The State of Local Phone Competition Today by Jim Thompson

Back in 2004 a U.S. federal court over turned FCC requirements that Regional Bell Carriers such as SBC and Verizon resell services to competitive local carriers (CLECs) at rates set by state government bodies. Critics at once criticized the decision and of course fought it tooth and nail all during the years of legal battles that led up to the eventual removal of government imposed pricing restrictions. Opponents were sure that such a decision would quickly end true local phone competition and take us back to the dark days prior to the 1996 Telecommunications Act when there was no choice in the local market at all save did you want service or not. Clearly that was not much of a choice.

Yet just weeks after the decision "the impossible" happened when rivals Sage Telecom and SBC (now merged with AT&T) signed a seven-year pact whereby SBC will lease access to its lines at a fixed price. Oh and by the way, they did this without the government forcing them to or setting the price for them. The deal was made simply because it was beneficial to both parties allowing for a fair profit and a savings to local phone service customers at the same time. Critics of telephone deregulation said it couldn't happen. SBC, the former monopolist in the $128 billion market for local telephone service, would refuse to give up its alleged stranglehold on the industry and then bleed its competitors into bankruptcy. Despite such doom and gloom cries, competitors began working together to function in the new environment almost before the ink on the federal court order was dry. In the local phone service market, it turns out, free competition works just as it does everywhere else.

Sage Telecom in fact is a testament to how wise management and reasonable negotiations can allow a CLEC to not only survive but thrive and grow even with out the comfort of a government controlled UNE-P platform to work with. Since the agreement with SBC in 2004 Sage's has continued to expand their coverage and today their local phone service is available to more customers then ever. Recently they signed a similar agreement with Verizon and there is no reason to believe that Sage and other CLECs won't continue to expand via this model.

The other major factor in the competitive market for phone service of course has been VoIP. VoIP has really changed what choice means for anyone who has access to broadband internet access. While not with out limitations (DSL/Cable Modem availability, better as a second line, etc) IP Phone has really brought a lot more choice to the market. Users who seem to get the most from this service seem to fit in one of four major categories...

1. Those who make a large volume of international calls and large amount of domestic long distance calls. With flat rates as low as $19.95 a month and below those who make a lot of long distance calling are not challenged very much to justify the expense of an IP line. This segment probably makes up 70-80% of today's residential and small business IP Phone users though many also overlap into the three additional categories below.

2. Users that want full featured lines. While many local providers offer large blocks of long distance minutes and every feature under the sun (features like voicemail, call waiting, caller id, etc.) you can expect to pay for them. In many instances once taxes and fees come into play the cost per line can go well above 65 dollars. For people who would buy DSL anyway simply for the speed it allows them to access the internet with the cost of a full featured VoIP line with unlimited local and long distance and a stripped down landline is still far less then one full featured land line in many instances. Of course you have to consider that they end up with two phone lines vs. one and still pay less and one of the two has every feature under the sun included. Again this assumes that the user is paying for the DSL service solely for the speed it offers for downloading, etc. yet given far less then half of current DSL customers also use VoIP it would seem millions of Americans fall into this category.

3. Users who want multiple line. This sure seems to be VoIP eventual sweet spot, no matter how you slice it when you can added metered lines (generally offering 200-400 minutes a month) for under ten dollars a month or unlimited lines with full features for under twenty dollars a month it is clear that no landline product can compete. In short once you want more then one line the cost of the base service and DSL tend to quickly become moot.

4. Users who get their broadband internet access from anything other then DSL. Consumers using Cable Modem, Point to Point Wireless or any other broadband access to the internet are prime users of VoIP because they are completely and totally free of any need for a conventional phone company. About the only type of broadband that won't work well for IP Phone is satellite broadband due to the latency created while the signal travels the vast distance to the satellite and back to the earth. This creates delay between the time you speak and the person you are calling hears what you are saying and makes the entire conversation confusing. If you have any other type of broadband it is hard to make a case for not using VoIP as your primary voice communications medium.

As one examines the landscape of telecommunications today it is clear that the end of UNE-P was not the end of competition. So long as competiting carriers are permitted to offer service to end users there will be competition and it will continue to grow, evolve and expand. Be it with traditional local services such as those by Sage Telecom or via Broadband VoIP Phone Services the consumer of today has more choice in providers, plans and features then ever before. Now if we could just get some real choice and competition into the gasoline market we would be set.

~ Jim Thompson
About the Author

Jim Thompson is a telecommunications industry consultant and analyst with more then 10 years of industry experience and numerous published articles. You can read his blog called Communications and Broadband Phone Technology to learn more.