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LEC Long Distance
Effective immediately on passage of The Act, the RBOCs, and GTOCs (GTE Operating Companies) were free to offer long distance services outside their home states. Several did just that, reselling long distance service to their cellular customers; additionally, NYNEX and Bell Atlantic planned to file resale tariffs immediately. Ultimately, they and other RBOCs are likely to place their own switches in support of their own traffic, much as do other facilities-based carriers. On a selective basis, they will also place their own transmission systems, much as do the CAPs.
Their getting into the long distance business at home, however, is another matter entirely and the stakes are HUGE. Even in 1994, the interexchange long distance market was over $67 billion, with AT&T accounting for 55.2%, MCI 17.4%, and Sprint 10.1%. In US West territory (the smallest market) revenues are about $3.5 billion; at the top of the scale, Ameritech accounts for about $8.5 billion. The market is expected to grow at a compound annual rate of about 6% through the end of the twentieth century [16-9]. Clearly, the RBOCs are eager to leverage their brand recognition in their home states, where they are best known and where they enjoy long-standing relationships with customers. Additionally, their in-region intraLATA networks can be interconnected very easily.
In order to offer in-region long distance service, however, the RBOCs must satisfy a 14-point competitive checklist. Each point on the list is intended to prove that they offer competitors free and easy access to local facilities, and at fair and reasonable rates that are based on cost [16-10]. For the first three years after authority is granted, in-region long distance can be offered only on the basis of a separate subsidiary; after that time, the requirement disappears. Interestingly, the GTOCs are free to enter the interLATA market immediately and without restriction [16-11], even in-region. With the exception of Los Angeles, however, GTE does not serve any truly significant markets, although it does serve a number of major market suburbs (e.g., Irving, a suburb of Dallas, TX). As GTEs far-flung service areas dont generate enough traffic between them to support in-region networks, this issue likely is moot for GTE.
Interconnection: The Quid Pro Quo
Interconnection is an issue of great significance. The voice world always has been fully interconnected, while the data world has been less so, and the CATV world never had much use for the concept. In the world of convergence, all the competing carriers will offer some combination of voice, data, and content/entertainment. Voice and interconnection are the operative words here, as any viable service package must include voice and Internet access, which absolutely require interconnection through local loop facilities.
Interconnection issues cut several ways. Clearly the IXCs, CATV providers and other competing carriers are concerned about the terms under which they can connect to the existing local loop infrastructure in order to reach the customer quickly. While many of them will build or rebuild infrastructure to do that independently, that will take time and will be on a highly selective basis, addressing areas where market potential justifies the investment. On a wireless basis, the costs will be in the range of $750 to $1,000 per premise, with uncomfortable bandwidth constraints. On a wired basis, the costs will be more in the range of $2,000 to $5,000 per premise for a new plant and $500 to $750 for CATV and telephone company rebuilds and retrofits. Clearly, this level of investment is not trivial. In the meantime, the competing carriers must have access to the embedded local loop plant owned by the incumbent carrier. The terms of that interconnection are the immediate issue.
As we have discussed, the LECs must satisfy a checklist of 14 points in order to provide interLATA long distance within their home states. Most especially, they must satisfy the state PUCs, DOJ, and FCC that interconnection is a significant reality or, at least, is significantly available on reasonable terms. Further, the costs of interconnection must be at levels that reflect real costs in order that the competing carriers can buy local loop access at compensatory wholesale rates to allow them to retail those loops at competitive prices. Those costs must be unbundled in order that switch costs, for instance, not be applied to non-switched facilities.
The act identifies a minimum set of network elements to which access must be provided on an unbundled and nondiscriminatory basisindividual states may add to that list. The list of elements includes the following:
On one hand, the LECs have an interest in being agreeable, so that they can speed the process and wrest themselves free of the restrictions. On the other hand, they have an interest in delaying the process until such time as they can solidify their market positions. One could argue either way, and many do. The LECs suggest that their costs are very close to their tariffed retail prices for local loops and that wholesale discounts in the range of 5% are appropriatethat, in fact, is the discount offered by Rochester Telecom in its Rochester trial. AT&T and others suggest that the discounts should be more in the range of 25% to 40% [16-10]. Notably, AT&T virtually withdrew from the residential local service market in Rochester, claiming that it couldnt survive in that market at those prices [16-12]. The battle lines appear to have been drawnthe PUCs, the DOJ, and the FCC will sort it all out, the courts will get involved, and so on. This issue is far from resolution.
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