by Ed Mass

Local competition for telephone services, as we saw when long distance competition began, causes lower rates and greater innovation of new services. These are the biggest benefits that always accompany competition. But the path to obtain these benefits can be confusing as we see multiple vendors offering a variety of services with varying degrees of technical sophistication and capabilities. This article reviews companies that are or will be offering local services. It discusses the services being offered, the varying means of offering the services and some key questions to discuss with the service providers. It also discusses the regulatory process and the need to make Missouri more competitive.

Competitive Local Exchange Carriers

Every geographic area in the United States has had a monopoly “Local Exchange Carrier” (LEC) that provides the local telephone service. They own the copper wires, called “lines”, that come to every business and residence and carry your telephone conversations. They also own the telephone switches to which the copper wires are attached. The switches are the devices that interpret the telephone number you “dial” on a phone and determine how the call should be transmitted in order to reach the party you’re calling. The copper wires and the switches are called the “facilities.”

In the St. Louis metropolitan area, the Local Exchange Carrier is SBC (formerly Southwestern Bell). Since they existed first as the monopoly they would now be referred to as the ILEC or Incumbent Local Exchange Carrier. New competitors to the ILEC are called Competitive Local Exchange Carriers or CLECs. Therefore, a CLEC is any company that offers local telephone service and was not the original monopoly telephone company in a specific geographic area.

CLEC’s have to apply to the Missouri Public Service Commission (MOPSC) Local Certification, i.e. to offer local telephone services in the State of Missouri. Local Certification is the first step in a three step process for a company to be allowed to offer local telephone services in the State of Missouri. Each step of the process must be approved by the Missouri Public Service Commission.

The second step is the signing of an agreement between a CLEC and the ILEC called an Interconnection Agreement and the approval of this agreement by the MOPSC. The Interconnection Agreement determines the relationship between the CLEC and the ILEC. There are two types of CLECs. A “resale” CLEC simply buys the ILEC services at a wholesale price and resells them at a retail price. A “facilities based” CLEC has its own facilities, i.e. their own switches and/or lines, and must connect these facilities to the facilities of the ILEC. Some CLECs will offer only resale services, some will offer facilities based services, and some will offer both. The third step is the approval of the CLECs tariffs, the prices they will charge for their services.

The following list identifies services for you to ask about when you interview various carriers about their offerings. Residential and business consumers have quite a job of keeping updated on who is offering what services and when.

• Local Resale Telephone Service
• Local Facilities Based Telephone Service
• ISDN — PRI and/or BRI
• Switched Long Distance Services
• Dedicated Long Distance Services — T-1, etc.
• IP (Internet Protocol) “Trunk Lines”
• Cellular
• Paging
• Internet Access
• Frame Relay
• VPN - Virtual Private Network

Resale versus Facilities Based

Initially, we will have many more “resale” service offerings than “facilities based” offerings due to the cost of designing, engineering, installing and operating physical facilities. Local resale is exactly analogous to the development of competition in the long distance services market. Long distance resale is the means by which most long distance phone companies got started when AT&T was first separated from the ILECs that they owned, for example, Southwestern Bell in Missouri and Ameritech in Illinois. These resellers bought long distance service from AT&T and resold it. Gradually many companies started building their own facilities, the switches and lines that carry the traffic.

Resale offers some competition but true competition does not really occur until we have many facilities based CLECs. Resale is very limited competition because the profit margin is limited by the wholesale price from the ILEC. By owning the facilities, CLECs have greater control over their costs and they create new services to gain competitive advantages.

As occurred in long distance services competition, some companies will become “carriers’ carriers.” This means they build their own facilities and offer services at wholesale to many different resale CLECs. This also increases competition since resale CLECs have more than one source from which to purchase their services. Multiple sources mean more competitive rates. It forces supplier companies to watch their operating costs more closely and become more efficient in their own operations.

You should ask the following questions when talking with CLECs about their services:

• Which of your services are being provided by resale and which are facilities based?
• If you have facilities, do you have switches or lines or both?
• What control and monitoring do you have of the facilities?
• What backup operations or redundancy do you have if service goes down?
• What enhanced services do you offer?
• What are the details of your customer services — times of operation, quantity and experience of personnel, average wait time to talk with a representative?

More choices create confusion. More choices offer opportunities. As with long distance competition, local telephone services competition will benefit residential and business consumers. The path to reach the benefits will include the time to accumulate information from different carriers, understand the services and how they’re offered, sort through the carriers’ pricing structures, and make decisions. We’re entering new territory once again. Never feel intimidated. Always ask whatever questions you need to fully understand what you’re being offered and what you’re buying.