Incumbent Local Exchange Carriers (ILECs) is a term that refers to the 22 former Bell Operating Companies (BOCs) divested from AT&T in 1984, as well as Cincinnati Bell, Southern New England Telephone (SNET), and the larger independent telephone companies of GTE and United Telecommunications.
In addition, some 1300 smaller telephone companies are also in operation, serving mostly rural areas. These, too, are considered incumbents, but the small markets they serve do not attract much competition. After being spun off by AT&T in 1984, the BOCs were assigned to seven regional holding companies: Ameritech, Bell Atlantic, BellSouth, Nynex, Pacific Telesis, Southwestern Bell Communications (SBC), and US West.
Over the years, some of these regional companies merged to the point that today only four are left. Bell Atlantic and Nynex were the first to merge in 1994. Bell Atlantic also completed a $53 billion merger with GTE in mid-1999 and changed its name to Verizon. SBC Communications merged with Pacific Telesis in 1997 and then Ameritech in 1999. It also acquired Southern New England Telephone (SNET).
All the mergers passed regulatory approval at the state and national level. The Federal Communications Commission (FCC) approves mergers with input from the Department of Justice (DoJ). In the case of the SBC-Ameritech merger, the FCC imposed 28 conditions on SBC in exchange for approving the transaction. T
he approval package contained a sweeping array of conditions designed to make SBC-Ameritech’s markets the most open in the nation, boosting local competition by providing competitors with the nation’s steepest discounts for resold local service and full access to operating support systems (OSS).
It also required SBC to accelerate by 6 months its entry into new markets, forcing the company to compete in 30 new markets within 30 months after completion of the merger. The FCC’s rationale was that increased competition in outof- region territories would help offset reduced competition in the SBC-Ameritech service areas.
The conditions also required stringent performance monitoring, reporting, and enforcement provisions that could trigger more than $2 billion in fines if these goals were not met. Fortunately for SBC, the agreement required it to serve only three customers in each out-of-region market. According to SBC, it will not begin to seriously market its out-of-region services until it has obtained approval to offer long-distance services in its 13 home states.
The monopoly status of the ILECs officially ended with passage of the Telecommunications Act of 1996. Not only can other types of carriers enter the market for local services in competition with them, but also their regional parent companies can compete in each other’s territories. Through mergers, the reasoning went, the combined companies can enter out-of-region markets on a broad scale quickly and efficiently enough to become effective national competitors.
Unfortunately, this has not occurred on a significant scale. In fact, the lack of out-of-region competition among the Baby Bells means that consumers and businesses do not have as much choice in service providers, especially now that many Competitive Local Exchange Carriers (CLECs) are being hit hard by financial problems and the lack of venture capital.
The ILECs are more concerned with being able to qualify for long-distance services in their own markets so that they can bundle local and long-distance services and Internet access—a package few, if any, competitors would be able to match.