The Telecom Act–It’s Working

Posted: 12/1998

The Telecom Act–It’s Working

By Cronan O’Connell

As you leaf through this issue of PHONE+, the Association for Local Telecommunications
Services (ALTS) is poised to open its Annual Convention and Trade Exposition–its largest
ever–Dec. 2-4 in Las Vegas, drawing thousands of attendees from the competitive local
exchange carrier (CLEC) industry as well as from among the many manufacturers and vendors
who serve them.

We have good reason to be excited, considering how far we’ve come. Thanks to the
Telecommunications Act of 1996, we’ve created almost a $6 billion competitive industry
that has doubled in size every year since passage of the act, and now is providing choice
to customers throughout the nation.

The success of the Telecom Act and the CLECs is tangible and measurable:

• As we approach 1999 and the third anniversary of the act, there are more than 100 CLECs
  doing business in the United States.
• Twenty of these companies are publicly traded, roughly twice the number that were public
  as recently as a year ago.
• To date, the CLECs have raised nearly $20 billion on Wall Street–$17 billion of this
  amount just since the act–and invested $11 billion in local networks.
• The CLECs’ robust local networks consist of 80,000 miles of fiber and 700 digital voice
  switches, including 350 data switches.
• Many CLECs are full-fledged "integrated" providers that offer the complete
  range of local voice services and features. Just as important, they are leaders in
  asynchronous transfer mode (ATM), frame relay and Internet services, as well as a new
  generation of products such as digital subscriber lines (DSLs).

The benefits of the CLECs’ accomplishments are widespread. In hundreds of cities,
businesses can choose from multiple CLECs for local service.

In sum, the CLECs have established a phenomenal track record, creating an all-new
industry–and an all-new network and service infrastructure. Given the momentum of this
engine, it’s hard to conceive that anybody would want to slow it down. Yet there are
opponents who oppose the Telecom Act and the principles of local competition because it
actually works.

The principal critics are the incumbent local exchange carriers (ILECs). Their lament:
The Telecom Act is not what they had imagined. The law requires sustained and robust local
competition vs. what has been presented in their Section 271 applications for provision of
in-region long distance services thus far.

Let’s set the record straight. The ILECs asked for this law. In 1994 and 1995, they
were among the main "movers and shakers" for legislation that would supercede
the authority of the Modified Final Judgment (MFJ), and roundly praised its enactment on
Feb. 8, 1996. The regional Bell operating companies (RBOCs) knew the rules from the outset
because they agreed to them: No in-region long distance until they first opened their
local markets to competition.

Yet despite what they said in support of the Telecom Act during the legislative
process, the ILECs have spent most of their energy, futile to date, trying to skirt around
the law:

• The RBOCs have filed repeated Sec-tion 271 applications with the Federal Communications
  Commis-sion (FCC), even when they knew that they had failed to meet the standards of the
  act.
• They filed so-called Section 706 petitions requesting relief from sections 251, 252 and
  271 requirements for their advanced data services, even though the advanced services are
  offered over the same bottleneck facilities as voice traffic.
• The RBOCs are seeking to eviscerate accounting rules, which reveal cross-subsidies, and
  detailed network information as shown in the Automated Reporting Management Information
  System (ARMIS) reports.
• They are seeking pricing flexibility that would allow them to underprice competitors.
• Already, the RBOCs have set prices for DSL services below the sum that competing CLECs
  must pay for the loop and collocation.
• The RBOCs’ pending mergers are designed to extend the geographic reach of their monopoly
  over the local market, while they simultaneously resist efforts to open those local
  markets.
• A bill, H.R. 4801, was introduced Oct. 9 that would eliminate all pro-competitive
  requirements of the act.

On the eve of the third anniversary of the Telecom Act, the ILECs reportedly are
preparing their biggest-ever policy coup: a blatant attempt to overturn the act itself.
The ILECs’ motive is completely transparent: Having failed in their efforts to sidestep
the law, they want to do away with it. As this new challenge surfaces, regulators and
policymakers need to be more vigilant than ever.

The act works because both the state and federal regulators are ensuring the type of
implementation envisioned by Congress. Pro-competitive Section 271 decisions by the FCC
and the Texas Public Utilities Commission and recent pro-competitive commission staff
reports in Georgia and California have sent the same unmistakable signal to the Bells:
First open the local markets to competition, then apply for in-region long distance.

The Telecom Act is working–let’s keep it in place. Thanks to the act and to the strong
stand of state and federal regulators, the CLECs–and local competition–have come a long
way, bringing choice in local telecommunications and advanced data services to American
customers. Let’s not imperil this progress by letting the ILECs bully the industry–and
customers–back under monopoly rule.

Cronan O’Connell is vice president, industry affairs for the Association for Local
Telecommunications Services (ALTS), the Washington-based trade group representing
competitive local exchange carriers (CLECs). She can be reached via e-mail at [email protected] or by phone at +1 202 969 2595.

ROUNDTABLE

On access charge reform …"The [Federal Communications] Commission should examine
universal service and access charge reform together, since they are critically
linked."
–Sherry F. Bellamy, president and CEO, Bell Atlantic-Maryland

"It is unclear whether the market-based approach can ever be effectively revived.
As a result, access charges remain significantly above their forward-looking costs. To
remedy this situation, the FCC should set specific deadlines by which access charges must
be set at cost-based levels."
–Genevieve Morelli, executive vice president and general counsel, Competitive
Telecommunications Association (CompTel)

"Access charge reform is one of the harder problems in telecommunications
deregulation. The most important factor is to set the ground rules now so that we get
facilities-based access competition in place and then market pricing can reign."
–Solveig Singleton, director of information studies, CATO Institute