The Telecommunications Act of 1996 was the first rewrite of US telecom law since 1934. Its central bet was that competition, not regulation, would bring better and cheaper local phone service. It required the incumbent Bell companies to lease parts of their networks (the “unbundled network elements”) to new entrants at cost-based rates, and it created a new class of company, the competitive local exchange carrier or CLEC.
The boom
Hundreds of CLECs were founded between 1996 and 2000, raising tens of billions of dollars in the stock and bond markets. Some built their own fibre in city centres; many resold or leased the incumbents’ lines and competed on price and service to business customers. Their trade association, the Association for Local Telecommunications Services (ALTS), filed annual reports with Congress and the Federal Communications Commission tracking the share of lines served by competitors, which peaked at roughly 15 to 20 percent of local lines in the early 2000s, mostly business lines.
The bust
The telecom crash of 2001–2002 wiped out most of the sector. CLECs had borrowed heavily against growth that did not come fast enough, the incumbents fought every unbundling order in court, and the 2001 Tauzin-Dingell bill in Congress, which would have freed the Bells’ broadband networks from sharing rules, showed which way the wind blew. In 2004 a federal appeals court struck down much of the FCC’s unbundling regime, and the FCC subsequently exempted fibre and other new facilities from sharing. Reselling the incumbent’s copper stopped being a business.
What survived
The CLECs that built their own networks and focused on business customers survived and consolidated: XO, Level 3, tw telecom, Cbeyond and others were absorbed over the 2010s into Zayo, Lumen (the former CenturyLink) and the cable companies. Cable operators became the real competitors for residential service, and mobile carriers took the voice business altogether. The trade association ALTS merged with CompTel in 2005; that body, now INCOMPAS, represents competitive fibre and internet companies.
The lesson
Facilities-based competition lasted; competition that depended on regulated access to a rival’s network did not survive the first change of regulatory mood. The same argument is being replayed today over open access to fibre networks funded by public broadband subsidies.
This site is an independent telecommunications reference. It is not the former Association for Local Telecommunications Services and does not hold its filings.