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of networks." A competitive market for local exchange services is essential to such efficient exploitation of all technologies.

Moving from theoretical concepts to the practical reality of creating local exchange competition requires certainty and flexibility: certainty to inspire investor confidence, and flexibility to respond to constantly changing—and largely unknown—market realities. Achieving balance between certainty and flexibility means opening up existing monopolized market segments as much as possible without threatening the long-term stability of competition itself. Both industry and public policymakers must take this challenge seriously if the NII promise is to be realized by 2000—or ever.

The Current Status of Competition in Local Telecommunications Services

Revenue for the local telecommunications market in 1993 exceeded $88 billion4. Of that total, 99 percent was captured by mature, traditional local telecommunications carriers. The 1 percent of the market liberated by new entrants was composed almost entirely of private line and special access services; they have not yet begun to reach a mass market5.

Still, competitive access providers are optimistic about the future of competition, building or operating networks in some 50 or 60 metropolitan statistical areas. A recent report by the Federal Communications Commission indicates that over 10,070,308 miles of fiber has been deployed in the United States by local, long-distance, and urban telecommunications providers, and shows that the rate of deployment by competitive access providers far exceeds that of the incumbent local exchange carriers6. The largest competitive access provider, Teleport Communications Group (TCG), has installed SONET-based, self-healing, two-way ring networks capable of transmitting information at a rate of 2.4 gigabits per second. ISDN is provided over these networks, and TCG offers frame relay at up to 1.5 megabits per second and ATM (switched data) service at up to 155 megabits per second. With more than 167,314 miles of fiber throughout 22 networks and a strong switch deployment program, TCG is technically positioned to serve larger markets7.

Cable television operators, whose networks now pass 97 percent of the nation's households and provide television service to more than 65 percent, are the obvious "other" end-user access provider8. Cable companies are upgrading their distribution plant and must provide for switching to offer local exchange services. Experiments, such as the Motorola-TCI-TCG trial of residential service using radio frequencies over fiber-optic-coaxial cable, will identify technological requirements. The promise of wireless subscriber loops has also drawn considerable interest from a wide range of industry participants. Bidders in the FCC's recently concluded Personal Communications Service (PCS) spectrum auctions committed more than $7 billion for licenses to build and operate local telecommunications networks9. A recent Merrill Lynch report predicts that one of the successful PCS bidders would have a 5 to 8 percent penetration of the local exchange market by 200410. There is no shortage of potential entrants seeking to provide local exchange services. Meeting consumer demand will mean the employment of a variety of distribution systems, both broadband and narrowband, wireline and wireless.

However, it is not yet certain what customers want and when they want it. Though studies such as a recent Delphi study of industry executives and academics have projected 2010 as the outside year in which a mass consumer market will exist for network-based interactive multimedia products and services provided over switched broadband, market research is notably thin on the subject of what people will pay for "infotainment" or household management services11. As with the case of previous telephone, television, computer, and audio products, much investment rides on the premise that supply will create demand.

Despite the limited deployment of broadband networks, consumers have not been especially hindered in their attempts to establish themselves as providers, as well as users, of information. Internet platforms and a plethora of electronic bulletin boards allow consumers to "publish" information available on demand by other consumers. Aside from providing the conduit over which the information travels, the network operator has no role in the content of the traffic speeding over its lines. The development of local network competition will only hasten the development of more information services and more gateways through which consumers can share information.



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