In my continuing series of writing about interesting competitors, today’s blog is about Sonic, a CLEC and fiber overbuilder working in the San Francisco Bay area and other communities in California. It’s an interesting company because they are the poster child for building a competitive telecom company based upon the rules established by the Telecommunications Act of 1996. That Act required that the large telephone companies unbundle their networks to allow competitors to use their copper lines.
Sonic got started in 1994 as an ISP, then became a CLEC in 2006 and followed the path envisioned by the 1996 Act. This meant collocating electronics in AT&T central offices to provide DSL to customers over unbundled copper loops (UNEs). The company found a receptive customer base since they offered faster broadband than AT&T’s at an affordable price. They grew to be collocated in 200 AT&T central offices around the Bay Area, Sacramento and greater Los Angeles. These offices are tied together by the use of unbundled interoffice transport – also created by the 1996 Act. They originally deployed DSL that used one copper pair but have migrated to VDSL2 and other faster versions of DSL that use two copper pairs and delivers significant bandwidth. They still have almost 50,000 customers in the region using this technology.
What’s interesting is that Sonic did this starting in 2006 – a time by which much of the rest of the industry had written off the use of telco copper. The UNE business plan got a sour reputation with many in the industry when the CLEC industry using UNEs spectacularly imploded in 2001-2002. This collapse of the CLEC industry was due to a perfect storm of economic events and had little to do with the benefits of using telco copper.
If anything, it’s easier to use telco copper today because today’s DSL technology is far better than the DSL in 2000. Sonic and other CLECs are able to provide fast and reliable broadband using ADSL2+ and VDSL2, bonded over multiple copper pairs. Most people in the industry are probably surprised to hear that Sonic can use bonded copper UNEs to provide speeds as fast as 400Mbps to serve businesses. The usefulness of unbundled UNEs is far from dead.
Sonic also reaches roughly 25,000 customers using resale. This allows them to sell the same DSL products sold by AT&T in locations where they don’t have collocations. All of the Sonic products offer a bundle with a voice product that includes all of the expected features plus unlimited calling to the US and to landlines in 66 other countries. They are still finding strong demand for the voice product – something that also might surprise many in the industry.
Five years ago the company decided to use the cash flow from the UNE business to build fiber. Their fiber network now covers roughly 1/3 of the City of San Francisco, plus Brentwood, Sebastopol, Albany, Kensington and Berkeley in the East Bay. They are eying other markets around the region, the state, and beyond. They are an aggressive competitor and their fiber product line starts with a symmetrical gigabit for $40 per month, bundled with the unlimited voice product. They won’t publicly disclose the number of fiber customers, but their goal is to soon have more customers on fiber than on DSL. In my opinion, this is the essence of the vision of the 1996 Act – a transition from UNEs to facility-based networks.
The company’s biggest worry right now is that the FCC recently got a petition from the large telcos asking to end the use of unbundled network elements (UNEs). The big telcos argue that the UNE business plan is obsolete and that there is sufficient competition in the marketplace without unbundling their copper – while also claiming that “In the residential marketplace, competition will not be materially affected by forbearance from Section 251 ( c )(3) because there is effectively no remaining UNE-based competition in that marketplace.” and that “To the extent CLECs serve residential customers using ILEC facilities, they do so on commercial platforms.
But Sonic and a number of other CLECs using UNEs show this to be untrue. Given that just Sonic alone serves nearly 50,000 California households with UNEs these claims are incorrect and misleading. Sonic is using the unbundled copper in exactly the manner envisioned by Congress when they wrote the 1996 Act – to allow competitors to place the best technology possible on the telco copper networks. The Congress at the time reasoned that telephone ratepayers had paid for the copper networks and that the public ought to derive any benefits possible from the networks they had paid for.
The big telcos have always hated the idea of unbundling their networks. They have slowly chipped away at some of the products envisioned by the 1996 Act such as access to telco dark fiber. They would love to kick CLECs like Sonic off their networks – and in Sonic’s case that would deprive 50,000 customers of fast DSL and telephone service at prices they can afford.
Almost every major market in the country, and many smaller ones have CLECs that use unbundled network elements to provide DSL – usually the newer and faster DSL that the telcos won’t invest in. The telcos are slowly walking away from DSL which can be seen by the huge numbers of customers switching to the cable companies.
But CLECs like Sonic have used the copper to bring products that people want – and, unlike the telcos they are pouring those profits back into building fiber to these same communities. That’s exactly what Congress had in mind in 1996 and it would be a shame to see the FCC choke off some of the companies who are offering a competitive alternative to the big cable companies.