams success in the ILEC business and brand awareness, the ILECs have recognized the ability to meet success as a competitor.

Money Talks

Building a CLEC is a costly proposition, especially when a new carrier does not have the money and power of an ILEC behind it. Athough BTI postponed its initial public offering, the financial markets have embraced a number of CLECs. ChoiceOne (NASD: CWON), Covad (NASD: COVD), DSL.net (NASD: DSLN), Log On America (NASD: LOAX), Net2000 (NASD: NTKK), and Pac-West Telecom (NASD: PACW) all went public during 1999. Bluestar and Jato, two DSL upstarts, and FirstWorld Communications went public during the first quarter 2000. Additionally, Broadview and Birch Telecom have both filed with the SEC to go public during 2000. That brings the total number of publicly held facilities-based or future facilities-based CLECS to 70. Not bad for an industry still in its infancy. We also cannot forget the significant equity investments that occurred during 1999. Paul Allen invested $355 million and $1.65 billion in Allegiance and RCN, respectively. Kohlberg Kravis Roberts & Company (KKR) invested $60 billion in Birch Telecom, Forstman Little invested $1 billion in McLeodUSA, and the Soros Fund invested $50 million in Onvoy. On the other hand, investors dealt harshly with e.spire and GST after their turbulent fourth quarters.

The Revolving Door

Along with a wave of financing has come a number of management changes. Joe Basile of GST resigned after a year at the helm but remains on that company’s board of directors. Convergent Communications named Joseph Zell, former President of US West’s !nterprise Networking, to replace founder, John Evans as President and CEO. This follows a $175 million investment from Texas Pacific Group and Sandler Capital Management. MGC Communications changed their name to Mpower, moved to Rochester, NY, and lost founder Maurice Gallagher, but gained Rolla Huff, former COO of Frontier Communications. @Link moved from suburban Milwaukee to suburban Boulder, CO, leaving their original management team behind with the exception of Doug Zolnick, the CTO. In doing so, @Link has gone from focusing on the Milwaukee and Chicago markets to including markets in Texas and Colorado in their plans. Each management change brought a change in strategy for the companies involved, not to mention experienced executives without jobs. Often, the displaced executives simply turned around and started new CLECs, as was the case with Robert Brooks, formerly of Brooks Fiber, now at Gabriel Communications, Royce Holland, formerly with MFN, now with Allegiance, and Brad Evans, formerly with Phone Michigan and City Signal, now with Cavalier.

New Technologies

The infusion of capital into the competitive telecommunications market has primarily meant one thing: network build-out. As companies build their networks, the buzzword has been “convergence.” CLECs have been at the forefront of recognizing that building two distinct voice and data networks can be a costly endeavor. Therefore, many new technologies have been embraced to meld voice and data into a single pipe. First, softswitches represent a growing trend to break down the central office; that is, to decentralize the functions of a Class 5 switch, thus reducing costs and allowing voice and data transmissions to be transmitted on the same network. Currently, Level 3 and Primary Networks are using softswitches for voice over Internet protocol (VoIP), and as the technology is perfected, softswitches will be used for local calling as well. Closer to the network edge, a number of CPEs and aggregators have been introduced that packetize both voice and data calls, eliminating customers’ need for multiple lines, while simultaneously decreasing providers’ cost of service. But the number one driver of convergence thus far has been DSL.

DSL, DSL, DSL

Data services remain the main driver of CLEC growth. And there is no faster way to get in the data game then to offer DSL. Established CLECs such as Allegiance and Mpower are deploying their own DSLAMs and reinventing themselves as DSL providers. Intermedia, the oldest and largest independent CLEC, is embracing DSL to solve last mile connectivity issues. Additionally, NEXTLINK and PaeTec, two companies that originally had no intention of providing data services, citing that 70% of telecommunications traffic is for voice, have announced DSL strategies. Meanwhile, the straight DSL play has emerged. These are CLECs, or DLECs (data local exchange carriers), that will deploy DSLAMs only and not Class 5 switches. Therefore, the carrier will only have to deploy one network, not two. However, thanks to the technologies touched on above, such as softswitches, even the DLECs will be able to offer VoDSL. This dual ability has caused the number of straight DSL players to grow from nine in 1998, to 21 by the end of

VOLUME I

Chapter 1: Executive Summary

Chapter 2: From CAP to CLEC to ICP: Continuing Trends Shaping the Future of Local Competition

Chapter 3: Forecasting Telecommunications Markets and Revenues

Chapter 4: Still Shaping the CLEC Industry: Key Regulatory Developments

Chapter 5: European Competitive Local Exchange Carrier Industry

Chapter 6: Status of the CLEC Industry: Network Parameters and Revenue Figures

Chapter 7: Market Forecasts: CLEC Growth and Development

Chapter 8: Markets Served by CLECs: CLEC Networks (Operational and Under Development; by City and State)

Chapter 9: CLEC Company Profiles

@Link Networks

21st Century Telecom Group

2nd Century Communications

Actel Integrated Communications

Adelphia Business Solutions

Advanced Radio Telecom Corp.

Advanced Telcom Group, Inc.

Advanced Telecommunications, Inc. (d.b.a. ATI)

Allegiance Telecom, Inc.

ALLTEL Communications, Inc.

AMC Communications

AT&T Canada

AT&T Corp.

ATS Telecommunications, Inc.

Avana Communications

Avista Communications

Birch Telecom, Inc.

Black Hills FiberCom, L.L.C.

BlueStar Communications, Inc.

BridgeBand Communications, Inc.

Broadview Networks, Inc.

BTI Telecom Corp.

Buckeye TeleSystem

C1 Communications

Cablevision Lightpath, Inc.

CapRock Communications Corp.

Cavalier Telephone

CFW Communications

Choice One Communications

Coast to Coast Telecommunications, Inc.

Columbia Telecommunications, Inc. (d.b.a. Axessa)

Communications Options, Inc.

Conectiv Communications, Inc.

ConnectSouth, Inc.

Convergent Communications, Inc.

Conversent Communications

CoreComm, Ltd.

Covad Communications Company

Cox Communications, Inc.

Crystal Communications, Inc.

CTC Communications Corp.

CTC Exchange Services, Inc.

CTS Telecom (d.b.a. Climax Telephone Co.)

CTSI, Inc.

Digital Teleport, Inc.

DSLnet Communications, LLC

e.spire Communications, Inc.

Eagle Communications, Inc.

Electric Lightwave, Inc.

ExOp of Missouri, Inc.

FairPoint Communications Corp.

FiberNet Telecom Group, Inc.

First Regional TeleCom, L.L.C.

FirstWorld Communications, Inc.

Florida Digital Network

Focal Communications Corp.

VOLUME II

Forest City Telecom, Inc.

Futureway Communications, Inc.

Gabriel Communications, Inc.

Gateway Telephone

General Communications, Inc.

Global Crossing Ltd.

Global NAPs

Globalcom, Inc.

Goldfield Telephone Company

GST Telecommunications, Inc.

GT Group Telecom Services Corp.

GTE Communications

HarvardNet

ICG Communications, Inc.

INdigital Telecom

Integra Telecom

InterAccess Co.

Intermedia Communications, Inc.

Ionex Telecommunications, Inc.

ITC^DeltaCom

Jato Communications

Jones Communications (d.b.a. Comcast Communications)

KMC Telecom, Inc.

Knology Holdings

Level 3 Communications

Lightship Telecom

Log On America

Logix Communications Corporation

MCI WorldCom

McLeodUSA, Inc.

MediaOne Telecommunications, Inc.

Metromedia Fiber Network, Inc.

MH Lightnet/Comcast Network Services

Millennium Optical Networks, Inc.

Minnesota Power Telecom

Mpower

Net2000 Communications

NETtel Corporation

Network Access Solutions, Inc.

Network Plus, Inc.

Network Telephone, Inc.

NewSouth Communications, L.L.C.

NEXTLINK Communications, Inc.

Norigen Communications, Inc.

North American Telecommunications, Inc.

NorthEast Optic Network Services, Inc. (NEON)

Northland Communications Group

NorthPoint Communications

Novus Telecom, Inc.

NTS Communications, Inc.

OnePoint Communications

Onvoy

Optel Communications Corporation

OpTel Telecom, Inc.

Orlando Telephone Company

Otter Tail, Inc.

Pac West Telecomm, Inc.

PaeTec Communications, Inc.

PICUS Communications

Pointe Communications

Pontio Communications

Primary Network Communications, Inc.

Prism Communication Services, Inc.

ProSpeed Net

R&B Network, Inc.

RCN Corp.

Reach Communications

Rhythms Netconnections, Inc.

RIO Communications

RNK Telecom

SBC Telecom

Sharon Telephone Company

SunWest Communications

Supra Telecommunications & Information Systems, Inc.

TDS Metrocom

Telergy, Inc.

Teligent, Inc.

TelNet Worldwide

Thrifty Call

Time Warner Telecom

TriVergent Communications

UBNetworks

UniversalCom

US LEC Corp.

US MidTel Corporation

US Online Communications, Inc.

US Telepacific (d.b.a. Telepacific)

US Unwired

US Xchange, L.L.C.

Vitts Corporation

WinStar Communications, Inc.

XIT Communications

Chapter 10: Competitors Watch List

Able Telecom

Access Point, Inc.

ANET/AccessU.S.

Atlantic.Net Broadband, Inc.

Atlantic Telecommunication Systems, Inc.

BellSouth Corporation

C-Systems

CalTech International Telecom Corp.

Cambrian Communications

CityWave Communications Corp.

Coldwater Telecommunications Utility

Combined Telecom, Inc.

Combined Xchange Telecom, Inc.

Computer Business Sciences (d.b.a. CBS)

DynTel Communications

Fiber Communications (d.b.a. NetFone)

Fiber Services (d.b.a. Smart Connect)

Free State Telephone Company

FullTel Communications, Inc.

Great Lakes Comnet, Inc.

Harbor Bay Telecommunications

IDS TelCom

InfoCom Services, Inc.

Inter-Community Telephone (d.b.a. Valley Communications, Inc.)

Interloop, Inc.

Intrigna

IP Communications Corp.

iWay Communications

Koyote Telephone

LightNetworks

Marietta Fibernet

Maverix.net, Inc.

Nebraska Technology and Telecommunications

NECLEC, LLC

New Edge Networks, Inc.

Norcom2000 Communications, Inc.

Northern Valley Communications, L.L.C.

NorthStar Access, L.L.C.

Omniplex Communications Group, L.L.C.

Parker FiberNet, L.L.C.

PDGT.com

PlanetLink Communications, Inc.

POPP Telecom

Progress Telecom Corporation

PurePacket Communications

Qwest Communications Corp.

Rapid Transmit Technology, Inc.

Reliant Energy Communications, Inc.

Rio Virgin Telephone Company

SIGECOM

TCC Communications

Telefficiency

US Online (ISP)

US West !NTERPRISE Networking

Vanion, Inc.

Videotron Telecommunications

Chapter 11: Where Are They Now?

Advanced Communications Group, Inc.

Aquis Communications, Inc.

Beaver Creek Cooperative Telephone Company

Bresnan Communications, Inc.

Cambridge TelCom Services, Inc.

Comav Telco, Inc.

Compass Telecommunications

Highspeed.com

Marathon Communications

Metropolitan Telecommunications (d.b.a. MetTel)

Morris Communications

One Stop Telecommunications

P.V. Telecommunications, L.L.C.

San Isabel

Sprint Communications Company, L.P.

Telephone Plus

US Link

Village Telephone

Chapter 12: Glossary of Terms