STARTUP TELECOM STRUGGLES TO SURVIVE IN BRAVE NEW MARKETPLACE BY LIZ STEINBERG Daily Record Business Writer

Bret Mingo readily admits that he doesn’t know where his company, Core Communications Inc., will be in five years.

The fate of competitive local exchange carriers such as Core Communications is contingent upon the cooperation of the competition, namely the longstanding monopolies such as Verizon that created and maintain the necessary telecom infrastructure. Core’s president, Bret Mingo, shown here with lawyer Michael Hazzard, left, and general counsel Chris Van de Verg, right, understands the precarious situation in which this relationship places his company.

The Annapolis-based telecommunications company could be a thriving operation, providing Internet connections to residents across the state, says Mingo, the firm’s chief executive. Or, Core could be out of business.

It all depends, he says, on Verizon, the dominant telecom company in Maryland and throughout the Northeast United States.

Core is one of the more than 300 so-called competitive local exchange carriers (CLECs) that have popped up since the passage of the Telecommunications Act of 1996, which opened up the marketplace to competition. Many CLECs have had a rough go of it, as about 10 percent of such companies have gone belly-up every year since 1993.

As CLECs are arguing across the country, Core asserts that the major regional operator is not playing by the rules.

Core is suing Verizon, alleging that it slowed the physical connection of the two companies’ networks, contrary to both a contract between the two and the Telecommunications Act. Verizon’s policies “unnecessarily and illegally delayed Core’s local service roll-out in Maryland” by four months, Core asserts. Consequently, Core’s clients — primarily Internet service providers (ISPs) — would have been unable to service customers who log on via dialup connections.

Verizon representatives dispute the allegations, maintaining that contractual obligations have been met. “From our perspective, this is a very cut-and-dried contract dispute. This is a legal matter. Core is trying to turn this into a technical matter, which it is not at all,” said John Gilbert, director of state regulatory affairs for Verizon. “We followed our agreement with Core to the letter.”

Helping hand

Regardless of how the litigation plays out, Core’s situation clearly illustrates how difficult it is for CLECs to make it. Many such companies need the infrastructure created and maintained by the longtime monopolies. In other words, they need the cooperation of the competition.

“In a fully competitive environment, we have services and specialization that [would] allow us to thrive and grow,” said Mingo, projecting that his company could provide 10 percent of all Internet connections in Maryland by year’s end.

But without what he considers “a fully competitive environment,” Mingo admits: “We could be out of business.”

Interconnection is particularly important for Core, a privately owned, regionally based company, Mingo says. Without interconnection, Core’s service capabilities are limited, and the company cannot sign on new users as quickly as necessary.

“As a young CLEC, we are very aggressive about getting interconnected, as we should be,” said Chris Van de Verg, Core’s general counsel. “As a small entrepreneur company in a market with a lot of demands, we can’t wait, and we can’t afford to let Verizon stall.”

Core is not under Wall Street pressure as many CLECs are. Between February 2000 and February 2001, CLEC stocks lost a collective 63 percent in market value. Core is under different pressure due to the company’s regional status, Van de Verg says. Companies with nationwide business plans aren’t under the same pressure to establish a metro region customer base as quickly as Core is.

Local service “is pretty much the only thing we offer,” Mingo said. “If [Verizon doesn’t] want to talk with us, we’re not in business.”

Although Core is a relatively young company, Mingo is confident that there is consumer interest in the CLEC’s services. “Most businesses, when they’re younger and growing, don’t necessarily have the same confidence as we do.”

In spite of his confidence in the marketplace, Mingo says it is difficult to predict how the company will grow. The climate for CLECs is complicated and uncertain.

Changing FCC regulations controlling whether or not both carriers can receive compensation when a call is transferred through interconnected networks will change opportunities for profit on the market, and may change the way different sectors grow, he says.

Core will continue to face the same issue that it has been dealing with all along — the issue of competition, Mingo says.

“It comes down to how the regulators and the lawmakers want competition to exist,” he said. “It’s a very, very mixed crowd. We have some lawmakers who are very pro-competition; we have some who basically said competition doesn’t work.”

Concluded Mingo: “That concerns me.”

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