Chapter 1: Introduction

Overview

In the late 1990s, the telecommunications boom went bust because new market entrants, known as Competitive Local Exchange Carriers (CLECs), were forced to compete with Incumbent Local Exchange Carriers (ILECs) on the same financial terms of the incumbents. The failure of the CLECs resulted in a net investment loss of approximately $3 trillion, adversely affecting capital markets and severely depressing the overall telecommunications economy as well as saddling subscribers with artificially high rates.

The Telecommunications Act of 1996 aimed to introduce competition in the local loop by legally requiring incumbents to lease space on their switches and provide access to their subscribers to any and all competitors. New market entrants found themselves stonewalled in the courts by the incumbents when attempting to gain legal access to the incumbents' facilities. Once legal access was gained to the incumbents' switching facilities, the incumbents conveniently forgot the orders or otherwise sabotaged the operations of the CLECs in the incumbents' switching facilities.

Given the astronomical expense of deploying a conventional, but alternative network or the legal obstacle of gaining access to the Public Switched Telephone Network (PSTN), it is not surprising that seven years after the passage of the Telecommunications Act of 1996, only 9 percent of American residential phone lines are handled by competitive carriers. Given this dismal figure, it is clear that regulatory agencies such as the Federal Communications Commission (FCC) and the utilities commissions of the 50 states have failed to adequately enforce either the letter or spirit of the Telecommunications Act in regards to introducing competition in the local loop.

A competitive local loop environment has two apparently insurmountable obstacles: (1) the high cost of Class 4 and Class 5 switches and (2) gaining access to the local loop network. At the time of this writing, despite the guarantees contained in the Telecommunications Act of 1996, it appears obvious that competition will never come in the local loop but will have to come to the local loop in the form of an alternative network. The only way consumers will enjoy the benefits of competition in the local loop is when alternative technology in switching and access offers a competitor less barriers to entering and exiting the telecommunications market. If telecommunications consumers are supposed to enjoy the benefits of competition in their local loop, the ability to bypass the switching architecture to gain access (via copper wires from the telephone company) must be offered.