Wireless Threatening ILECS

But real competition to Local Exchange Carriers, Regional Bells still a long way off in the future

Like their monopolistic counterparts in the Regional Bell Operating Companies, local exchange carriers are concerned about encroaching services from wireless carriers and other telecom resellers, an industry study finds. But a lack of real competition is keeping the ILECs (Incumbent Local Exchange Carriers) from turning those concerns into consumer-focused action.

The study, released last week by Probe Research Inc., shows that both the ILECs and RBOCs have a strong incentive to maintain the status quo. And in a head-to-head battle, the ILECs may have the advantage.

Not only do the tier-two carriers, which operate more than 50,000 lines in the United States, enjoy brand recognition and almost nonexistent competition, but they also have strong, long-established relationships with state utility commissions. Such relationships are important to carriers when they appeal to regulators for rate increases or depreciation plans.

"[The state commissions] tend to be more supportive toward them than they are toward the [Competitive Local Exchange Carriers], who probably dont lobby as much as they should," said Lynda Starr, an analyst at Probe, in Cedar Knolls, N.J. "The ILECs have been around so long—since before there was even a hint of competition."

Some 1,000 ILECs in rural areas are able to charge higher average monthly service rates than their urban counterparts. The carriers attribute the higher rates to the higher cost of deploying and maintaining networks spanning wide geographic areas and highly dispersed customer bases. But much of the higher cost is offset by government subsidies. In most cases, there is no alternative carrier to lure customers away with a better deal.

In ILEC rhetoric, the sustained market share is about customer loyalty. But when customers have nowhere else to go, the voluntary nature of such loyalty is questionable, the Probe study found.

Tier-two local carriers, including Sprint Corp., Alltel Corp., Citizens Communications Co. and CenturyTel Inc., point to customers choosing to purchase long-distance service bundled with local service as a measurement of user satisfaction.

The smallest category of ILECs, tier-three carriers, with 50,000 lines or fewer, charge approximately $4 or $5 more on average for business lines than carriers in urban areas, according to Caressa Bennet, attorney for the National Rural Telecom Association Inc., in Washington. Although they do not face any more competition today than their tier-two counterparts, they are motivated to ensure user satisfaction, particularly to enterprise users, for fear that a rival carrier may seek the high-profit customers.

"There are a lot of calling centers, for example, in rural areas," Bennet said. "[Rural ILECs] are going to work very hard to keep those customers happy."