The Phone Company vs Its Competition

In every area of the country there is an incumbent phone company that owns the local phone network.  In larger cities, smaller phone companies, called Competitive Local Exchange Carriers (CLECs) lease part of the incumbent’s network to deliver phone and internet services to local businesses.  So, in every major city in the country a business can choose to do business with the local incumbent or one of its competitors.

Some companies are reluctant to do business with the incumbent’s competition.  They feel that way for any of a number of reasons.  They might have had a bad experience with a CLEC in the past.  Some feel the competitor is only reselling the incumbent’s network, which could lead to repair delays.  There is the fear of the unknown; many companies don’t want to risk jeopardizing their businesses by dealing with a provider that might not be able to successfully deliver services.

Advantages for the incumbent phone company: 

If there’s an outage, the incumbent might be able to do more to help you.  The incumbent has multiple wire centers and could redirect traffic from one area to another.  Incumbents have more technicians and manpower to throw at a problem.  Since incumbents own the entire network, they have more visibility and should be more successful diagnosing a problem.  Competitors can only monitor their own networks, so they might not be able to see what’s at the root of a problem.

Incumbents offer more comprehensive services.  If you are a growing business, you might outgrow your existing technology and require more sophisticated services than a CLEC has to offer.  For instance, moving from a copper based service to Ethernet.  If you were dealing with the incumbent, you would be able to stay in contract and upgrade.  If you were being serviced by a CLEC, you might need to cancel your current services and face termination penalties or retain duplicate services until contract term.

Incumbents have much larger and more comprehensive service areas.  If you’re a business and want to open or move to a new location, the incumbent provider is more likely to be able to service your new location.  With a competitive provider, their limitations and cancellation policies might dictate where you can move or expand.  Incumbents can provide service in the smaller cities surrounding a larger city.  That’s typically not the case with competitive providers.  Also, if you have locations that span beyond local calling areas, many incumbent providers offer services that provide free on net calling.

Incumbents are more likely to stay in business.  It would be close to impossible for an incumbent phone company to go out of business.  They own the phone network and provide a vital service, so government would step in if there were a major financial crisis.  It’s not like it was in the late 90’s but a competitor is much more likely to dissolve than an incumbent.

Next week: Competitor Advantages. 

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