Local Competition

1
Local Competition

• Economics 235 Economics of Telecommunications

2
Switched Access Versus Special Access

• Switched access rate
• NTS costs recovered there
• it is higher than the marginal cost of providing
  that service
• Priced per minute.
• Special access
• doesn't have NTS costs embedded
• still makes a contribution to fixed, joint and
  common costs
• Priced fixed per month regardless of usage.

3
Bypass

• Service bypass - when customers use LECs special
  access to bypass the switched access rate and
  public switched network. This gave LEC incentive
  to keep special rates high.
• Facilities Bypass - when customers use another
  company's special access to bypass the switched
  access rate and public switched network. The
  other companies are called CAPs - Competitive
  Access Providers

4
Three factors influenced the growth of CAPs.

• "High" switched rate because of NTS costs
• Technology change with fiber optics. CAPS built
  fiber rings in downtown locations of major
  cities.
• Geographically-averaged rates and cream skimming.

5
Caps compete with LECs on the basis of

• Price
• Quality
• Flexibility
• Redundancy

6
Collocation

• CAPs wanted to interconnect networks with LECs so
  that they could reach more customers. LECs would
  provide PL from customer premises to CO and CAP
  would provide the rest of the circuit.

7
Three issues of Collocation

• Physical versus virtual collocation.
• Physical is actual presence in the LECs switch
  where CAP personnel comes into LEC CO.
• Virtual is connection at a manhole in the street
  outside CO.
• LECs didn't want physical collocation mandated.
  FCC mandated physical collocation and LECs fought
  it in court.

8
Three issues of Collocation

• Interconnection charge
• LECs wanted charge to be calculated as actual
  cost plus a substantial contribution charge
  calculated by total special access revenues minus
  incremental cost.
• CAPs wanted only actual cost.
• FCC rules actual cost plus a limited contribution

9
Collocation Contd

• LEC pricing flexibility
• LECs wanted complete pricing flexibility arguing
  that service is competitive.
• CAPs wanted continued tariff rates.
• FCC gave limited LEC pricing flexibility. Price
  caps with floor.

10
Roetter Article
11
Articles contd

• Three Challengers - IXCs, Cable TV, CAPs. Must
  address number portability and universal service.
  
• Future
• Distinctions of LD and local
• One-Stop-Shop
• Wireless local loop