In the facilities-based environment, the carrier will provide its own cables or wireless communications to the customer’s door. At that point all of the communications will be carried right out to the wide area network, by passing the local telephone companies.
In a non-facilities-based environment, the new emerging players will rent or lease facilities from the local telephone company at a discount. The discount ranges anywhere from 17 to 28 percent off of what the local telephone company’s tariffs are today. This, however, is an area always open for debate as the telephone companies attempt to select and provide access on a non-facilities basis to their competitors. Clearly, the telephone companies argue, by having to rent the services to competitors at a discounted rate, they are putting themselves in an unfair position. The resellers of dial tone would merely turn around and rent services right back to the consumer at a rate less than what the telephone companies charge.
The telephone companies contend that this is a discount that should not be provided, and that if competitors wish to work in this market they should build their own capabilities or rent from the telecommunication at the same rates the telecommunication charges other customers. Embroiled in all of these battles are the other players such as the long-distance and cable TV providers, who are equally distraught because they also have to pay for other access fees to provide services to their consumers. They argue that the telephone companies have been raising the rates for access because of the potential loss of revenue on the basis of the Telecom Act of 1996. An interesting event occurred in 1999 when AT&T acquired the local cable TV companies (TCI and Media One) to get access to the consumers’ doors. Shortly after acquiring these giants, AT&T was challenged to offer the access on CATV to competitors at a reduced rate. AT&T immediately balked at that idea and appealed to the FCC because the local utilities commissions were ruling in favor of the competitors. AT&T is screaming about the unfairness of such a move, yet this worked just the opposite when they wanted access through the telecommunication and were asked to pay the access fees.
Throughout all this maneuvering, the consumer may or may not win. Clearly, with competition, prices should fall to a more reasonable base and other discounts might exist. This will work in the major NFL cities.* The pricing mechanisms will probably drop the local cost of dial tone and access to the long-distance network. However, in rural communities where services and facilities have always been limited, there may be no advantage or a slight disadvantage. The consumers in the rural areas will be left in the lurch because few companies will want to serve such regions. In the old days the telephone companies had to serve it as a last resort. Under deregulation, all of this might well change. A couple of the competitive local exchange carriers (CLECs) have actually opened many third- and fourth-tier communities and done very well. Because they are the prime competitor in the town, users who are willing to take a chance will do so with the new provider. This has been a lucrative market for the new CLECs in this area, as opposed to the results in the major metropolitan areas.
As one might expect, several new providers got into the business. As of 1999, over 500 CLECs had jumped into the competitive local dial tone business, yet they have achieved only 3 percent penetration into the overall market. This penetration amounts to approximately $4 to $5 billion annually. Each of the competitors entering this market offers some form of discounts on cable services, dial tone, or long-distance access and services in order to pick up a few market points.
Many providers are building out high-speed access on fiber-based networks bypassing the local telecommunication. Newer providers are now offering the one-stop shopping method by offering a bundle of services, including dial tone, long distance, equipment, and internal wiring all on a single phone bill. AT&T, for example, began offering as much as a 26 percent discount overall for the bundled-service packages they now offer, including dial tone, CATV, and long-distance services. These new players use loss leaders to attempt to pick up their market shares. Through this loss leader market, they will make no money. Consequently, the consumer may stand to gain for the short term, until these new emerging competitors realize they are making no money by offering heavily discounted services.
At that point, the carriers will have to raise their rates or offer some other value-added services to gain new revenue. One can imagine what services those might be.
