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Marwan Dalloul doesn't have a problem letting telecommunications companies have access to the the roof or basement of his office building on 42nd Street in midtown Manhattan. But they'll have to pay him first. That puts Dalloul, a partner at Manhattan-based American Properties, in the crosshairs of a growing number of upstart telecoms. They want the Federal Communications Commission or Congress to mandate open access to commercial buildings across the country at a price the government -- not landlords, like Dalloul -- decides upon.
Such a mandate, say the telecoms, would ensure fair competition in the sizzling business of providing broadband, bundled data, voice, and video services to multitenant commercial properties. Ultimately, they add, injecting competition into state-of-the-art telecom services, which remain pricey in big urban areas, would be good for the economy. For example, a T-1 line can cost up to $1,500 a month for just one tenant in a commercial office building. "The speed at which people gain access to new services and lower prices is affected by how quickly equal access to the buildings is achieved," says David Turetsky, senior vice-president for law and regulatory affairs at fixed wireless provider Teligent.
But building owners such as Dalloul say any legal intervention would be a taking of their private property and a violation of the Constitution unless they are fairly compensated for it. What's more, they don't want to be held responsible for the equipment on their premises. "I think it's ridiculous. If there's a problem with the equipment, then we'll get blamed for it and have to fix it," says Dalloul. At stake is the future of 375 new telecom businesses that booked revenues of $26.9 billion collectively last year. But with the exception of only three companies, all failed to turn an operating profit.
BIG SPENDERS.
Called competitive local exchange carriers (CLECs), these upstarts sprang from the 1996 Telecommunications Reform Act, a massive congressional missive aimed at giving life to moribund telecom markets. CLECs represent a wide variety of technologies ranging from fixed wireless providers such as Winstar Communications and Teligent, to high-speed DSL providers like Covad Communications, to high-speed business Internet connectivity providers such as IntelliSpace.
All told, CLECs have invested more than $30 billion since 1996 and continue to invest $1 billion a month to build out their networks. This alternative telecom infrastructure now includes 10.4 million access lines, which represents about 7% of total access lines in the U.S., according to the Association for Local Telecommunications Services, a CLEC trade organization.
With their spiffy new technology and the clout of the 1996 reform act, the CLECs have begun to take on the Bells, Sprint, and MCI WorldCom. They hope to skim off high-paying, data-munching business by delivering bundled local communications services or discounted services to urban areas at rates that are 30% cheaper than those offered by the big providers.
The CLECs have managed to get into only 16,000 of about 750,000 commercial office buildings in the country
So far, the telecom upstarts have chalked up impressive growth. Revenues have risen more than 11-fold since 1996, according to New Paradigm Resources Group, a consultant group that serves CLECs. Seeing the growth and the possibility of picking off revenues from the slow-moving Bells, venture capital has gushed to the CLECs to the tune of $7.43 billion in 1999, according to Credit Suisse First Boston.
But, led by Winstar and Teligent, the CLECs have managed to get into only 16,000 of about 750,000 commercial office buildings in the country. That's not enough to achieve the critical mass they need to compete. And many CLECs claim landlords are slowing their growth by refusing to give them access to rooftops and basements so they can place dishes and switches. The landlords, in some cases, claim that the traditional telco facilities, which usually provide high-speed capacity, are enough. In a boom market with a tight real estate picture, some landlords feel no compulsion to sign deals for telecom diversity, particularly when many tenants are locked into multiyear deals.
Worst of all, say the CLECs, some building owners try to gouge them by demanding exorbitant equity stakes or hefty percentages of service revenue. "Some building owners have taken a position that unless you are going to give us a piece of your business, we are not going to talk to you," says a top executive at one large CLEC who asked not to be identified.
EXAGGERATED CLAIMS?
In contrast, the Bells and other traditional local-phone providers usually get carte blanche to go into buildings. The CLECs complain that their established rivals are still riding on their past role as fulfillers of the Universal Service Act, which mandated providing phone service to as many Americans as possible. But in today's wireless world where universal access is no longer an issue, they claim that the Bells' entrée to properties gives them a major leg up on rivals. "You cannot compete in the telecom market if you're paying a building owner 10% of your revenues when your monopoly competitor is getting free access," says Glenn Manishin, a partner at Patton Boggs, the Washington (D.C.) law firm that represents Winstar.
Commercial landlords counter that accusations of price gouging are wildly overstated. According to a survey of 4,000 office-building owners taken by the Building Owners & Management Assn. (BOMA), the average rent per square foot in the U.S. is $20 dollars, of which only 12 cents comes from revenue-sharing agreements with CLECs.
The landlords say CLECs sing a sad song to Congress while singing a happy tune to expectant shareholders. And building owners also believe that the jousting for access is no more than a manifestation of a healthy market economy. "Nobody is telling the CLECs that they have to do the deal. If it's too expensive, they can go elsewhere," says Gerry Lederer, BOMA's vice-president for government and industry affairs.
WHAT IS "FAIR"?
Some CLECs claim to be having no trouble at all signing up buildings. For example, Marc Josephson, CEO of New York-based IntelliSpace, thinks that government intrusion is unnecessary and that companies will find a way in the free market to provide better services at lower cost. Even the landlords admit that giving multiple telecom providers access will make their buildings more marketable and improve the quality of their rental space.
But a showdown is building. The CLECs have petitioned the FCC to issue a ruling on access, and insiders say it could come as early as this summer. To date, these same sources say, the FCC has come down strongly in favor of equal access. But the real estate and telecom lobbies wield considerable power in the nation's capital.
On Capitol Hill, Representative Michael G. Oxley (R-Ohio), chairman of the telecommunications subcommittee of the House Commerce Committee, is sponsoring a bill that would force access to rooftops of commercial buildings but award building owners "fair" compensation. What fair means still hasn't been specified. Lobbyists on both sides don't see any legislation passing Congress this year. The Oxley measure is flatly opposed by the real estate lobby and is regarded as only a prelude to more serious legislative attempts next year. Meantime, the CLECs will keep knocking on the landlords' doors.
Alex Salkever in New York EDITED BY DOUGLAS HARBRECHT
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