Telecommunications Deregulation

So far, you have looked at the technical issues of how the PSTN operates, the basic hierarchy, and why you might need to converge voice and data networks. One important reason for this convergence is more political than technical.

Various countries throughout Europe, Asia, and the Americas are opening up their telecommunications markets to competition. In addition, in some cases, they are selling off the existing government-run telephone carriers to a private company (or many companies).

In the United States, a publicly owned utility ran the PSTN from its inception until its divestiture in the early 1980s. In many other countries, however, the government ran the PSTN. This is changing as governments realize that communication is important to survival in the next century. These governments also realize that with communication comes knowledge, and with knowledge comes strength and prosperity.

Many new voice carriers are rushing to join these new deregulated markets. With the influx of fresh competition, pricing models are changing, and new, as well as old, carriers are considering deploying the latest technology to lower the cost of doing business.

The additional advantage of deploying new technology is the ability to offer value-added services and deploy these new services in a short amount of time. Services include bundled voice and Internet access, unified communications, Internet call waiting, and others.

Let's use the United States as an example of how competition affects the telecommunications marketplace by taking a look at the breakup of the utility in the early 1980s. American Telephone and Telegraph (AT&T) signed a divestiture agreement that stated it would divest itself of its 22 telephone operating companies. These 22 telephone companies were placed into 7 holding companies, which came to be known as the LECs.

AT&T was broken into a long-distance carrier or an IXC, which kept the AT&T name, and many regional Bell operating companies (RBOCs). These RBOCs actually provided the local loop and line to everyone in their local regions.

The U.S. RBOCs (Pacific Telesis, Southwestern Bell, Nynex, Bell Atlantic, Southern Bell, US West, and NYNEX) all had areas known as Local Area and Transport Areas (LATAs), which are local calling areas. These RBOCs were also known as LECs. If these LECs wanted to pass traffic between LATAs, they had to use an IXC.

As a result, many IXCs (AT&T, MCI, Sprint, and others) could offer long-distance domestic service and develop agreements with international carriers to provide inter-national services. The local LECs, however, were not allowed to provide long-distance service, and pricing was highly regulated to avoid monopolies.

When competition arose in the LEC market, the existing LECs were then called Incumbent LECs (ILECs) and the newcomers were called Competitive LECs (CLECs).

Many of the ILECs have started to consolidate. They are currently attempting to meet certain requirements to be able to enter the long-distance marketplace. This will enable them to bypass such IXCs as AT&T and MCI and keep the money they normally pay them for long-distance service.

More recently, new competitors to LECs, CLECs, and IXCs have emerged. These competitors come in the form of Internet telephony service providers (ITSPs) and Greenfield carriers. ITSPs are Internet service providers (ISPs) that add voice functionality to their portfolio and carry voice traffic across data networks, which frequently span traditional ILEC boundaries.

Greenfield carriers are carriers that build networks from scratch (for instance, a data network built specifically to carry packet voice) instead of using circuit-switching networks normally used by the LECs and IXCs.

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