What Is an Incumbent Local Exchange Carrier (ILEC)?

Business owners know that it’s no secret — bills and invoices from service providers can be beyond confusing. It’s almost as if they purposely use acronyms, abbreviations, and jargon that the rest of us don’t understand!

The telecommunications industry especially loves to use this complicated terminology, so we’re taking a deep look into some of the most confusing keywords you might need to understand to get your telecom spending under control.

We previously explored local exchange carriers, looking briefly at the two types in today’s market — ILECs and CLECs. Today, we’re focusing on Incumbent Local Exchange Carriers (ILECs) and what the Telecommunications Act of 1996 meant for these companies.

What Is an Incumbent Local Exchange Carrier?

An incumbent local exchange carrier (ILEC) is a specific type of local exchange carrier (LEC) that held a monopoly on local telecom services at the time of the Telecommunications Act of 1996, mostly including companies that stemmed from one of the Regional Bell Operating Companies.

These companies are responsible for connecting local calls within their local access and transport area. ILECs are the original operators that provided local telecom services and, therefore, own the majority of the physical landline telephone system. The law now requires them to share their networks with new competition at a fair wholesale price.

The History of ILECs

Before the Telecommunications Act of 1996 was established, we had only one type of local exchange carrier. At this point in time, Regional Bell Operating Companies, or Baby Bells, had a monopoly as local phone providers. These seven new local phone companies were created during the division of AT&T in 1984.

After the Telecommunications Act of 1996, these existing companies became known as Incumbent Exchange Carriers or tier-one providers. Because they own most of the phone lines and switches in the United States, the act requires that they lease their telecommunication services to other carriers or suppliers. This deregulation was made to increase competition, allow new businesses to enter the market, and expand the offerings of existing ones.

What Do Incumbent Local Exchange Carriers Do?

Initially, these companies’ only responsibility was connecting customers to the local exchange or transferring them to another local exchange or long-distance carrier. They have the same duties as LECs, such as number portability, dialing parity, and access to right-of-way. However, thanks to the Telecommunications Act of 1996, incumbent telecom operators now have additional duties.

ILECs are required to provide unbundled access to any other telecommunications company, known as competitive local exchange carriers (CLECs). That means a CLEC should have access to any network element without being required to purchase all of them. In addition to unbundled network elements, the ILECs must offer discounted or wholesale rates.

Since CLECs need to use ILECs’ equipment, there are also certain duties regarding access, upkeep, and communication. An ILEC is responsible for the maintenance of the hardware. They must allow access for both physical and virtual colocation to CLECs. No changes may be made to the systems or equipment without notifying any CLECs that would be affected.

Benefits of Working With an ILEC

Considering the goal of the Telecommunications Act of 1996 was to encourage competition among telecom providers, it makes sense to think that a CLEC would provide a less expensive service. But tier-one carriers still have a majority share in the local exchange carrier market.

There are some significant benefits to working with an incumbent local exchange carrier rather than a reseller:

• ILECs own the phone line network, so there is no need to go through a middle man when problems arise.
• Direct ownership helps limit service outages or interruption time.
• Most ILECs are legacies of the original AT&T, meaning they have extensive experience and much larger service areas than CLECs.

Regional Bell Operating Companies

Initially, the first ILEC companies were the Regional Bell Operating Companies that came from the breakup of AT&T Corporation. Since then, thanks to mergers and acquisitions, the original Baby Bells have regrouped into three remaining companies.

• AT&T: What started as the American Telephone and Telegraph Company has become the world’s largest telecom company. It has a long, complicated history of mergers, purchases, and rebranding.
• Verizon: Bell Atlantic changed its name to Verizon after merging with GTE. The company sold many of its wirelines around the country throughout the early 2000s. Verizon was accused of purposely failing to maintain the landline services.
• Lumen: In 2020, CenturyLink rebranded as Lumen Technologies. The company has made numerous acquisitions through the years, including a merger with Qwest. Lumen recently announced that it had sold its ILEC operations in 20 states while retaining its operations in 16 states.

Other Incumbent Local Exchange Carriers

Other ILECs are primary carriers in some states and regions but are not Regional Bell Operating Companies.

• Frontier Communications: This telecommunications company has purchased lines from both Verizon and AT&T over the years. It serves mostly rural areas and small cities.
• Windstream: Windstream was formed when Alltel merged with Balor in 2006.
• Consolidated Communications: Operating since 1994 as the Mattoon Telephone Company, Consolidated Communications was formed after acquiring many other telecom companies throughout the decades. It serves 23 states.
• Telephone and Data Systems: Originally a rural phone company from Wisconsin, TDS now serves rural areas in 36 different states.
• Cincinnati Bell: While this company has been around for as long as the Baby Bells, it wasn’t given the same restrictions due to AT&T Corp only having a minor stake in the company. Today, voice service only accounts for a quarter of its revenue.
• Claro Puerto Rico: This company, owned by Mexican telecom company América Móvil, serves all local exchanges in Puerto Rico.

How P3 Can Help You Save on Telecom

While contracting with an ILEC may be the right move for some businesses, others may benefit more from the lower pricing of a CLEC. But trying to diversify or change your telecom service portfolio is a daunting task that many business owners don’t know how to navigate.

If you think you’re overspending on telecom, let the experts at P3 run a telecom expense audit for you. We are constantly saving our clients an average of 15-30 percent on telecom overcharges. By looking through your current invoices, we can pinpoint any refunds you should be receiving and compare your rates with current market pricing to ensure that you’re not overpaying.

What’s Next for ILECs?

The largest remaining ILEC companies have expanded to offer a huge selection of telecom services. With a heavy focus on wireless and internet services, it seems as if landlines might be on their way out. However, legislation in some states makes it difficult for providers to stop this service.

That being said, many states have now approved the cancellation of landlines so that telecommunication companies can focus their time and money on improving newer technology.

Only time will tell if there is still a future for landlines in business.