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Fortnightly Magazine - July 15 1998

market value of existing and newly assigned exchange codes to prevent windfalls. It also would compound the incentive to implement number portability and perfect a number pooling system, allowing the release of 10-digit numbers in blocks of 1,000 rather than 10,000 and, most likely, indefinitely postponing the need for new area codes.

Too Many CLECs?

Critics are certain to charge that this proposal favors incumbent LECs. Clearly, regulators must at least observe the results of bidding and take steps to guard against abuse, such as any effort to "corner the market" on exchange codes. Such behavior plainly would violate antitrust law. It would more likely occur in states or regions that have not created new area codes recently, particularly since enactment of the Act. Where new codes have been implemented and the provisions of the Act observed, the share of the "market" for local exchange codes held by incumbents already has been diluted significantly.

More broadly, such criticisms do not hold up. Efficient competition should not require the public to subsidize unlimited market entry. Considering all the constraining factors that operate today, -- limited exchange and area codes, plus the incalculable expense of retooling the basic 10-digit dialing system -- there can be no such thing as too many CLECs. The optimum level of competition in local exchange service -- at least given today's technology -- may require more limited entry than is the case in industries that do not suffer from similar constraints.

This simple description of a possible approach to the problem of area code conservation does not address all of the complex issues that are likely to arise in its implementation. Consider just four issues. First, some customers' numbers may need to be withdrawn so that underutilized exchanges can be reassigned; the scope of these customers' rights must be re-established. Second, steps must be taken to prevent excessive concentration of exchange code ownership. Third, an appropriate plan must be devised for the use of auction proceeds. Fourth, suitable incentives must be developed for ILECs to consolidate local calling areas so that the sheer number of areas does not limit the availability of new services or give rise to an insurmountable barrier to entry or market participation by CLECs.

It is well worth the effort to identify and address these and other concerns and to weigh the difficulty of resolving them against the difficulties associated with more conventional methods to augment the stock of exchange codes.

John Howe, a vice president with American Superconductor Corp., was chairman of the Massachusetts Department of Public Utilities from 1995 to 1997.


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