Interexchange Carriers

Interexchange Carriers (IXCs), otherwise known as “longdistance carriers,” include the big three—AT&T, Worldcom, and Sprint—all of which also operate wireless networks and are migrating them to 3G capabilities.

In addition to providing long-distance telephone service over wired and wireless networks, the IXCs offer business services like Integrated Services Digital Network (ISDN), Frame Relay, leased lines, and a variety of other digital services. Many IXCs are also Internet service providers (ISPs), which offer Internet access services, virtual private networks, electronic mail, Web hosting, and other Internet-related services.

Traditionally limited to providing service between local access and transport areas (LATAs), the Telecommunications Act of 1996 allows IXCs to offer local exchange services in competition with the Incumbent Local Exchange Carriers (ILECs). But because the ILECs charge too much for local loop connections and services and do not deliver them in a consistently timely manner, the larger IXCs have implemented technologies that allow them to bypass the local exchange.

Among the methods IXCs use to bypass the local exchange include CATV networks and broadband wireless technologies, such as Local Multipoint Distribution Service (LMDS) and Multichannel Multipoint Distribution Service (MMDS). With regard to cable, AT&T, for example, has acquired the nation’s two largest cable companies, TCI and MediaOne, to bring local telephone services to consumers, in addition to television programming and broadband Internet access.

As these bundled services are introduced in each market, they are provided to consumers at an attractive price with the added convenience of a single monthly bill. Sprint uses MMDS to offer Internet access to consumers and businesses that are out of range for Digital Subscriber Line (DSL) services. XO Communications, a nationwide integrated communications provider (ICP) uses LMDS to reach beyond its metropolitan fiber loops to reach buildings that are out of the central business districts.

In January 2001, the FCC released the results of a study on the long-distance telecommunications industry. Among the findings from the report:

  • In 1999, the long-distance market had more than $108 billion in revenues, compared to $105 billion in 1998. In 1999, long-distance carriers accounted for over $99 billion and local telephone companies accounted for the remaining $9 billion.
  • Interstate long-distance revenues increased by 12.8 percent in 1999 compared to 1.5 percent the year before.
  • Since 1984, international revenues have grown more than fivefold from less than $4 billion in 1984 to over $20 billion in 1999. The number of calls has increased from about half a billion in 1984 to almost 8 billion in 1999.
  • In 1984, AT&T’s market share was about 90 percent of the toll revenues reported by long-distance carriers. By 1999, AT&T’s market share had declined to about 40 percent, WorldCom’s share was 25 percent, Sprint’s was 10 percent, and more than 700 other long-distance carriers had the remaining quarter of the market.
  • According to a sampling of residential telephone bills, in 1999 the average household spent $64 monthly on telecommunications. Of this amount, $21 was for services provided by long-distance carriers, $34 for services by local exchange carriers, and the remainder for services by wireless carriers.
  • According to the same sampling of residential telephone bills, 38 percent of toll calls in 1999 were interstate and accounted for 50 percent of toll minutes. Also, 33 percent of residential long-distance minutes were on weekdays, 30 percent on weekday evenings, and 37 percent on weekends.

Growing competition in long-distance services has eroded AT&T’s market share from its former monopoly level to about 40 percent. With this competition has come increasing availability of low-cost calling plans for a broad range of consumers. As a result, average revenue per minute earned by carriers has been declining steadily for several years, while long-distance usage has increased substantially to make up for that revenue shortfall.

As more ILECs get permission from the FCC to enter the in-region long-distance market, IXCs will come under increasing competitive pressure because the ILECs will be able to bundle local and long-distance calling and Internet access into attractively priced service packages.