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FCC: Phone Companies Have Limited Protection

By Mitchell F. Brecher
August 14, 2003

When companies like AT&T, MCI, WorldCom and Sprint provide long-distance services, they almost always use the telephone networks of local exchange carriers, or 'LECs' (eg, Verizon, BellSouth, Qwest, and SBC) to originate and terminate those calls. This use of local networks is a service generally referred to as exchange access, which is subject to regulation by the Federal Communications Commission (FCC). Exchange access is a major component of the cost of providing long-distance service, and is a major source of revenue to the LECs. Moreover, as result of FCC policy, exchange access has long subsidized other LEC services, such as residential phone service.

Therefore, when WorldCom filed its bankruptcy petition in July 2002, LECs faced potential default on huge amounts owed to them ' amounts they claim would impede their ability to maintain their networks and provide services to their end-user customers. While the WorldCom bankruptcy is by far the largest telecom bankruptcy, it is not alone. During the past year, numerous competitive telecom companies have filed for bankruptcy; some have ceased operations. Each of those companies purchased facilities and services from LECs.

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