CompTel: Bells’ contention on CLEC spending doesn’t add up

A study conducted by New Paradigm Resources Group for the Competitive Telecommunications Association (CompTel) released today said that competitive, interexchange and incumbent telephone carriers have spent about $150 billion in Telecom Act-related network facilities buildouts since the law was enacted in 1996.

Moreover, CLECs have outspent ILECs by a wide margin in this category, according to the study. However, overall capex budgets of incumbents still dwarf those of competitive carriers.

CompTel president Russell Frisby said the study should put to rest the Bell companies’ oft-stated accusation that CLECs don’t invest in their own facilities and are content to leech off incumbent facilities because they can lease those facilities at prices well below cost.

According to the study, voice-focused CLECs, IOC (independent operating company)-owned CLECs, utility telecom CLECs, data local exchange carriers and fiber local exchange carriers combined for $64.3 billion in capital expenditures between 1996 and 2001.

During the same period, interexchange carriers spent $14 billion on fiber cable, high-speed Sonet, DWDM optical transport systems, digital cross connects and other equipment designed to “increase their ability to deal with the increasing demand” for bandwidth at the local exchange level. At the same time, ILECs spent $47 billion on equipment that would allow them to respond to increasing competition in both voice and data, according to the study.

The aggregate $150 billion equates to about $520 per capita nationwide.

“Too often incumbents attempt to leave the impression that competitors haven’t really made significant investments,” Frisby said. “I think the study dispels that notion. It also dispels the notion that in the absence of competition, the Bells would invest. The study clearly shows that prior to the passage of the 1996 Act, Bell investment was flat. And since then, Bell investment has not compared to CLEC investment.”

The study claimed that CLECs and IXCs boosted capital spending much more aggressively than incumbents between 1996 and 1999, but the ILECs increased their capital spending by 21% in 2000 due to pressure from competitive DSL services.

“Monopolies don’t like to make major investment in facilities that would have the effect of cannibalizing existing facilities,” such as T-1 and dedicated access lines, Frisby said. “You have to remember that these are the folks who sat on Touch-Tone telephones for approximately 20 years until they could get the proper switches in place.”

A spokeswoman for the U.S. Telecom Association called the study "backward-looking" and questioned its relevance.

"[It] ignores the fact that today, many CLECs have stopped investing in facilities because it's cheaper for them to exploit ILEC investments instead," she said. "Our goal to reform regulations is more relevant to the future, helping to restart the economy and promoting investment and job growth throughout the telecom industry."