Discussion Papers

Ingo Vogelsang

Wettbewerb im Ortsnetz - neue Entwicklungen ind den USA
Nr. 168 / Dezember 1996


The local network is deemed to be the last and biggest bastion of monopoly in the telecommunications sector. While local competition has started to emerge in several US states over the past few years, it has received a real big push only very recently, from the Telecommunications Act of 1996. The new act eliminates barriers to entry and provides substantial entry help to the new competitors of the dominant incumbent local exchange carriers (ILECs). Paramount among the competitive provisions of the act are the duties of the ILECs to provide unbundled network elements and to provide wholesale rebates to resellers of all their services to end-users. As a result, new competitors can start offering local services anywhere, without necessarily having to invest in their own networks. In addition, they have a right to interconnection with the ILECs, to nondiscriminatory access to rights-of-way, and to number portability. At the same time, most of the largest ILECs will receive the long-awaited permission to offer long-distance services in their regions only if they can demonstrate that local competition is happening there.

Although the new competitors and the ILECs are free in principle to reach voluntary agreements about their mutual cooperation, the regulators are always the arbitrators of last resort. As a result, in the short run, regulation actually has been increasing. In addition, traditional cross subsidies will soon have to be replaced by an explicit universal service policy, and an access charge reform is due at about the same time.

Local competition is starting with a number of large, experienced and financially strong new competitors that include the interexchange carriers (AT&T, MCI and Sprint), the mobile carriers, cable TV companies, electric utilities, and ILECs outside their traditional territories. All of these have networks in place that already are complementary to those of the ILECs. In addition, there are the small but fast growing competitive access providers (CAPs), who own broadband fiber rings in business centers and cities. As shown in examples, all these companies are already actively engaged in local network competition, and some of them have big plans in this market. At this stage, take-overs, mergers and strategic alliances already effectively reduce the number of new competitors. Nevertheless, there will be enough left to give the ILECs a hard time and to improve services to end-users.

Although the new US policy on local competition is complicated and bureaucratic, many of its parts are innovative and some even pathbreaking. We may look forward to the effects of institutional innovations, such as unbundled network elements, and to the success of new competitors in conquering the local network.

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