Vancouver-based Cannect Communications has signed on
to launch the first national rollout of Nortel Networks’ next-generation Succession Solutions. The five-year, $97.5 million deal allows the two-year-old competitive local exchange carrier (CLEC) to leapfrog existing TDM technology and sell customers a carrier-class packet network offering voice, data and Internet services on one ATM pipeline.
“We’re moving directly from a resale of voice to next
generation facilities with no legacy in between,” said an enthusiastic George Horhota, the president and CEO of Cannect. Horhota expects the move to Succession Solutions will save his company 50 per cent in capital costs and 45 per cent in operating costs. He vowed to pass the savings on to Cannect’s 1,300 customers in Vancouver, Calgary, Ottawa and Toronto. The company is also hoping to launch sales to small- and medium-sized businesses in 500 more buildings in those cities over the next five years.
“[The major incumbent local exchange carriers (ILECs)] will definitely lose some business to the CLECs in the small and medium market, at least in the short term,” said Jordan Worth, an analyst with Toronto-based IDC Canada Ltd., of the Cannect deal. As a “greenfield” player, with no legacy equipment, Worth said Cannect has an advantage in becoming a next-generation technology carrier over companies like Bell and Telus, who have too much money invested in existing TDM networks to forklift them out and move to new technology.
However, Worth warned not to expect any CLEC to begin making a dent in the ILECs’ larger-sized business customer base.
“You can’t just start up a phone company and handle
40,000 lines and all the complicated data requirements, and LANs and WANs and intranets,” he explained. “There’s just no way a small company could ever do that.”
Mark Quigley, a senior analyst with the Brockville, Ont.-based Yankee Group in Canada, figured the ILECs will try to fend off CLEC offensives on their customers by appealing to loyalty.
“I think the established incumbent players, Bell and
Telus, will probably take this tact: ‘Hey, we’ve been around basically forever. You’ve trusted us in the past. You were able to count on us in the past. You can continue to do that because we guarantee the best service in Canada,'” Quigley said.
Neither analyst believed Cannect’s new technology is
going to change the pricing paradigm for local or long
distance charges. “These guys are not interested in competing entirely on price,” Quigley said. “Because if you do that, you drive your margins down, which means it’s much more difficult to make money. There will be more competitive pressure on the side of quality of service.”
Cannect is the second major Canadian customer to
select Succession Solutions, after Bell spin-off Intrigna signed on to deploy the technology on a regional basis.
On the same day Cannect announced its selection of
Nortel equipment, the company received $33 million in private equity financing, arranged by Toronto’s Research Capital. Nortel was a participant in the private placement.
Although it took Cannect a full year to decide on
Nortel (Lucent Technologies was also included on its
shortlist), Barrie Mackie, the CTO for Cannect, said the company was always committed to skipping TDM networks because of their inefficient use of bandwidth. With TDM, every user on the network is assigned bandwidth, whether they are using it or not, creating backlogs.
“In our network, as voice traffic goes up, the data
goes down, as the voice traffic goes down, the data just takes the bandwidth up and transmits faster,” he said. “In other words, [the customers] use one pipe and they get to use all the bandwidth, anytime.” Mackie said Cannect hopes to finish testing its Vancouver switch by the end of July, and plans to begin selling the IP network to customers on the West Coast by August. The Toronto switch, which can handle traffic for the East Coast, will be installed next