Telecom Industry Problems

The problems began with the 1996 Telecommunications Act which was supposed to open the door for competition, also opened the door for the problems that are coming out today. The law let long distance companies and Bells compete in each other's markets. Hundreds of competitors sprang up, borrowing heavily to finance their growth. Many of these have filed bankruptcy. FCC Chairman Michael Powell says the FCC may have made a mistake by encouraging the formation of these competitors without realizing how few would be able to survive. He said one way out for the industry could be a major consolidation such as the defense industry went through in the 1990's. He even suggested his agency would consider a Baby Bell to take over WorldCom. This may be an appealing purchase for a Bell, but it will be expensive and full of regulatory hurdles.

During the race to borrow and grow, telecommunications companies overbuilt capacity. Currently only 10% of the 39 million miles of fiber-optic cables stretched out under the US are in use.