What Is a CLEC (Competitive Local Exchange Carrier) in Telecom?

Colby Ezell / Telecom / May 10, 2022

When it comes down to making decisions about your local phone service provider, you’ll have to choose between an ILEC and CLEC. Those who are unfamiliar with the different options for local exchange carriers might struggle to decide which option is the best for their business.

We recently took a deep dive into ILECs, or incumbent local exchange carriers, where we learned that these telecom providers stem from the original Regional Bell Operating Companies. These companies had a monopoly on local services at the time of the Telecommunications Act of 1996 and, therefore, owned the majority of the physical landline telephone system.

The Telecommunications Act of 1996 changed the game for local landline operators and opened the market for a new wave of carriers. From this point on, carriers could be grouped into two categories: incumbent and competitive local exchange carriers.

What Is a Competitive Local Exchange Carrier?

A competitive local exchange carrier (CLEC) is a tier-two local exchange carrier that uses unbundled access to the networks of incumbent local exchange carriers to provide communication services for local areas, creating a more competitive telecom market.

Unlike ILECs, CLEC companies don’t own the infrastructure that operates telecommunications. Instead, they are able to resell services through unbundled access to network elements. ILECs are required by law to offer any service that they provide to CLECs at a fair retail price. The two types of carriers have completely different regulations.

The History of CLECs

Initially, there wasn’t this distinction between local exchange carriers. The Regional Bell Operating Companies, often called Baby Bells, had created a monopoly as local phone providers. This is why they owned a majority of the phone lines and switches in the United States and were the only option available to consumers for decades. Finally, the Telecommunications Act of 1996, signed by President Bill Clinton, was put in place to end the unfair market.

The Telecommunications Act of 1996 was introduced to allow new telecom businesses to enter the market and increase competition. The existing tier-one providers then become known as incumbent exchange carriers.

The new companies entering the market would become considered competitive local exchange carriers. The changes in the regulations made it easier for new carriers to emerge, allowing for more options for consumers and a more competitive market.

What Do Competitive Local Exchange Carriers Do?

CLECs offer the same services as ILECs but are typically able to do so at a lower rate. CLECs were given two benefits thanks to the Telecom Act of 96, the ability to resell and access to unbundled network services.

Access to unbundled network services means that CLECs may purchase only the services they need from ILECs and cannot be forced to buy services they don’t need. The ILECs must sell these services at a reasonable wholesale price. Since they can purchase these services at a reduced rate, they have some margin for resale with a profit.

Incumbent vs. Competitive Local Exchange Carriers

Many corporate decision-makers might assume it’s best to work directly with an ILEC, considering the direct ownership cuts out the middleman and offers a quicker resolution time for outages or interruptions. However, working with a CLEC has advantages as well.

  • CLECs were introduced to increase market competition and often offer lower pricing than ILECs.
  • While ILECs focus on businesses and private consumers, more CLECs concentrate on providing services to companies.
  • CLEC companies tend to provide more services such as fiber options, integrated T1, and VoIP.
  • Being much smaller than ILECs, CLECs often bring better customer service and support.

Becoming a CLEC

Most CLECs are telecommunications companies, but according to regulation, any business or organization can become a CLEC. As a result, companies, universities, or even city governments can supply telephone services to their employees at a reduced cost if they comply with FCC and state regulations.

CLEC status offers many advantages beyond the ability to offer telecommunication services. For example, CLECs have access to number blocks without relying on an ILEC. There are even federal and state subsidies for carriers that also provide broadband services to rural or underserved communities. That being said, there are many fees and obligations that come along with a CLEC distinction.

What’s Next for CLECs?

Many competitive local exchange carriers have started to offer additional services beyond landline connections. For example, rather than only providing local exchanges of the analog phone network, they now also provide services like DSL, cable, fiber optic, and many others.

How P3 Can Save You Money On Telecom

Depending on a business’s needs, a CLEC might be a more practical choice than an ILEC. Many companies overspend on their telecom services, and diversifying your service portfolio may save you money in the long run.

If you think that your company might benefit from an overhaul of your telecom services, schedule a telecom audit with an expert at P3. We often save our clients 15 to 30 percent on telecom overcharges. We will comb through your local services provider as well as long-distance, wireless, data, and internet to see where we reduce or remove unnecessary charges.

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