Overview

In 2000, the telecommunications boom went bust, and the reason was that new market entrants, known as Competitive Local Exchange Carriers (CLECs), were forced to compete with Incumbents Local Exchange Carriers (ILECs) on the terms of the incumbents. The failure of the CLECs resulted in a net investment loss of trillions of dollars, adversely affecting capital markets and severely depressing the overall telecommunications economy, as well as saddling subscribers with artificially high rates. The chief expense for a new market entrant was purchasing and maintaining one or more Class 5 switches (local service providers) or Class 4 switches (long-distance service providers). These switches cost millions of dollars to purchase and came with expensive maintenance contracts. These switches were also very large and required expensive central office space. Faced with competing for thin margins on local telephone service or thinner long-distance margins against incumbents who enjoyed strong investor support and long depreciation schedules on capital equipment, the demise of many new market entrants was foretold by their balance sheets.

The Telecommunications Act of 1996 aimed to introduce competition into the local loop by legally requiring the incumbents to lease space on their switches and in their central offices to any and all competitors. New market entrants first found themselves stonewalled in the courts by the incumbents when attempting to gain legal access to the incumbent's facilities. Once legal access had been gained to the incumbents' switching facilities, the incumbents conveniently forgot the orders or otherwise sabotaged the operations...