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By 1984, the United States had thick telecommunications backbone of fiber optic cable in place. So much, in fact, that AT&T, MCI and US Sprint, "The Big Three" in the long distance business, were glutted with capacity.
When AT&T and the Bell systems were split up that same year and the long distance business was deregulated, facilities-based companies, such as The Big Three, were happy to sell large blocks of long distance time at discount prices.
For budding telecommunications entrepreneurs, resale of this long distance time looked like a great opportunity to make a killing on a relatively small investment. Hundreds of new businesses jumped into the market.
"It was a very open field at that point for those companies that were not facilities-based. It didn't take much to go into business," says Peter Arth, assistant general counsel to the Public Utilities Commission.
Today, the number of long distance resellers has been whittled down to 100 or so companies in California and about 500 companies nationally, according to industry figures. Inexperience and underfinancing did in the weaker firms. Now, in an increasingly competitive environment, small margins are causing a further shakeout in the $55 billion long distance industry.
For the business buyer in search of lower long distance rates, the resellers offer a variety of products. The resellers target the high-volume-business customer, but the volume of usage is not a limitation in choosing a reseller. A variation on the reseller approach is the aggregator, who sells blocks of long distance time to smaller firms.
The resellers that have survived in the competitive long distance market not only tend to be well-financed, they are coming up with value-added services to raise margins and attract customers. Com Systems, a Van Nuys-based reseller with offices throughout California and five other western states, has established a strong presence at the low-priced end of the market. Its customers range from tiny to large, buying anywhere from $50 to $100,000 a month in long distance time.
"We're currently fourth in the region," says David Chesterfield, Com Systems' vice president of long distance marketing, adding that the company is generating $180 million in revenues.
Larger resellers such as Com Systems own their own facilities, a heavy investment, but one that opens...