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Carrying On: State of the Telecom Industry

Some carriers simply changed owners: Corvis sleight-of-handed its business to take over Broadwing Communications, transforming an equipment supplier into a service provider. Cable & Wireless survives within Savvis Communications, without the C&W name. Yipes, while still having to explain its name, is wiring up more customers. Level 3 Communications managed to stay afloat, thanks to its nontelecom services, which still account for more than half its business.

Meantime, buyer expectations are at an all-time low. Customers don't even look for the best carrier anymore; they just want the "least worst" of the lot. Service quality still disappoints. Billing is a labyrinth. Mistakes are a matter of course. A client in St. Paul, for example, requested a circuit to Rochester, Minn., 75 miles away. Its carrier ordered a circuit to Rochester, N.Y., missing the target by a mere 1,000 miles and blaming the customer for the error. Six months of frustration later, a third party had to be called in to settle the dispute. And the carrier has lost a customer forever.

Even with all these carriers competing, buyers can't tell one from another. Pricing, still in free fall, is the major differentiator, but the old fee-for-transport model no longer works, and until operators recognize the mess they're in and change their strategy, it's just going to get worse. Not every telco is going to die, but most are going to get a lot smaller.

Equipment manufacturers like Cisco have quietly issued a vote of no confidence, shifting their emphasis away from the telcos as a value-added channel. Want the latest in IP telephony or security? Looking for the best discounts? Don't ask a carrier. The future of enterprise telecom is systems integration.

Pioneers like Cbeyond Communications, iPass, MegaPath Networks, NetSolve and Virtela Communications are showing it's possible to provide communications services and please customers. These companies are customizing their services for clients, with a good chance of turning a profit along the way. Some, like iPass, already are profitable.

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