As we noted earlier, the CLECs came into existence in concert with the release of the Telecommunications Act of 1996, with plans to create a fully competitive market at the local loop level. Until that time, only the long-distance sector was fully competitive, with customers able to choose from among three major providers. The local loop was dominated by the ILECs. Since that time, the CLECs have carved out a reasonable piece of the market for themselves, supported by a certain degree of customer dissatisfaction with the ILECs, the promise of lower prices, and a number of favorable regulatory decisions including the Unbundled Network Element-Platform (UNE-P), which offered a generic switching and access platform to all entrants.

CLEC Challenges

Of course, the creation of a local competitive market has been fraught with difficulty. Many of the CLECs filed for bankruptcy because of inability to attract an adequate customer base, and while some analysts believe that CLECs may own as much as 65 percent of the medium enterprise market, their overall showing is still relatively small. In fact, while it is easy to conclude that CLECs are largely small startups that are giving fits to the ILECs, this is not true: Ironically, the largest CLECs in the United States have traditionally been AT&T and MCI, although recent regulatory decisions may force them to drastically reduce their footprint in the local marketplace.

For the most part, CLECs target the small-to-medium business market, which is largely underserved by the ILECs, whose primary focus is on the large business and residence sectors. Most CLECs resell services at a price that is 15 to 20 percent lower than the ILEC price and can thus attract a share of the market that is price sensitive. In fact, the numbers are significant: ILECs lease 20 million lines to resellers at an average of 40 percent of retail, although these numbers could change with the recent regulatory changes announced in recent months by the FCC—and which continue to be announced. The ongoing regulatory circus, combined with the burgeoning deployment of IP-based voice by various market sectors, will continue to make this game an exciting one for the CLECs. Stay tuned!

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