New Networks Institute

Contact: Bruce Kushnick or Miranda Berner

212-777-5418, [email protected]

FOR IMMEDIATE RELEASE: August 2nd, 2001.




New York --- New Networks Institute (NNI) today released a "Special Report" titled: "The Bells Harmed The CLEC (Competitive Local Phone Company) Industry", supplying evidence that the Bell companies' anti-competitive behavior and lack of enforcement has been the major impediment for competitors to offer local phone and DSL/Broadband services, not the CLECs' business plans as some would suggest.

A recent report titled "An Assessment Of The Competitive Local Exchange Carriers Five Years After The Passage Of The Telecommunications Act " written by Robert Crandall, Senior Fellow at the Brookings Institute and funded by the USTA (United States Telephone Association, which represents the Bell companies) concluded that the collapse of the CLEC market was caused primarily by their own mistakes and not caused by the Bell companies treatment of competitors. We believe Dr. Crandall's conclusion unwarranted and his analysis flawed by his decision to ignore an ample body of evidence to the contrary.

Dr. Crandall's report reviews each of the many explanations for CLEC failure prevalent today in discussions of the industry's troubles. To read the Report and USTA releases: He notes that:

"Some observers have attributed the recent poor performance of the CLECs to the actions of the incumbent local carriers without providing any evidence that these inter-carrier relationships are the principal problem for the new entrants" (9) (page 10)

First, there is a litany of evidence that shows that the phone networks are not open today to competitors, and therefore stifles their ability to compete, grow, or just stay in business.

Some of the examples in the report:

  • There are only 5 states that the Bells have been allowed to enter long distance. This means that 90% of all states are still not open to competition, which is a prerequisite for entering the long distance market.
  • SBC pulled its long distance application in Missouri after the FCC found that there were problems "related to cost-based pricing in its region and operations support systems (OSS)"
  • The Department of Justice stated that they could not endorse Verizon's entrance into long distance in Pennsylvania because "electronic billing problems have been extensive".
  • FCC released Verizon-Massachusetts information in the "Provisioning of POTS" (local phone service) found that Verizon's treatment of their customers has remained fairly stable with 95% of all Bell orders handled within five days. However, services supplied to CLECs have eroded from 85% in 9/97 to having only 25% being completed in a timely fashion in 6/00.
  • The Communications Workers of America (CWA) released a report claiming that Verizon-New York's own upper management was telling its staffers to falsify data on installations, thus making it look to the public that installations were all happening on time.
  • The California ISP Association (CISPA) filed a formal complaint charging Pac Bell and SBC with "anti-competitive conduct" Predatory Pricing: MCI stated that in Massachusetts they would lose money on every order if they offered local phone service.
  • A letter from Earthlink stated "Covad's experience has shown that Bell Atlantic has a 'no-show' rate as high as 50% on their installation appointments".

Secondly, there is a serious flaw in Crandall's analysis of CLEC complaints. He notes that the number of the formal complaints represents only 1-2 percent of the total number of market-opening commercial arrangements the CLECs have negotiated with the Bells. He concludes that Bell bad acts were too few in number to explain the widespread distress of the CLEC industry.

Unfortunately, though he identifies 10,432 agreements and only 126 formal complaints --- therefore 1%, he misses that there are approximately 275 CLECs. Therefore, on average, almost half of all CLECs have filed formal complaints---a very high number. He also ignores the fact that CLECs and their customers have filed thousands of informal complaints with the state commissions, the FCC, have taken numerous lawsuits --- volumes of data.

"Complaints are continuous and daily, not rare as the author would like the reader to believe. It is the fundamental problem for the entire industry and the cause of the CLEC industry being on life support today," states Bruce Kushnick, executive director, New Networks Institute.

Finally, the Crandall report doesn't reflect the views of the CLEC industry. Crandall identifies three CLECs that are successful --- Time Warner Telecom, McLeod USA and Allegiance Telecom. However, it appears that Crandall never interviewed these companies. So it is ironic that within weeks of the release of the report, CEOs from McLeod and Allegiance gave testimony in front of Congressional Committees that the Bells were the primary cause of problems in the industry, delivering substandard customer services or harm in a myriad of ways. For example, Royce Holland, CEO of Allegiance testified that there has been a "systematic attempt to thwart sales efforts" -- on a customer-by-customer attack.

"Phase one of competition is over. The industry is on life-support and it was mainly caused by the Bell's monopoly practices, not the CLECs' business plans" added Kushnick.

"The Crandall report is nothing more than the Bell companies attempt to divert the regulators' and the public's eyes away from all of the claims by competitors that the Bells are destroying the competitive markets. The report hasn't done its homework and never bothered to clearly look at the data or even contacted the companies it was analyzing. Therefore, its conclusions are biased and just plain wrong" stated Miranda Berner, Director of External Affairs for NNI.

For more information, please call Bruce Kushnick or Miranda Berner at 212-777-5418.