Local Telecom Competition Growing – FCC

Local Telecom Competition Growing – FCC – Government Activity

Robert MacMillan

Despite the fact that they soon may lose one of their prime revenue streams, competitive local exchange carriers (CLECs) are reporting healthy progress, experiencing a 53 percent growth in the local phone service market in the first six months of 2000, according to a new report from the Federal Communications Commission (FCC).

The report comes amid growing fears from the CLEC camp that the FCC is planning to eliminate what is, for them, a lucrative program called “reciprocal compensation,” which allows them to make large sums of money off previously existing local phone companies.

The report, which collected information from “qualifying” CLECs on Sept. 1, showed that they provide about 6.7 percent – or 12.7 million lines – of total end-user local telecom service to US customers. There were approximately 192 million local service lines in operation as of June 30. The FCC said that CLECs served 4.4 percent of the nation’s lines, about 8.3 million customers, at the end of 1999.

The CLEC industry has spent the past several years trying – often in vain – to get more cooperation from baby Bells and other incumbent carriers to break into the local phone service market.

The baby Bells, meanwhile, have fought against some of their newfound competition on a number of other areas, saying that federal policies are designed to put them at a competitive disadvantage, and that local phone company payment swaps under programs like reciprocal compensation, unfairly benefit CLECs.

Reciprocal compensation has been a financial ace in the hole for CLECs. The program requires one local phone company to pay a fee to another each time the first company’s customer makes a call to the second company’s customer. Since many CLECs handle clients who operate Internet modem banks, all they do, normally, is receive calls – often from customers of baby Bells – requiring those baby Bells to hand over large amounts of money.

The FCC plans to release a new rule – as early as this month – which could end all that, however. Baby Bells have refused to pay many of their reciprocal compensation fees, having originally signed off on the plan but then discovering that they would be the primary payers under the scheme. Individual courts have handled some of these cases, and the FCC, for the most part, has let the issue be decided on a state-by-state basis while trying to formulate a plan to ease the financial pressure on the baby Bells while not killing the CLEC industry in one blow.

As some CLECs are operated by long-distance giants like AT&T, this is unlikely to affect the larger companies, but many CLECs are small startups, which could sustain heavy losses in their balance sheets after the FCC acts.

While the CLEC market has achieved less than double-digit percentage growth against the Bell operating companies (incumbent local exchange carriers, or ILECs), the FCC said that CLECs are serving large business, institutional and government customers, while ILECs continue to dominate the residential and small-business customers.

The report said that more than 60 percent of CLEC local telephone lines serve larger customers, while ILECs devote nearly 80 percent of their phone lines to the small business and residential market.

The FCC said that the statistics just released are part of its local competition and broadband data gathering program, which was adopted in March 2000 to monitor and implement the deregulation and pro-competitive provisions of the Telecommunications Act of 1996, which sought to end the baby Bell monopoly over local phone service enjoyed since the 1984 breakup of AT&T Corp.

The report also showed that CLECs offered about one-third of their end-user lines on their own local loop facilities, while the other two-thirds are accounted for by reselling other telephone companies’ services or leasing unbundled network element loops from ILECs.

ILECs, the report said, provided about 5.7 million resale lines, compared to 4.7 million at the end of 1999, and 3 million unbundled network element loops in the first six months of 2000, compared to about 1.5 million at the end of 1999.

The FCC also said that “at least one CLEC” served customers in 54 percent of US ZIP codes by June 30, containing more than 86 percent of US households, and that the only parts of the US not served by any CLECs are Idaho, Washington, DC, and Puerto Rico.

Reported by Newsbytes.com, http://www.newsbytes.com .

14:25 CST

(20001204 /WIRES ONLINE, LEGAL, TELECOM, BUSINESS/FCC/PHOTO)

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