Don’t Let CLECs Throw Consumers Under the Internet Bus

Rather than invest and deploy new networks offering millions of consumers with additional choices for high speed Internet access, CLECs are investing in the regulatory process in hopes the FCC will save them from the inconvenience and expense of transitioning to all-IP infrastructure. The FCC should not allow the self-interest of CLECs to stand in the way of the IP-transition or the delivery of high speed Internet services to millions of residential consumers who demand more choice.

Shortly after AT&T announced “Project Velocity IP,” its plan to invest an additional $14 billion to provide high-speed Internet access to 99 percent of customer locations in its wireline service area, I blogged about the broad consensus among policymakers, pundits, and industry players in support of the announcement. But, “you can never please all of the people all of the time.” Now that the initial buzz around the announcement has abated, the inevitably unpleased few have gone on the offensive.

The few who cannot be pleased by Internet transformation are “competitive local exchange carriers,” also known as “CLECs.” These companies were created in the mid-1990s to provide both residential and business consumers with an additional choice for telephone service, but after the dot-com bubble burst, CLECs chose to limit their offerings to more lucrative business customers in downtown metro areas. They typically do not offer service to residential consumers or businesses that demand additional options in more suburban and rural areas.

While companies that serve all types of American consumers are investing in the transformation of their outdated telephone systems into the all-Internet protocol (IP) infrastructure of the 21st Century to deliver high-speed Internet services to residential consumers, CLECs claim the IP-transition is a “waste of resources” and a “distraction.” Rather than invest and deploy new networks offering millions of consumers with additional choices for high speed Internet access, CLECs are investing in the regulatory process in hopes the FCC will save them from the inconvenience and expense of transitioning to all-IP infrastructure. The FCC should not allow the self-interest of CLECs to stand in the way of the IP-transition or the delivery of high-speed Internet services to millions of residential consumers who demand more choice.

CLECs continue to enjoy a government-created business model established by the Telecommunications Act of 1996. The 1996 law gave CLECs the right to lease legacy telephone lines from companies like AT&T at government-mandated, below-market rates. This seemed reasonable when the law was enacted because local telephone service in residential areas was still largely a monopoly. In 1996, mobile phones were still too expensive for many consumer households and cable companies hadn’t begun offering voice services. Congress hoped the law would serve consumers – both business and residential –by giving them a choice of local telephone providers while competition in the communications market was developing.

Unfortunately, CLECs have failed to offer consumers additional choices as Congress had hoped. Rather than compete with telephone companies, cable operators, mobile providers, wireless Internet service providers and others in the residential market for consumer communications services, CLECs primarily lease lines in densely populated areas to serve business customers in office buildings. While telephone companies, cable operators, mobile providers, wireless Internet service providers and others were investing in their own network facilities to support all-IP services, CLECs took advantage of the benefits of government largess by using legacy telephone networks to “cherry pick” profitable business customers at the expense of consumers, who ultimately pay the bill for maintaining and operating this antiquated infrastructure.

CLECs oppose the IP-transition because they do not have a right to lease all-IP network infrastructure at below market rates under the existing rules. Congress did not intend that CLECs rely on government-backed lease rates forever. The ability to use the networks of other providers was a temporary mechanism designed to let CLECs enter the market while they invested in their own network facilities to serve consumers in the long-term. The temporary taking of telephone infrastructure owned by other providers was justified by the fact that the legacy infrastructure CLECs were authorized to lease was built during a monopoly era when the profits of telephone companies were still guaranteed by government. The government hasn’t guaranteed regional telephone companies a monopoly rate of return for over 20 years.

CLECs have no better claim to the new, all-IP infrastructure built by telephone companies since the market was opened to competition than they do to similar infrastructure built by cable operators, mobile providers, wireless Internet service providers and others that have invested billions in new networks over the last two decades. CLECs must bear responsibility for their own decisions to forgo investment in their own networks and rely on lines leased with a temporary government subsidy to serve the business market. As fiber replaces copper and antiquated telephone network facilities are retired, CLECs will have to invest in their own IP-based infrastructure to interconnect with IP-based networks just like the myriad other companies who have done it already. That is how competition works in America.

The time for leasing 1960s telephone technologies is about to sunset. CLECs have had the same opportunity to invest in the all-IP networks necessary to meet consumer demand in the 21st Century as other providers have had over the last 16 years, but chose to reap a windfall in government rents instead. “All things come to an end.” The end of the antiquated telephone network also means the end of government-backed profits for CLECs, who will have to rely on their own investments in 21st Century infrastructure to serve their business customers. If not, infrastructure investment in our economy will falter and millions of residential consumers will end up paying the price with fewer choices, higher monthly bills, and lost jobs.

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