Service Trends in the Telecommunication Industry

The telecommunications industry encompasses two broad subindustries: wired carriers that move voices, data, text and sound and video programming along electrified wires and optical fibers, and wireless carriers that transmit signals over radio waves. The Bureau of Labor Statistics collects a wide range of information about these industries. This article presents summary data on trends in telephone service. It covers local competition, access charges, infrastructure and universal service.

Local Competition

Although long-distance services have been a key focus of competition, local service has also been an important factor in the industry’s liberalization. Since the breakup of AT&T and the Telecommunications Act of 1996, most states have concluded that they are experiencing sufficient competition to warrant removing incumbent price controls on basic local exchange telephone service (BLETS). Proponents of continued regulation maintain that current levels of market power are sufficient to ensure that basic telephone service is “affordable.” But evidence suggests that this argument needs to be revised. Price increases in the past decade have consistently risen less than consumer prices. Furthermore, the growth rate in monthly BLET charges has been slowing even after adjusting for inflation.

Long Distance Competition

As a result of improvements in switching and deployment of high-capacity optical fiber, long-distance costs have fallen dramatically. Now, a call from Beijing to Chicago carries the same wholesale price as a call from a rural independent telephone company in small-town Iowa. After decades of monopoly and public utility-style regulation, regulatory liberalization transformed the industry. The breakup of AT&T ended the monopoly on long-distance service, and the Telecommunications Act of 1996 eliminated price controls on local telephone services. Cable companies are also entering the telephone business and offering “bundled” products, including television, Internet, phone and cellular service. And the distinction between long-distance and local service is disappearing as consumers embrace new technologies that offer global communications at very low prices on how to get a landline.

Infrastructure

In the telecommunications industry, infrastructure delivers voice and data communications to customers. Telecommunications providers invest extensively in infrastructure to support their networks and provide customer service. This infrastructure needs continual upgrading and maintenance, which may be expensive. For example, telecommunications carriers must update the signaling systems that connect their local exchange offices to other carrier networks and upgrade the technology in their switching centers to handle higher traffic volumes. They must also invest in new equipment to meet growing broadband, fiber, wireless and satellite connection demands. In addition, they must keep their prices competitive to attract customers and retain existing ones.

Universal Service

A pillar of the Communications Act of 1934 that established the Federal Communications Commission, universal service refers to the principle that all citizens should be guaranteed access to communication services. It also refers to a set of programs and subsidy mechanisms that support telephone service and, more recently, high-speed Internet in the United States. As illustrated by Table 22, the typical telephone line is used mainly for local calling, although facsimile machines and computer modems can increase usage. Telephone companies measure usage by counting dial equipment minutes (DEM), and systematic studies estimate the number of phone lines and the total calling volume. Various ways of financing universal service exist, including implicit charges built into regulated rates and explicit charges levied from telecommunications companies’ interstate revenues. Whether these subsidies effectively fund a ubiquitous information infrastructure remains an open question.

International Competition

Since the 1990s, there has been great international competition in telecommunications. The largest monopolists have given up their hold on the market, and global services have increased. These companies offer competitive rates and high-quality customer service. Traditionally, local telephone services are provided by incumbent local exchange carriers (ILECs). These companies have geographic-specific monopolies. They compete with competitive local exchange carriers (CLECs) and newer telecommunications service providers. Besides these competitors, many private telephone companies provide long-distance and wireless phone services. These companies are also competing with each other to offer a one-bill bundle of services to customers. The Bureau of Labor Statistics collects various information on these telecommunications services as part of its Consumer Expenditure Survey.