CLEC Saves Money with Prefabricated Central Offices

By Wayne Kawamoto

In a competitive environments like the telecommunications business, a company succeeds if it finds a strong niche in which to sell its products and services and by adding innovation that saves time and money.

KMC Telecom has experienced rapid growth with a strategy that markets telecommunications products in tier 3 cities.  To that successful strategy, it added one innovation: The use of prefabricated central offices greatly reduces the cost and time of introducing services in new areas.

KMC Telecom offers  local and long distance voice service, data and Internet access in the Mid-Atlantic and Southeast regions.  Among the cities it services are Huntsville, Alabama, Shreveport and  Baton Rouge, Louisiana  and Hampton Roads, Virginia. 

In 1998, the company had revenues of $22 million, and expects revenues of between $65 and 70 million by the end of 1999. More impressively, KMC expects to maintain this astounding rate of growth through the year 2000 with revenue goals of $150 million.

"We have done this by predominantly selling to business customers, as well as to carrier services," says Martin McDermott, Executive Vice President Marketing."Our growth will come through the Internet with additional products and services in the major product categories." The company's major thrust in 2000, he says, will be in the areas of DSL, voice response, and voice recognition.

According to McDermott, a big reason for the company's success is that it sells to tier 3 markets that have largely been ignored by others.

"There's relatively little competition and little advanced technology in these markets," says McDermott. "The infrastructure is copper analog, and it hasn't been upgraded much. Our technology, which is based on fiber, provides high speed and security."  Another difference, he says, is that KMC sells to smaller companies in which the competition shows little interest.  Many of KMC's customers provide revenues to the company of $1000 per month or less.

Like many CLECs, KMC built its first eight central offices by finding a suitable building in a new area, renovating the building's electrical, heating, and air conditioning units, and installing the necessary equipment and connections. After building the first eight central offices in the conventional way, the company needed to build 15 more offices quickly. Then it hit upon the idea of using prefabricated buildings.

"Bell built their own central offices, and we decided to take a page out of their book and build our own," says McDermott. "Technology lets us do this because switches are smaller, which means that the buildings can be smaller." According to McDermott, earlier central offices were big buildings that could allow for expansion. But KMC's prefabricated central office approach lets the company quickly install a building that can serve the immediate demand.  Later, —when they need to expand, the company only needs to add more buildings.

KMC works with an Atlanta-based company that manufacturers prefabricated concrete buildings. KMC orders buildings that are 17 x 28 feet, which is the largest size that can ride on a flatbed truck. The building is placed on a truck and sent to the Lucent manufacturing facility in Atlanta, where a class 5 switch is installed by factory technicians.

Meanwhile, KMC coordinates the rights of way, and installation of electrical, and other connections at the central office site. After testing, the building is brought to the site, where a crane lifts it from the truck and onto a foundation. Once it's bolted down and all connections are made, the new central office is ready to go.

KMC says that it can build a central office in about 6 months, while it took as long as 14 months to renovate an existing building. Also, the prefabricated approach is about 40 percent cheaper. The company will finish 14 of these prefabricated installations this year.

While the savings in time and cost are attractive, the use of prefabricated buildings creates innate challenges. "There are lots of logistics," says McDermott. "You have to buy and manage land, and manage the horizontal construction. There's lots to organize—more so than renovating a building."

McDermott recalls one time, when the pre-made unit arrived on a flatbed truck, someone had forgotten to order the necessary crane, which was needed to lift the building onto its foundation. The company had to call and wait four hours for a crane to arrive. 

KMC is a privately owned company that has raised $1.2 billion through bond offerings and investments from major companies such as Morgan Stanley, and First Union.    And for this CLEC, at least, comptition lead to innovation, which, the company believes, is leading to a bright future.

“The promise of competition is to provide better service at a lower cost,” says McDermott. “KMC is a CLEC that is successfully delivering on this promise.”