LEASING THE LOOP:
Telephone Service Resale in the Local ExchangeResellers want steep discounts, but local rates don't always cover costs. And reselling local lines provides little incentive
to upgrade the network.The Telecommunications Act of 1996 (Act) compels local exchange carriers (LECs) to sell telephone service to competitors (em who would then resell to the public at retail. Instead of constructing their own local distribution networks, competitors would buy local telephone service from the existing carrier at discounted rates. The competitor could then "resell" these services to customers (em presumably at prices below prevailing rates for the traditional LECs. In theory, competitors would attract enough of their own customers to generate funds to build their own networks.
Today, some five months after passage of the Act, several state public utility commissions are developing plans to authorize resale of local exchange service. In fact, all states must soon address the issue. Nevertheless, this mandated resale at discounted rates will not necessarily serve the public interest.
Resale is not a recent issue in telecommunications. The Federal Communications Commission (FCC) first allowed AT&T to lease its facilities in the 1920s; resale restrictions for its interstate toll services were removed in 1980.1 Now, resellers and other industry participants anticipate the same benefits from resale of local exchange services that they casually attribute to the resale of long-distance services.2