E C O N O M I C R E P O R T O F T H E P R E S I D E N T

Box 3-2. Implementing Local Competition Provisions in the1996 Telecommunications ActThe Telecommunications Act of 1996 reduces barriers to entry in localtelephone markets. To facilitate the entry of competitors into networksowned by incumbent local exchange carriers (ILECs), the act allows arequesting carrier to obtain access to the incumbent’s network in any ofthree ways. It can purchase local service at wholesale rates for resale toend users, it can lease various (unbundled) elements of the incumbent’snetwork needed for service, or it can interconnect its own facilities withthe incumbent’s network.Six months after the 1996 act was passed, the Federal CommunicationsCommission (FCC) issued its First Report and Order implementingthe local-competition provisions. Thereafter, numerous ILECs as well assome state utility commissions challenged the rules, claiming that theFCC had exceeded its jurisdiction. In January 1999 the Supreme Courtaffirmed the FCC’s role in providing a roadmap for competition.The FCC continues to monitor the progress of competition with traditionalILECs, and its recent reports show that local competition, althoughstill limited, is growing rapidly. Industry analysts also support this conclusion:one source finds that, by the middle of 1999, new entrants hadincreased their revenue market share to 6.3 percent of local revenue. TheFCC’s new orders on DSL-based services extend the process to this newtechnology by further clarifying which network elements competitorsmay access. This, too, should encourage local competition.200,000 new jobs in 5 years. Both new and existing firms have invested tensof billions of dollars in facilities, services, and R&D. These investments inturn have led to increased network capacity, the deployment of new technology,and the rollout of advanced communications services.These changes are particularly evident in the communications equipmentindustry, which has boomed in the last few years. Investment in communicationsequipment grew from $46 billion (in inflation-adjusted dollars) in1993 to $86 billion per year in 1998—a 13 percent annual growth rate over5 years (Chart 3-3). Some of that equipment is being used by the newproviders of wireless services that are building out the systems made possibleby the wireless spectrum auctions. By 1998, companies providing wirelesstelephony had invested more than $50 billion in new capital equipment, andwireless phones are now increasingly common, with more than 69 millionAmericans now subscribing to cellular service.In addition to wireless services, demand for new equipment and fiber opticcable by new local providers of switched voice and high-speed data serviceslike those used for accessing the Internet has spurred investment. These108 | Economic Report of the President