Telecommunications Act of 1996

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The Telecommunications Act of 1996 (TA96) was the first major overhaul of the Communications Act of 1934. The main goal of the Act was to encourage competition in local telecommunications services, although TA96 was far broader and touched on many aspects of telecommunications. Our discussion will focus on the voice-related implications of the act.

TA96 continued a process begun with the Modified Final Judgment (MFJ): encouraging competition. Although the MFJ created competition in the long distance space between the interexchange carriers (IXC), it did little to foster competition in the local space. This was largely because the local exchange carriers (LEC) owned the access loops giving them essentially uncontested access to the customer. For a competitor to enter the market and succeed would require them to either build a brand new, overlay network (which would be prohibitively expensive) or lease facilities from the LEC (which the LEC had no incentive to make available at attractive prices).

To understand how TA96 dealt with this, it is important to understand some new terminology. First, the act distinguishes between an incumbent LEC (ILEC) and a competitive LEC (CLEC). The ILEC is the company that has the major market share (number of lines) in a given market area. The CLEC is every other company offering voice services in that market. With that distinction, the act then changed the basic rules concerning intraLATA and interLATA calls.

  • The interexchange carriers (IXC), formerly restricted to providing only interLATA services, are permitted to provide intraLATA services. This effectively turns the IXCs into CLECs in the markets where they choose to offer services. Of course, few of them have much in the way of local access facilities, which would appear to bring us full circle to where we started, but the act deals with that issue.
  • The ILECs, formerly restricted to providing only intraLATA services, are permitted to offer interLATA services. But there is a major limitation: they may only do so in markets where they are not the ILEC. Again, this has the effect of turning the ILECs into CLECs in the markets they choose to penetrate. Again, they lack much in the way of access facilities in these markets.
  • Within the markets where the ILECs are the incumbent, they continue to be barred from providing interLATA service, until they meet the provisions of Article 271. Without going into too much detail, Article 271 of TA96 outlines a 14 point checklist that the ILECs have to meet. That list basically requires them to create unbundled network elements (UNE) and make them available to their competition at their cost.

This means a CLEC can lease the physical access facility, the port on the switch, and even operator services, at the ILEC's cost. They can then use those facilities and services to provide voice services to a subscriber under their own name. This gives the IXCs an avenue for building a local presence, the ILECs the resources they need outside of their traditional markets, and spawns the emergence of a sea of new companies that enter the telecommunications marketplace. Some of these new companies didn’t own a single piece of telecommunications equipment. The CLECs are permitted to provide both intraLATA and interLATA services, and they become a significant competitor, at least initially.

By the mid 2000s, the ILECs had met the provisions of Article 271 and were offering interLATA voice services in all of their markets.

In 2001, however, the telecommunications sector goes into a significant meltdown. Many of the CLECs that were operating on fairly thin margins, and without significant cash reserves, simply disappear. By the mid 2000s, only the hardiest have survived, including all of the IXCs and ILECs. A complete list of carriers can be found here.


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