Dial tone update: what's the status of competition for local telephone service? (Communications).

When Congress passed the Telecommunications Act in 1996 and broke up the Baby Bells' monopoly in local phone service, competition was expected to heat up, in much the same way that competition for long distance had a decade before.

Six years down the road, Mike Leppert, executive director of the Indiana Utility Regulatory Commission says, "The Telecommunications Act has allowed companies like Time Warner Midwest Telecom, Choice One and other upstart companies to get into the market and provide competitive choices. The commission's goal is to see these companies flourish."

The local phone companies that wired your home and office prior to the Telecommunications Act--called incumbent local exchange carriers (ILECs), Indiana's biggest being SBC Ameritech, Verizon and Sprint--want to keep their customers, and the post-Telecommunications Act competitive local exchange carriers (CLECs) are vying for a share of your business.

And business is the operative word here. CLECs have concentrated on the more lucrative and viable business market, where they now provide 17 percent of service, as opposed to 2 percent of the residential pie. Overall, because residential lines vastly outnumber business lines, only 8 percent of Indiana customers bought their service from CLECs at year-end 2000, the latest numbers available from the IURC.

John Koppin, president of the Indiana Telecommunications Association, a 40-member industry trade group, says if the current rate of increase continues, 10 to 12 percent of local service could be provided by CLECs when the calendar year 2001 numbers are in. "Is that what it's supposed to be, ought to be? I don't know," he says. "The problem is, the economic downturn has impacted our industry, as you can imagine. Many of the competitors, like McLeodUSA, ended up going Chapter 11. The financial health of the industry was exposed."

IURC reports show that 46 CLECs are providing local service in the state (although more than four times as many are licensed to do so), primarily in the larger cities. Some CLECs merely pay to access ILECs' phone lines and resell the service to customers, usually as part of package of telecom services. Others, known as "facilities-based" CLECs, have invested millions of dollars in their own lines, many running to multiple-tenant office buildings.

AT&T, the largest nationwide provider of long distance, entered the Indianapolis local phone service market in a big way in 1998 after laying 400 miles of fiber-optic cable. It now serves 200 office buildings with a complete menu of services including Internet and data.

Congress took a carrot-and-stick approach with the Baby Bells, says Rob Ramsey, district manager of AT&T, allowing them into the long-distance market only after proving they'd opened up their local market to competitors. "If they're allowed in prematurely, we'll never see local phone competition take root."

Ramsey says AT&T's long-distance rates dropped 50 percent since competition was unleashed in that market in the mid-'80s, but since the passage of the Telecommunications Act, local rates have increased an average of 17 percent. "SBC Ameritech still enjoys monopoly status. Ameritech would rather pay fines than cooperate with CLECs."

Mike Marker, spokesperson for SBC Ameritech Indiana, says the company is "very, very close" to filing an application for long-distance approval with the IURC and "we expect to be operating long distance early in 2003."

It's this imminent entry into the market, he says, that prompted AT&T to call for splitting Ameritech into two companies, one servicing the wholesale side--resellers of Ameritech's lines--and one servicing the end users. That would result in a 44 percent increase in customers' rates, says Marker, because of the duplication of staffing and services that would have to occur. An IURC hearing on the matter is scheduled early this month.

In an editorial, the Muncie Star-Press opposed the move, calling AT&T's efforts to split Ameritech a "smokescreen" to stifle competition of its own in the long-distance market.

Verizon, the state's No. 2 ILEC, wasn't named in AT&T's petition but is watching the proceedings, says Dick Shoemaker, director of public policy and external affairs. It was able to offer long distance shortly after the Telecommunications Act was passed because its former GTE operation in Indiana was not part of the Bell system. Nevertheless, he predicts a similar rate increase would occur--in the 40 to 50 percent range--if his company were forced to separate into wholesale and retail units. Verizon's largest Indiana city is Fort Wayne, with other major service areas in Elkhart, Lafayette, West Lafayette, Richmond and Terre Haute.