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4 This is an article of the on-line version of The Journal of Technology Studies, Volume XXVII, Number 1, Winter/Spring 2001

IDEAS The Crucial Role of in Today’s The Journal of Technology Studies Industry Tim Obermier

Thanks to the groundbreaking ber when they change begin competition with the discovery of the telegraph by service providers. quickly growing Bell Telephone in 1837 and the Regulations heavily influence Company. Within six years of the telephone by Alexander Graham the success, failure, and creation of expiration of Bell’s patents, over Bell in 1876, today we have access any new technologies in telecom- 6,000 independent telephone to services and munications. companies competed with one devices of all types. From innova- Historical analysis of competi- another (Todd, 1999). Conse- tions as unique as tion in the telecommunications in- quently, many telephone compa- access on cellular to the dustry, since the invention of the nies operated in the same city. standard plain old telephone in our telephone, provides insight into However, problems arose for the homes, living without telecommu- three main issues. First, history will fledgling telephone industry as nications is unimaginable. People prove anti-competitive regulatory competing companies refused to often look back in wonder at the control is detrimental to techno- interconnect their systems. With- development of major historical logical innovation in the telecom- out interconnection, individuals technological inventions; the tele- munications industry. Second, lo- served by different telephone com- phone is no exception. The story cal number portability could save panies could not call one another. of how in- the telephone numbering system By not connecting competing sys- vented the telephone has been im- from eventual depletion. Third, and tems, some companies were able mortalized through several movie most important, why local number to hold advantage over others and and theatre productions, television portability is essential to competi- attract more customers. Once the documentaries, and historical writ- tion for local telephone service. A competition could no longer ings. These historical accounts of- review of how local number port- survive, they were bought out, ten favor the drama of the inven- ability is envisioned will demon- typically by the Bell Telephone tion and discovery process, but of- strate how this new concept will Company. This business strategy ten reveal little about the events bring numerous benefits to the con- created an obvious flaw in the de- which surrounded its societal sumer in the new competitive tele- ployment of telephone technology, implementation. Analysis of early communications industry. the inability of the customer to telephone technology deployment have ubiquitous telephone service. reveals important lessons about Historical Viewpoint: Absence of regulatory over- competitive market forces and Competition in sight allowed the Bell Telephone regulatory issues that can be ap- Telecommunications Company to rapidly expand as a plied to two important emerging According to Rowe (1999), result of buying other smaller tele- issues: local telephone number patents issued to Alexander Gra- phone companies. Shaw (1998) portability and depletion of tele- ham Bell for the invention of the observed that rapid growth and phone numbers. Local number telephone in 1876 expired in the assertive posturing of Bell’s com- portability is the ability of custom- early 1890s, allowing several inde- pany served as a motivator for the ers to retain their telephone num- pendent telephone companies to federal government to establish

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regulatory control over the industry for several decades. The services for customers for several telecommunications industry. In concept of the telecommunica- years. 1913, the competitive tactics of tions common carrier was firmly Although competition kept Bell Telephone, renamed AT&T established. Common carriers are technological development for the on December 31, 1899 (Todd, heavily regulated industries that by end-user from advancing, “switch- 1999), caused the U.S. Justice De- law are allowed exclusive rights to ing technology”-defined here partment to invoke the Sherman be the sole provider of services in continued to evolve because of the Antitrust Act. According to Lynch a given geographic region. In re- vast numbers of customers being (1996), the 1913 Kingsbury Com- turn, companies are guaranteed a added to the telephone network. mitment was an agreement be- specific monetary return based on According to Lynch (1996), tween AT&T and the Justice De- their infrastructure investment and several new network-enhancing partment that temporarily slowed cost of operation. Government technologies were developed AT&T’s acquisitions of indepen- agencies determine the rate of re- during the monopoly of AT&T. dent telephone companies. More turn for these monopolies to pro- Bell Laboratories, the research and important, Rowe (1999) indicated tect consumers. development division of AT&T, that the agreement recognized With regulatory oversight, the was busy inventing the coaxial the importance of a common technology of the telephone cable, microwave radio transmis- telecommunications infrastructure network continued to develop sion, laser technologies, and the by requiring interconnection across the nation. However, two transistor which led to electronic between AT&T and the telephone problems emerged: lack of switching and tone dialing. companies that had not yet been competition and vertical integra- The motivation for improving purchased by AT&T, thus provid- tion of the industry. First, AT&T technology of the network (rather ing universal nationwide tele- operated with a guaranteed than the technology and services phone service. rate-of-return and no competition, for the consumer) was profit based. With such a large number of the motivation for AT&T to With better switching and more people being added to the develop new technologies for the capacity for additional telephone telephone network, automatic consumer did not exist. Early tech- calls, telephone companies could switching mechanisms eventually nological developments that could make more money. Wenders had to be developed to make the have benefited consumers were (1987) believes the rapid techno- connections from one party to discouraged by AT&T and the logical change, which has perme- another. Telecommunications Federal Communication Com- ated the telecommunications in- technology rapidly advanced. mission (FCC). The FCC was cre- dustry, has focused primarily upon Long distance services were ated in 1934 to regulate the fledg- economies of scale for telephone deployed and tremendous im- ling telecommunications industry. companies. Little change has provements were made to deliver According to Knauer, Tollin, occurred in the actual delivery of local telephone services. However, Zachem, and Pastor (1998) in services to the customer. competition soon ended. 1954, AT&T convinced the FCC A second problem emerged as to deny an early version of the AT&T found a way to inflate their Competition Ends and answering machine. The FCC also rate of return beyond what the Monopolies Begin denied a small plastic cup called government allowed. AT&T Cole (2000) reported that the Hush-A-Phone that attached owned Western Electric, the regulatory action by the federal to the telephone mouthpiece to company that produced the infra- government in 1921 formally allow for more privacy during structure for telephone systems. recognized legitimate monopolies conversations. The concern at the The price of the equipment was of telecommunication carriers by time was that devices developed by purposely overly inflated, and exempting them from the companies other than AT&T therefore the rate-of-return Sherman Antitrust Act. This regu- could be harmful to the telephone determined by the government latory action effectively ended network. This theory served as a was also inflated (Peck, 1988). competition in the telephone barrier to the development of new This meant higher prices for the 6

consumer. Thus began the consumers are now provided a own telecommunications devices; decades-long process of de-regulat- choice of companies, choice of this is referred to as “customer ing the telecommunications long distance packages, and premise equipment.” According industry. increased savings on long distance to Newton (1998), customer charges. premise equipment is any telecom- The Era of De-Regulation Kuruppillai, Dontamsetti, munications device owned by the Although the telephone and Cosentino (1997) indicated consumer that is attached to the

The Journal of Technology Studies network was heavily mired in that the FCC chose to favor a telephone network, including regulation, preventing competi- competitive approach in the items such as telephones, , tion for several decades, other awarding of the first cellular machines, and answering subindustries within telecommu- licenses. Licenses for frequency machines. Historically, telephone nications were allowed to develop spectrum were granted in a companies justified the renting of in a competitive environment or duopoly format to create compe- the telephone instrument, by were de-regulated through court tition between two cellular saying that the telephone network action. Knauer et al. (1998) carriers in each market. The result- might suffer harm from any revealed that MCI had to sue to ing competition, and reduction in equipment that did not meet its gain entry into the long distance regulatory oversight, has been the specifications. As a result, every- market once monopolized by rapid technological development one had the same standard AT&T. MCI’s successful legal of cellular telephones with more telephone for years. efforts and the famous breakup of features to serve an increasingly Customer premise equipment was AT&T’s Bell Telephone system in mobile community. An example of fully de-regulated in 1983 as a part 1983 created the competitive in- new technologies in wireless is the of the breakup of AT&T. As the dustry of long distance. AT&T, in personal communications system production and sale of these an agreement with federal regula- (PCS). PCS is a new technology consumer devices emerged into a tors, was required to divest their that is similar to the cellular competitive market, many techno- local telephone companies, known telephone in concept but operates logical innovations began to as Bell Operating Companies. This in digital rather than analog occur. An entire industry sprang resulted in AT&T becoming a format. PCS telephones are up overnight competing to competitive player in the long cheaper, more efficient, and safer develop answering machines, distance market (Cole, 2000). For to operate than analog cellular. telephones, modems, and fax several years after 1983, long Paging is another competitive machines. The de-regulation of distance services continued to be industry with new features devel- customer premise equipment is dominated by AT&T with little oping rapidly. Most recently we probably the most significant competition. Accessing long have seen the deployment of catalyst for the emergence of distance lines for AT&T was worldwide satellite telephones telecommunications as a competi- accomplished by dialing the digit in competition with cellular tive industry. one. Until switching equipment telephones. Wireless services expe- In its infancy, the telecommu- could be changed so that dialing rience a high level of competition nications industry was highly one provided access to the long with rapidly advancing technology competitive. At first, competitive distance company of choice, and increased services for the pressure by AT&T created a AT&T held competitive advan- consumer. Individuals can now monopoly that was later affirmed tage. Bell Operating Companies, surf the Internet, obtain stock by Congress. Once society realized divested from AT&T, were limited quotes, and receive over their the benefits of a competitive by regulation to provide only cellular telephones. All this would telecommunications system, it local telephone service. They were have been impossible without was approximately 50 years not allowed into the lucrative long competition. before the final segments of the distance market. The long distance The most personally impor- telecommunications industry was market has become increasingly tant element of de-regulation is de-regulated. Long distance, competitive ever since 1983, and that consumers now own their cellular , and customer

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premise equipment are all be created. This creates undue switching from one telecommuni- examples of competitive compo- hardship on the individuals and cations carrier to another” (FCC, nents of the telecommunications businesses in the affected area. The 1996, paragraph 7). According to industry. They have become bureau further estimated that all the Midwest Region Local Num- competitive through court action area codes will be consumed in 10 ber Portability Administration or regulatory decisions by the to 15 years if nothing is done to Center (n.d.), there are three FCC. These competitive segments alleviate the impending number different types of number portabil- of the telecommunications plan failure. One potential answer ity. (1) Service provider portabil- industry have brought reduced to saving the numbering system is ity allows consumers to retain their costs and increased diversity in to add an 11th digit to the current telephone number while changing services to the consumer. However, 10-digit telephone number. This to a different service provider. This new concerns have emerged. move would cost telephone could include changing from a companies, and ultimately their wireline to a wireless service Competition Brings customers, more than 150 provider. (2) Location or geo- Problems billion dollars and take at least 10 graphic portability lets consumers Unfortunately, the technolo- years to complete. Adding an 11th change from one geographic area gies and services that developed digit to the telephone number to another and retain their in a competitive market are would require additional regula- telephone number. (3) Service beginning to have a negative tory oversight. Implementation of portability enables people to impact upon the telephone local number portability may change from Integrated Services network. The implementation of provide a better solution through Digital Network (ISDN) to , fax machines, cellular competition. Asymmetrical Digital Subscriber telephones, personal communica- Line (ADSL) or basic telephone tion systems, and Local Number Portability service and still retain their tele- modems, are placing tremendous On February 8, 1996, Presi- phone number. ISDN and ADSL pressure upon the North dent Clinton signed the Telecom- are types of services requiring American telephone numbering munications Act of 1996 into law. specialized communications system. Each individual commu- The act is based upon the concept equipment, which dramatically nication device requires a unique that all sectors of the telecommu- speed up Internet connections to identification number (i.e., a nications industry should be open the home or business. Currently, telephone number) to be recogniz- to competition. This act removes the only form of local number able on a telephone network. As a all the regulatory barriers that once portability required of telecommu- result, telephone numbers are existed. One of the most impor- nications service providers is being consumed at an alarming tant sections of the act, according service provider portability (FCC, rate. In response to the problem, to Gable (1999), was the creation Common Carrier Bureau, the FCC has opened an inquiry to of competition in the heavily Competitive Pricing Division, determine how telecommunica- regulated local telephone sector. 1999). At this time, wireless tions companies can more The act mandates the implemen- service providers are excluded from effectively utilize telephone tation of local number portability service provider portability, but numbers. The FCC Common to facilitate competition in the eventually the local number port- Carrier Bureau (1999) indicated local sector. ability regulatory mandates will there are 215 area codes today as The Telecommunications Act extend to the wireless industry. opposed to only 119 in 1991. Of of 1996 defined number portabil- To create competition among the 215 area codes, 70 are soon to ity as “the ability of users of once monopolistic local tele- have all their telephone numbers telecommunications services to phone companies and enhance exhausted. Once the available retain, at the same location, exist- competition in other telecommu- combinations of telephone ing telecommunications numbers nication markets, consumers need numbers in an area code are without impairment of quality, to be able to retain their telephone exhausted, a new area code has to reliability, or convenience when number as they change service 8

providers. As reported by the contain an addressing scheme with Perhaps you may recall the concept FCC, studies conducted by a defined format. The first three of long distance slamming? When several telephone companies sets of digits contain the area code, a long distance company changes reveal that consumers have little a broad geographic area sometimes a person’s long distance carrier interest in changing their service encompassing several local tele- without that person’s permission, providers if they have to change phone companies. The next three they have been slammed. In order telephone numbers. “Based on a digits contain the exchange code, to prevent local number portabil-

The Journal of Technology Studies nationwide Gallup survey, 83 which is the number that uniquely ity slamming between competing percent of business customers and identifies a specific central office telephone companies, seven Num- 80 percent of residential custom- of a telephone company. A tele- ber Portability Administration ers would be unlikely to change phone company may own several Centers (NPACs) have been estab- local service providers if they had central offices that each serve a lished in specific regions of the to change their telephone specific geographic area. The country. Their role is to maintain numbers” (FCC, 1996, paragraph remaining four digits is the databases of all ported telephone 29). Gable (1999) indicated that subscriber code, which identifies numbers, and they are required to the “principle road-block” to the specific customer served by a administer the transfer of custom- competition among local tele- local telephone company. If a ers from one telephone company phone service providers is the person dials long distance an 11th to another. This process ensures a issue of “the ability of a customer digit is added to the beginning of neutral third party is completing to retain his telephone number the sequence. Dialing the number the transfer, guarding against after changing local service ‘1’ in the indicates fraudulent activity. The following providers” (p. 15). The primary a long distance call, but the describes the process of porting issue is cost and identity. Indi- number ‘1’ is actually a country (Refer to Figure 1). First, the new viduals who have had the same access code identifying the call as competing local telephone com- telephone number for years lose a U.S. call. The access code also pany manages to win the business a certain identity when they are indicates that a long distance car- of a customer currently served by required to change their number. rier of the customer’s choice will the telephone company that has For businesses, can be staggering. be used to complete the call. When been in the area for several decades Imagine changing a number in local telephone companies convert referred to as the incumbent. In every location where a business’s to local number portability the the parlance of telecommunica- number appears; the costs can be 10-digit telephone number will no tions, the competitor is called the quite high. Advertising on longer be feasible to route Competitive Local Exchange billboards, signs on vehicles, telephone calls across the Carrier (CLEC) and the incum- yellow page advertisements, telephone network. For example, bent is called the Incumbent newspaper ads, and new business if customers decide to change from Local Exchange Carrier (ILEC). stationery all add up to major costs their current local telephone The CLEC forwards a porting and headaches. company to a competitor and request to the NPAC. Since the retain their telephone number, a customer cannot be without different call routing scheme must telephone service even for a few The Technology of Local be utilized. The new routing minutes, the NPAC must also be Number Portability scheme uses a location routing made aware of the exact date and To make local number port- number. However, before a rout- time to process the transfer. Next, ability functional, restructuring ing number can be assigned, the the NPAC alerts the ILEC of the the way calls are routed must take customers must change service porting request. In some cases, the place. Prior to local number providers; this process is called ILEC then contacts the customer portability, telephone calls were “porting.” to validate the request. The ILEC transmitted across the network on Porting is a complex process must then acknowledge the port- the basis of a 10-digit telephone with a series of checks and balances ing request to the NPAC and number. Telephone numbers built in to protect the customer. confirm date and time of the

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Calling a Ported Number Porting a Number ○○○

Number Portability ILEC Confirmation Customer Validation ○○○○○○○○ Administration ○○○○○○○○○ NPAC Returns ○○○○○○○○○○○○ ○○○○○○○○○○○○○ Location Routing Center Number (NPAC) To Telephone CLEC Porting Request Company

Incumbant Local Exchange Carrier

(ILEC) ○○○

Caller A Telephone Network Local Telephone Company Person B Requests Call Routed with Retains Original Location Routing Number Location Routing Number Number from ILEC From NPAC Competitive Local While Switching to CLEC Exchange Carrier (CLEC) Routes Call to Customer

Figure 1. The process of porting a telephone number and the process of calling a ported number. porting request. The NPAC con- the telephone number of a person inquiries (Midwest Region Num- firms with the CLEC, ports the (‘B’) whose number has been ber Portability Administration number, and changes the NPAC ported to a CLEC. Caller ‘A’ dials Center, n.d.). database to reflect the customer’s the original telephone number new telephone company he/she has always used to contact And the Future? (America’s Network, 1997). The person ‘B’. Second, caller ‘A’s Should implementation of customer has now changed service telephone company determines local number portability be providers while retaining their from routing tables that the num- successful, the new competitive original telephone number. ber dialed is a ported number. The telecommunications marketplace Once a customer’s aks the NPAC database to will eventually offer a variety of number has been ported to a locate the initial routing number new services at lower prices to CLEC, the telephone number they of the ported number. Third, the consumers eager to try new have retained will no longer be NPAC searches, utilizing the technologies. Implementation of utilized to route a call on the tele- telephone number dialed to reach local number portability means phone network. When calling a person ‘B’. When a match is that all telecommunications person who has been ported to a found, the corresponding location service providers will have to CLEC, the caller will use the tele- routing number is returned to compete with one another on the phone number they have always caller ‘A’s telephone company. basis of quality, price, and type of used. However, network routing Fourth, caller ‘A’s telephone service. Local number portability will now be completed with a company uses the location levels the playing field, allowing location routing number instead of routing number to send the call consumers to choose the desired the original telephone number. across the telephone network. services from the desired provid- The following describes how a Eventually, as more individuals ers at the desired price. When new telephone call would work to a change local telephone company services are created, consumers can ported customer (Refer to service providers, all telephone simply request a change in service Figure 1). First, a caller (‘A’) dials calls will require NPAC database provider while retaining their 10

original telephone number. in a competitive market (Kennard, more unique services available in Through competition, systems 1999). This competitive environ- the future, the smartest consum- will be developed that eliminate ment is creating a myriad of new ers will benefit the most they will the need for multiple telephone technologies such as Internet choose wisely from all the available numbers, saving the North telephony, web radio broadcasts, options. The most important American numbering plan. This and online e-commerce. However, issue, however, is how long the new system will allow individuals if a regulatory environment telecommunications industry will to communicate whenever, and pervades the Internet, technologi- remain competitive. Rapid wherever, with only one network cal innovation which benefit technological development in a The Journal of Technology Studies address, which will serve as consumers will decrease just as it competitive market may create cellular, , Internet, and fax did for several decades in the more societal problems than number. telephone industry. benefits, requiring additional Competition and limited The new telephone industry regulatory control, just like the regulation proves to be the best will truly be competitive once early days of the telephone. motivator for technological local number portability is imple- innovation within telecommuni- mented. The new telecommunica- Tim Obermier is Assistant cations. Still in its infancy, the tions service provider will have to Professor of Telecommunications Internet has been free to develop discard a monopolistic mindset Management at the University of in absence of regulatory control. and think in terms of customer Nebraska at Kearney. He is a The FCC has repeatedly stated service and technologically member of Omega Chapter of that the Internet should develop advanced. While there will be Epsilon Pi Tau.

References America’s Network. (1997, October). The ABC’s of LNP: Everything you ever wanted to know about number portability, but were afraid to ask. Cleveland, Ohio. Author. Retrieved July 23, 1999 from the World Wide Web: http://www.americasnetwork.com/issues/ 97supplements/100197lnp/100197lnp_lnpabc.html Cole, M. (2000). Introduction to telecommunications: Voice, data, and the Internet. Upper Saddle River, NJ: Prentice Hall. Federal Communication Commission. (1996, July 2). In the matter of telephone number portability. (CC Docket No. 95-116). Washington, DC: Author. Retrieved July 22, 1999 from the World Wide Web: http://www.fcc.gov/Bureaus/Common_Carrier/Orders/1996/fcc96286.txt Federal Communication Commission, Common Carrier Bureau, Competitive Pricing Division. (1999, January). Local telephone number portability. Washington, DC: Author. Retrieved July 23, 1999 from the World Wide Web: http://www.fcc.gov/Bureaus/Common_Carrier/Factsheets/portable.html Federal Communication Commission, Common Carrier Bureau. (1999, May 27). FCC Considers Strategies to Address United States Telephone Numbering Exhaust (CC Docket No. 99-200). Washington, DC: Author. Retrieved July 16, 1999 from the World Wide Web: http://www.fcc.gov/Bureaus/Common_Carrier/News_Releases/1999/nrcc9032.txt Gable, R. A. (1999). Telecommunications department management. Norwood, MA: Artech House. Kennard, W. E. (1999, July 20). The unregulation of the Internet: laying a competitive course for the future. Washington, DC: Federal Communication Commission. Retrieved July 28, 1999 from the World Wide Web: http://www.fcc.gov/Speeches/Kennard/spwek924.html Knauer, L. T., Tollin, L. A., Zachem, K. A., & Pastor, M. V. (1998). Beyond the telecommunications act: A domestic and international perspective for business. Rockville, MD: Government Institutes. Kuruppillai, R., Dontamsetti, M., & Cosentino, F. J. (1997). Wireless PCS: Personal communication services. New York: McGraw-Hill. Lynch, T. M. (1996). Telephony. In L. T. Knauer, R. K. Machtley, & T. M. Lynch (Eds.), Telecommunications act handbook: A complete reference for business. pp. 9-53. Rockville, MD: Government Institutes. Midwest Region Number Portability Administration Center. (n.d.). Midwest region primer for local number portability. Ported.Com. Retrieved July 23, 1999 from the World Wide Web: http://www.ported.com/midlnp.htm Newton, H. (1998). Newton’s telecom dictionary (14th ed.). New York: Flatiron.

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Peck, J. R. (Ed.). (1988). A history of the telecommunications regulatory environment. (Industry Brief: MT10-620-101). Delran, NJ: Datapro Research. Rowe, S. H. (1999). Telecommunications for managers (4th ed.). Upper Saddle River, NJ: Prentice Hall. Shaw, J. (1998). Telecommunications deregulation. Norwood, MA: Artech House. Todd, K. P., Jr. (1999). A capsule history of the . In D. Massey (Ed.), Tribute to the Bell System. Atlanta, GA: Author. Retrieved July 28, 1999 from the World Wide Web: http://www.bellsystem.com/tribute/capsule_history_of_the_bell_system.html Wenders, J. T. (1987). The economics of telecommunications: Theory & policy. New York: HarperInformation.