Dial tone update: what's the status of competition for local telephone service?

• Author: McKimmie, Kathy
• Position: Communications - Brief Article

When Congress passed the Telecommunications Act in 1996 and broke up the Baby Bells' monopoly in local phone service, competition was expected to heat up, in much the same way that competition for long distance had a decade before.

Six years down the road, Mike Leppert, executive director of the Indiana Utility Regulatory Commission says, "The Telecommunications Act has allowed companies like Time Warner Midwest Telecom, Choice One and other upstart companies to get into the market and provide competitive choices. The commission's goal is to see these companies flourish."

The local phone companies that wired your home and office prior to the Telecommunications Act--called incumbent local exchange carriers (ILECs), Indiana's biggest being SBC Ameritech, Verizon and Sprint--want to keep their customers, and the post-Telecommunications Act competitive local exchange carriers (CLECs) are vying for a share of your business.

And business is the operative word here. CLECs have concentrated on the more lucrative and viable business market, where they now provide 17 percent of service, as opposed to 2 percent of the residential pie. Overall, because residential lines vastly outnumber business lines, only 8 percent of Indiana customers bought their service from CLECs at year-end 2000, the latest numbers available from the IURC.

John Koppin, president of the Indiana Telecommunications Association, a 40-member industry trade group, says if the current rate of increase continues, 10 to 12 percent of local service could be provided by CLECs when the calendar year 2001 numbers are in. "Is that what it's supposed to be, ought to be? I don't know," he says. "The problem is, the economic downturn has impacted our industry, as you can imagine. Many of the competitors, like McLeodUSA, ended up going Chapter 11. The financial health of the industry was exposed."

IURC reports show that 46 CLECs are providing local service in the state (although more than four times as many are licensed to do so), primarily in the larger cities. Some CLECs merely pay to access ILECs' phone lines and resell the service to customers, usually as part of package of telecom services. Others, known as "facilities-based" CLECs, have invested millions of dollars in their own lines, many running to multiple-tenant office buildings.

AT&T, the largest nationwide provider of long distance, entered the Indianapolis local phone service market in a big way in 1998 after laying 400 miles of...