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Commentary: The Telecom Act spurs little competition

The Telecommunications Act of 1996 was highly touted at the time of its enactment, but it's leading to very few changes in the U.S. telecommunications market.

    By Ken McGee, Gartner Analyst

    The Telecommunications Act of 1996 was highly touted at the time of its enactment, but it has, unfortunately, changed very little in the U.S. telecommunications market--and Gartner does not expect it to lead to significant changes any time soon.

    That the Telecommunications Act would

    See news story:
    How the Telecom Act created a new breed of speed
    disappoint expectations became apparent early on. The Telecommunications Act was designed to create direct competition between interexchange carriers, such as AT&T, WorldCom and Sprint and regional Bell operating companies (or Baby Bells), such as Verizon Communications, SBC Communications and BellSouth. Supposedly, all the companies would be able to provide long-distance and local telephone service.

    By 1997, Gartner was forecasting that this competition would be slow in coming. That year, Gartner wrote: "By 2002, the overwhelming majority of large enterprises with revenue of more than $1 billion per year will not replace their current IXC services with services provided by the RBOCs."

    This forecast has proved truer than Gartner expected. Since 1996, not one major enterprise has changed interexchange carriers as the primary or sole provider of long-distance services. Moreover, since 1996, not one major corporation has tapped its Baby Bell as the primary or sole provider of long-distance as well as local service.

    A number of factors contributed to this situation. Above all, however, the U.S. Congress provided an opportunity for major carriers to play on a brand-new field, but they chickened out. Rather than Baby Bells opening their local networks to interexchange competitors in return for the opportunity to get into the long-distance business, the two groups often ended up in court disputing the terms of the Telecommunications Act. Bell Atlantic (now Verizon) became the first Baby Bell to receive permission to offer long-distance service in a state (New York)--four years after the Telecommunications Act became law.

    On the 10th anniversary of the Telecommunications Act, Gartner expects that competition will not be much further along. The major beneficiaries of the act have been attorneys and investment bankers.

    (For related commentary on global networking providers and services, see TechRepublic.com--free registration required.)

    Entire contents, Copyright © 2001 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.