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The end of CLECs?

The FCC’s new proposal will rock local telecom.

I have been waiting for new Federal Communication Commission (FCC) Chairman Michael Powell to start making moves which favor the Baby Bells at the expense of competition and consumer protection. News on our site today confirms my fears.

At issue is the reciprocal competition system, put in place by the 1996 Telecom Act. The system enables Competitive Local Exchange Carriers (CLECs) to offset their competitive disadvantage against the Incumbent Local Exchange Carriers (ILECs or Baby Bells). Basically, CLECs have found that they can’t make money reselling local phone service. So most of them are glorified ISPs. Reciprocal compensation allows them to charge ILECs for all the times they connect ILEC customers’ outgoing calls. But, because CLEC customers make no outgoing calls, the ILECs can’t charge them back.

Critics of the arrangement say it allows CLECs to milk the rules, and have urged everyone in power that would listen to have the rule changed. Several bills under consideration in Congress would effectively do what Powell proposes, it would just take more time to get them enacted than if the FCC makes the rules change on its own. Now Powell is on the threshold of changing the rules.

Powell’s rhetoric states that the situation artificially enables CLECs to compete, and he opposes any artificial influences on competition. In principle, he is right. But in practice, in this case, he is dead wrong. If he gets rid of reciprocal compensation, most if not all CLECs will go away, and we’ll return to the pre-1996 times of monopolistic Baby Bells. Far from enabling fairer competition, he will have destroyed competition itself.

While reciprocal compensation may not be the best system to maintain some semblance of local telecom competition, you can’t just remove it without replacing it with something that can level the playing field. Basically, the Baby Bells own all the infrastructure and have the cash to make whatever infrastructure investments make sense. Competition under these circumstances is very difficult to foster. What we need is a long-term plan that allows CLECs to own their infrastructure. Until that happens, we need short-term subsidies, like reciprocal compensation.

Or, we can just go back to the days when the Baby Bells could set their own prices and act like the monopolies they are. That is the thrust of all Baby Bell lobbying, and the likely outcome with our new FCC chairman.

James Mathewson is editorial director of and ComputerUser magazine.

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