Contents

Evolution - Illustrates the evolution of telecommunications through time and presents a timeline of telecommunications events since the invention of the telephone.

Regulation - Defines the period of the beginning of the telephone industry, when regulatory agencies sought to control telecommunication businesses, product offerings, prices, equipment, and competition.

Deregulation - Discusses the deregulation that resulted from technical improvements and new economic conditions.

Divestiture - Describes the events and results of the divestiture of AT&T into the Baby Bells.

Telecom Act of 1996 - Provides the details of the Telecom Act of 1996 and its effect on competition in the telephone industry.

The word "telecommunications" is defined as the ability to communicate over a distance.

Man has been seeking different ways of doing this since the beginning of time. The methods used have been as varied as the users. Runners, distant drums, smoke signals, carrier pigeons, the Pony Express and the telegraph are just a few of the many early methods man has used.

It was not until the late nineteenth century, however, that man was able to send and retrieve information by less physically limiting ways. The telegraph, radio, and telephone had been invented, which enabled people to communicate at a large distance almost instantly.

As the year 2000 approaches, the telecommunications industry is literally changing day by day. To better understand today's environment, we need to look first at the past. Historical events, regulation and laws, consumer needs, and technological advances have all intertwined to influence changes in the industry.

• Technology
• Policy
• Industry

From the very beginning, the government sought to regulate the industry by enforcing standards and limiting competition. In this era, AT&T dominated as the telephone monopoly.

The Interstate Commerce Act of 1887 established the Interstate Commerce Commission (ICC) to regulate companies that carried goods and people between states, of which the railroads were the first.

Although the early regulation of carriers were those that carried goods and people, subsequent legislation determined that communications were also being "carried" interstate. In 1910, the Man Elkins Act authorized the ICC as the regulatory agency for the telecommunications industry.

The ICC continued to regulate the communications industry until 1934, when the Federal Communications Commission (FCC) was formed. The FCC is the U.S. government agency that regulates interstate communications.

When the telephone was invented, all calls were point-to-point connections. That meant that if you needed telephone service to five places, you would need five telephones in your location and each one would be directly connected to a telephone in the distant location. As the number of people with phones grew, this became a nightmare.

Point-to-point connections were not practical with large numbers of phones, so calls were soon connected to a "central" point where an operator would manually complete the connection to the distant point. The building where the operator made the connections became known as a Central Office.

The First Automatic Switching System

As the number of people with phones continued to grow, so did the demand on manually operated central offices.

In 1889, a Kansas City undertaker named A. B. Strowger was convinced that the operators were connecting calls that should have gone to him to a competing undertaker. So he invented the first automatic switching system that allowed callers to call him directly. This switch become the forerunner to the switches of today.

The Communications Act of 1934 established telecommunications as a regulated industry under the jurisdiction of the FCC.

The mission of the FCC is to encourage competition in all communications markets and to protect the public interest. In response to direction from Congress, the FCC develops and implements policy concerning interstate and international communications by radio, television, wire, satellite, and cable.

Areas of responsibility include:

• Granting telecommunications operating licenses
• Allocating broadcasting spectrums
• Regulating telecommunications commerce
• Ensuring telecommunications accessibility
• Reviewing content

The main objective of the Communications Act of 1934 was to create affordable and universal telephone service for the American people. As a result, AT&T was positioned to monopolize the industry.

AT&T had grown very quickly and formed the most far-reaching telephone network. Numerous new carriers entering the market with their own standards threatened to throw the industry into complete chaos. The need to decide on a telecommunications standard and the established presence of AT&T influenced the government's decision to make AT&T the telephone monopoly.

The decades following the Communications Act of 1934 brought great advances in technology. These advances created opportunities for additional telecom providers to enter the market. In order to facilitate the entry of these new competitors to AT&T, existing regulatory policies began to change.

During this era, the telephone monopoly, while still strong, was beginning to crack.

During and after World War II, high degrees of technological innovation emerged, such as transistors and applications for the use of the microwave spectrum. Large-scale research and development also yielded more cost effective commercial applications. This led to decreases in costs for telecom transmission.

In 1956, the makers of Hush-a-Phone, a small, cup-like nonelectrical handset attachment that enhanced privacy when talking, petitioned the FCC for permission to connect to the public telephone network. The FCC would not allow it, but was overruled in higher court.

Before this decision, only AT&T was permitted to provide telephone equipment. This led the way for competing companies to create their own telephone equipment.

Before 1949, the FCC assigned the microwave spectrum only to telecommunications carriers. This prevented private companies from connecting to the public network through microwave transmission. After the war, microwave technology was in demand by business for remote areas without telecommunications service, so the FCC began leasing private microwave systems on a case-by-case basis.

In 1959, over the objections of the major carriers, the FCC ruled that there were ample frequencies higher than 890 megahertz (MHz) to accommodate companies that wished to construct their own microwave systems. This was known as the "Above-890" Ruling.

In a 1968 landmark decision, the FCC ruled in favor of Carter Electronics, a Texas firm that made a mobile radio device that could be connected to the telephone network. This device, called the Carterfone, was primarily being sold to oil exploration companies for use by field engineers in remote areas. It allowed private two-way radios to be connected to the network through a base station radio.

This set a precedence for deregulation since it allowed a direct electrical attachment of equipment to the network as long as it did not adversely affect it.

MCI (Microwave Communications Inc.) was originally a trucking firm whose operators used microwave radios to communicate to one another. MCI sued for the right to provide private telephone service and in 1969, it was allowed to operate between Chicago and St. Louis over a microwave network. This landmark decision opened the door to competition in the long distance market.

In the Specialized Common Carrier decision, also in 1969 in, the FCC decreed that the new microwave companies could compete with existing telephone companies in the sale of private network transmission services.

Beginning in 1969, and throughout the 1970s, other telephony providers were allowed to provide long distance (LD) services. Some providers used AT&T's network and others built their own, for example, MCI's microwave and Sprint's fiber optic networks.

In 1984 AT&T was forced to divest its holdings in several companies. This marked the beginning of competition in the long distance market and a new era in telecommunications.

Divestiture broke AT&T into a provider of long distance and a system of "Baby Bell" operating companies providing local telephone service.

Changes in the regulations, competition, and technology occur so rapidly that it is hard to keep track of them. However, many of the basic building blocks of telecommunications today were founded in the pre-divestiture era. In the following section, we will describe the pre-divestiture development of the industry and the post-divestiture results. We will also introduce terminology describing the national telephone network that is still very much in use today.

On January 1, 1984, AT&T was split up into several separate companies under the Modified Final Judgment (MFJ) of the 1949 Antitrust lawsuit. AT&T retained Long Lines, Bell Labs, and Western Electric which enabled them to continue providing long distance services and telephone equipment.

There had been 22 local operating companies that were broken up into seven regional holding companies known as Regional Bell Operating Companies or RBOCs: Ameritech, Bell Atlantic, Bell South, NYNEX, Pacific Telesis, Southwestern Bell, and US West.

Each of the RBOCs controls a number of Bell Operating Companies (BOCs). Bell Atlantic recently acquired Nynex.

To fully understand what happened to the telephone network, let's explore the system created by AT&T and discuss how divestiture forever changed long distance and local service.

Between 1915 and 1984, AT&T and the Bell system of telephone companies deployed a national telecom network.

But back in the beginning of the industry, long before it would be possible for anyone to call anywhere, some kind of plan for assigning numbers and routing calls from one place to another had to be developed.

The use of telephone numbers was introduced in 1879. Early numbers were designated by the name of the Central Office and the 4-digit line number as in "Beacon Hill 2478." The name of the Central Office was often based on its location or the name of a person of local significance.

As the use of dial phones became more prevalent, and the need for more numbers increased, the number plan changed to 3 letters and 4 numbers identifying the individual line, as in BEH-2478. By the 1930s the plan changed again to 2 letters and 5 numbers as in BE5-2478. But soon all the easy to remember codes were used.

By the 1950s, numbers replaced letters to create the All Number Calling Plan (ANC). By 1966, 75% of the U.S. used the ANC.

The exponential growth of telephone users all over the country quickly depleted the range of 7 digit numbers. The need to automate long distance calling (known as DDD or Direct Distance Dialing) was one of the reasons behind the change to 10 digit dialing. Numbers now consist of a 3-digit area code, a 3-digit office code and a 4-digit line number.

Although area codes always had the middle digit as 0 or 1, the ever-increasing need for more numbers has led to yet another change. The current dialing plan allows the use of any digit in any position in the number. This is known as the North American Numbering Plan and became effective in January 1995.

The basic building blocks of the telephone network are the telephone and the connection to the switch in the Central Office. This connection is known as a local loop.

Calls to other telephones served by the same Central Office are processed by the switch in that Central Office.

Calls to telephones not served by the originating Central Office are often connected by a trunk circuit to another nearby Central Office, which is known as an End Office (EO).

While the local loop or "line" is usually dedicated to one user, trunks are shared by many users and usually connect multi-user telecom facilities.

Lines:

A line is a communications circuit between a switching system and a customer's equipment. Residential service is provided over a line, typically a copper two-wire twisted pair (called a local loop) connected to a CO.

Residential access is also referred to as POTS (Plain Old Telephone Service). This refers to a basic switched access line with no special features or packages.

Examples of Lines:

• between a central office switch and a residential telephone
• between a central office switch and a fax or modem

Trunks:

A trunk is a communications circuit between two switching systems. A trunks can carry a larger volume of calls simultaneously. Long distance traffic is routed from the local CO to the long-distance carriers through trunks. Trunks also connect local COs to each other.

Examples of Trunks:

• between two central office switches
• between a central office switch and a private telephone system

Central switching centers arose from the need to connect remote Central Office switches to each other. The switches in these centers became known as tandem switches. A tandem switch is connected to other central office switches and to other tandems by trunks

As the network grew, more and more switches could not be directly connected with each other, so the need for higher level central switching centers arose. These became known as toll centers, primary centers, sectional centers, and regional centers.

The network formed a hierarchy with 12 regional centers serving the U.S. and Canada. All 12 of the regional centers were directly connected to each other. There were approximately 100 sectional centers, 300 primary centers, over 1000 toll centers, and more than 20,000 Central Offices.

Trunks connecting different levels and locations of switches formed alternate routes for call traffic. This network provided both local and long distance calling for the country.

In the post-divestiture world, the RBOCs and the Independent Operating Companies (e.g., GTE, United Telephone) provide "local service" and are known as Local Exchange Carriers (LECs).

Long distance service is provided by Interexchange Carriers (IC or IXC), the largest providers being AT&T, MCI, and Sprint.

After divestiture, to help define local service areas, the country was broken into pieces called Local Access and Transport Areas (LATAs). A LATA is a geographical area established for the provision and administration of communications service. Local exchange carriers provide service within LATAs.

LATAs encompass one or more designated local exchanges and may overrun municipal or other local government boundaries. A LATA will often cover the service territories of more than one local exchange company.

LATAs are NOT defined by:

• State
• Area code
• Local telephone company boundaries
• Local calling area

With the increase in carriers after divestiture, there was a need to further define who carried, billed, and earned revenue from different types of calls. Since state boundaries and LATA boundaries do not always coincide, different types of calls are identified by jurisdiction.

The four jurisdictional combinations shown are:

• Intrastate/IntraLATA (A)
• Intrastate/InterLATA (B)
• Interstate/IntraLATA (C)
• Interstate/InterLATA (D)

Prior to divestiture, access to the network was not a concern. All phones had access to AT&T Long Lines for long distance and the switches in the network made the connection and recorded the necessary billing information.

The alternative long distance carriers had to rely on the Bell System to provide access. That early access required the originating caller to dial:

• The 7 digit local number to reach the alternative carrier network
• The 6 to 14 digit authorization code for billing
• The 10 digit telephone number of the person being called

The difficulty of dialing up to 31 digits to make a long distance call plus the associated billing problems led to a decree that the LECs had to provide the same access from their switches to all long distance carriers that they provided to AT&T. This is also known as dialing parity.

After divestiture, the requirement to provide equal access was easier said than done. The ability to provide equal access is dictated by the sophistication of the switch in the central office. Approximately 96% of the installed switches provided equal access, the remaining 4% did not; however, these switches tended to be in less populated areas.

These older switches are being replaced as needed with switches capable of providing equal access.

10XXX codes allow the caller to change networks on a call-by-call basis.

Primary Interexchange Carrier (PIC) codes assign a particular phone line to a specific long distance carrier.

In the post-divestiture environment, the structure of the hierarchy changed. Local loops were connected to End Offices (EO), and LATA Tandems (LT) and Access Tandems (AT) carry traffic to other EO, LT, and AT switches.

The "gateway" where the call is handed off from the LEC's network to the Independent Carrier's (IC) network is called the Point of Presence (POP) or Access Customer Terminal Location (ACTL). Each IC providing service to customers in a LATA will have its own POP, and the LEC must route originating long distance calls to the appropriate POP.

The "communications revolution" has created the requirement to be quick and innovative, in business as well as technology.

This is in great part why Congress created, and president Clinton signed into law one of the most sweeping re-writes of the U.S. communications industry. The Telecommunications Act of 1996 dramatically altered the competitive and regulatory landscape for telecommunications companies, TV and radio broadcasters, cable system operators, and the Internet.

The purpose of the act is "to provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunication markets to competition."

With this act, the era of open competition in telecommunication has begun.

One of the biggest impacts of the act was to open the local phone market to competition and to open the long distance telephone industry to the RBOCs. In fact, the act preempts all state rules that restrict entry into or limit competition in telephone service, both local and long distance.

It also repeals the AT&T antitrust consent decree that prohibited the RBOCs from entering the long distance market, and opens the local market to competition by requiring all telecommunications providers to provide equal access and interconnection to their facilities and equipment by all other telecommunications carriers.

Under the act, local exchange carriers must comply with a checklist of 14 points, among which are the following:

• Allow interconnection of their facilities and equipment to new telecommunications carriers
• Unbundle their networks for resale (at wholesale rates) by competitors
• Provide number portability for customers who want to switch to a new local phone provider
• Continue to support dialing parity
• Give access to rights of way to competitors

The act increases competition in the long distance communications services industry by allowing the RBOCs entry once they meet certain competitive requirements in their own markets.

Specifically, the RBOCs must comply with the local competition checklist before they can provide long distance services "in-region," or in the states in which they currently operate. They must have entered into binding agreements to provide access and interconnection with unaffiliated facilities-based carriers offering local competition in their states, or must have been willing to do so where competitive carriers have requested interconnection.
For "out-of-region" long distance services, the RBOCs are currently authorized to provide interLATA phone service.

Telecommunications Equipment Manufacturing
RBOCs are allowed to manufacture and sell telephone equipment once their applications for offering out-of-region long distance have been approved. There are also rules restricting joint manufacturing ventures by the RBOCs and forbidding cross-subsidization, requiring the use of separate subsidiaries for manufacturing, and defining the roll of Bellcore.

Cable television
Under the act, cable rate regulation will be removed for everything except "basic-tier" services by 1999, or sooner for cable systems that serve small communities. Telephone companies will be permitted to offer cable television services or to carry video programming for others. Cable operators, in turn, will be allowed to provide telecommunications services without obtaining a local franchise. Cable converter boxes and other interactive communications equipment will be available for purchase from providers other than cable operators.

Radio and television broadcasting
The act relaxes previous laws governing media concentration in both the broadcast television and radios arenas. A single company or network may now own TV stations that reach up to 35 % of US households (as opposed to 25 % previously), and can own both a network of broadcasting stations and a cable system. Nationwide restrictions on radio station ownership are dismantled, with local limits on station ownership concentration remaining. The act also requires TV makers to equip new sets with V-chips to allow parents to block undesired broadcasts.

On-line computing and the Internet
The act broadens the protections established in the Communications Decency Act of 1995 and establishes new criminal penalties for transmitting indecent material and for using any network to harass individuals. The 1996 act also offers protection to network or software providers who act in good faith to restrict access to materials that might be considered obscene.

From the evolution of telecommunications and in the current telecommunications environment emerges a company with a strong strategy and clear mission - WinStar: the new phone company.

WinStar Communications, Inc. is a national local communications company. We serve business customers, long distance carriers, fiber-based competitive access providers, mobile communications companies, local telephone companies, and other customers and provide them with local telephone, long distance, Internet, and information services.

Based on what you've learned, create an illustration detailing what's involved in making a phone call between New York and California. Include:

• Central Offices
• Tandems
• Points of Presence
• LATAs
• Trunks
• Lines
• Phone Numbers

Be prepared to describe how the industry and technology evolved to where they are today.