LOCAL TELECOMMUNICATIONS COMPETITION SURVEY
2015 ANNUAL REPORT
Staff Report
Public Utility Commission of Oregon
December 2015
Competition Survey
Year 2015 Final Report
TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................................ 1
I.
II.
SURVEY OVERVIEW .............................................................................................. 2
a)
Purpose of the Survey .................................................................................. 2
b)
Survey Participants & Responses ............................................................... 3
SERVICE TYPES ..................................................................................................... 4
a)
ILEC Service Types ....................................................................................... 4
b)
CLEC Service Types ..................................................................................... 5
III. SWITCHED SERVICES – MARKET SIZE AND SHARE ANALYSIS ...................... 6
a)
Total Market Size and Shares....................................................................... 6
b)
Business Market Share ................................................................................. 9
c)
Residential Market Share............................................................................ 11
d)
Ten Year Market Trends in Switched Access Services ........................... 12
e)
CLEC Provisioning of Switched Service ................................................... 18
Facility-Based CLECs .......................................................................... 18
Competition based on Unbundled Network Elements (UNEs) ......... 20
IV. HIGH SPEED ACCESS SERVICES ...................................................................... 21
a)
Private Line Service .................................................................................... 21
b)
DSL Service ................................................................................................. 23
c)
VoIP Service ................................................................................................ 24
d)
CLEC Provisioning of Private Line Circuits .............................................. 25
Competition Survey
Year 2015 Final Report
V. MARKET SEGMENTS BY REGION AND TYPE OF SERVICE ............................ 26
a)
Market Segments by Region ...................................................................... 27
Switched Services by Region ............................................................. 27
Private Line Service by Region ........................................................... 28
DSL Service by Region ........................................................................ 32
VI. BUSINESS PLANS AND COMPETITION ............................................................. 33
a)
Capital Expenditures .................................................................................. 33
b)
Competition for Residential Market ........................................................... 34
c)
Landline telephone industry is shrinking ................................................. 35
CONCLUSIONS ............................................................................................................ 35
Competition Survey
Year 2015 Final Report
Executive Summary
In January 2015, the Public Utility Commission of Oregon (OPUC) Staff sent out its annual
survey to 238 certificated local exchange carriers (LECs) in Oregon and received responses
from 100 percent of them. The purpose of this annual survey is to gather the data needed to
complete the report required by ORS 759.050(9). This statute directs the OPUC to report
annually on the status of telecommunications competition in Oregon to the Legislative
Assembly.
All carriers certificated by the OPUC, both incumbent local exchange carriers and competitive
local exchange carriers, were asked to fill out the survey forms sent to them. These forms
asked questions on the types of services that the company provided in 2014 as well as how
many customers they were serving in total and at the regional level. The survey also asked
the carriers for total 2014 Oregon gross revenues. The companies were instructed to provide
all intrastate and interstate revenues for local exchange, switched access, long distance,
private line, and DSL services. This report focuses on local exchange revenues. Although
local exchange revenues currently account for only 30 percent of an ILEC’s total revenues,
they are a good indicator of the state of competition. Table 1 provides some highlights from
the survey.
Table 1 shows that CLECs have made significant inroads into the ILEC customer base.
Residential lines are now almost split equally between ILECs and CLECs. Given the current
trend indicated by the percentage change from last year, the CLECs will likely have the larger
market share within a year or two. The ILECs have also lost a significant number of their
business customers, but they have fared better with the business segment than they have with
the residential segment. Based on the current trend they should slightly increase their market
share.
While the CLECs have captured a significant portion of the ILEC market share in the past ten
years, the number of CLEC companies has been relatively stable over this same period. In
2005, 134 of the 235 certificated companies were generating revenues. Ten years later in
2014, 153 of the 206 certificated companies were generating revenues. Over this ten-year
period, the number of companies generating revenues in a given year has ranged from a high
of 155 to a low of 130. Of the153 companies generating revenues in 2014, only 66 of them
were generating local exchange service revenues, which we are tracking with this report.
The most significant change documented in Table 1 is the 22 percent increase in VoIP phone
numbers. This is significant because customers that are moving from an ILEC to an
uncertificated VoIP company often take their phone number with them; thus, they do not
require a new phone number. One possible explanation of this rapid growth is that phone
numbers are now being used for different things. A number of companies now provide a
service that allows the user to have simultaneous several different phone numbers that can
reach their phone. When they select one of these numbers, their call appears to be coming
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Year 2015 Final Report
from that number. The user rents these numbers for just the length of time that they need
them.
Table 1
HIGHLIGHTS FROM 2014 DATA
2014 Highlights
Oregon Local Exchange Service Revenues
ILEC1 Revenue
CLEC2 Revenue
$ Millions
612.5
422.2
190.3
000's
Total Switched Lines at year end (1)
ILEC Lines
CLEC Lines
Total Residential Switched Lines at year end
ILEC Residential Lines
CLEC Residential Lines
Total Business Lines at year end
ILEC Business Lines
CLEC Business Lines
Total Wholesale Switched Lines at year end
ILEC Wholesale Lines
CLEC Wholesale Lines (2)
UNE Lines (counted under ILEC wholesale lines)
Total number of Private Line Circuits
Lower Capacity Circuits
Higher Capacity Circuits
Total Number of Digital Subscriber Lines
CLEC VoIP3 Phone Numbers
1,435.8
780.8
655.0
814.2
419.6
394.6
484.8
265.0
219.8
136.8
96.2
40.6
88.2
14.9
8.1
6.8
365.5
485.7
% Share
ILEC/CLEC
68.9%
31.1%
% Share
% Change
from 2013
ILEC/CLEC
-0.1%
2.3%
% Change
from 2013
54.4%
45.6%
-6.8%
9.4%
51.5%
48.5%
-10.4%
4.3%
54.7%
45.3%
1.5%
0.8%
70.3%
29.7%
-11.4%
-0.5%
21.8%
-5.4%
24.0%
0.1%
22.5%
% of CLECs
CLECS with certificates
206
CLECS doing business
153
74.3%
I. Survey Overview
a) Purpose of the Survey
The purpose of the survey is to collect information from ILECs and CLECs to determine
the status of competition for certain local exchange services in Oregon. The survey
1
2
Incumbent Local Exchange Carrier (ILEC).
Competitive Local Exchange Carrier (CLEC).
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collects data on five major types of services: (1) local exchange switched access;
(2) intrastate private line; (3) DSL; (4) Unbundled Network Elements (UNEs); and (5)
resale service. This study was a key component of the 1999 Oregon legislation
requiring the OPUC to report on telecommunications issues.
b) Survey Participants & Responses
In January 2015, OPUC staff sent a survey to all 238 carriers holding a certificate to
provide local services in Oregon issued by the OPUC. Of the 238 LECs, 32 are ILECs,
and 206 are CLECs. The ILECs are the traditional local telephone service providers in
the state. ILECs are statutorily designated as “carriers of last resort,” meaning they
have the obligation to serve customers within OPUC approved service areas under
OPUC approved terms and conditions. CLECs compete with ILECs within the approved
terms and conditions of OPUC certificates. The survey asked each LEC to provide
information related to their operations in 2014.
The response rate for the 32 ILECs and the 206 CLECs was 100 percent (see Table 2,
below). In 2014, 77.7 percent of all certificated carriers were generating revenues from
the services that they were providing. This is an increase from 2013, when 62.5 percent
reported that they were generating revenues from their services. Although the number
of certificated CLECs is slightly less for 2014 than 2013 (206 versus 227), the
percentage generating revenues from their services increased in 2014.
Table 2, below, summarizes the survey response and service operation rates. The
upper table shows the number of respondents and their response rate, while the lower
table shows the number of respondents who actually provide some type of local
exchange service in Oregon. The percentage of CLECs that reported providing service
in 2014 was noticeably more than in 2013, but this is attributable to 30 of the CLECs
providing service in 2014 not reporting that they provided service in 2013.
Table 2. Survey Response Rates and Service Operation Rates
2014
Surveys Sent
Responses
Response Rate %
Total LECs
238
238
100.0%
ILECs
32
32
100.0%
CLECs
206
206
100.0%
Surveys Sent
Service Provided
Operation Rate %
Total LECs
238
185
77.7%
ILECs
32
32
100.0%
CLECs
206
153
74.3%
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II. Service Types
a) ILEC Service Types
Table 3 shows the various services offered by ILECs and the number and percentage of
ILEC companies offering those services. What we have noticed is ILEC participation has
not changed noticeably year-over-year.
ILECs are not indicating they are using VoIP technology such as Softswitches to provide
these services; however, Staff understands through other reports that ILECs are installing
Softswitches4. As the use of VoIP technology by ILECs increases, ILEC lines served by
VoIP will likely appear in the near future. The provision of “Other” services such as
Internet Service increased from two in 2013 to six in 2014.5 Five of the six companies
indicated their participation in Internet Services. The sixth “Other” respondent indicated a
participation in Wireless resale.
Table 3. ILEC Market Coverage by Service Category
ILEC Service Types
# of ILECs
% of ILECs
Providing Service
Providing Service
Local Exchange Switched Service
32
100.0%
Local Exchange Private Line Service
29
90.6%
Lower Capacity
28
87.5%
Higher Capacity
25
78.1%
Long Distance Service
14
43.8%
DSL (Digital Subscriber Line)
32
100.0%
Access service
30
93.8%
Directory Assistance
15
46.9%
Operator
11
34.4%
Telecom using Cable TV Facilities
0
0.0%
Telecom using VoIP
0
0.0%
Other
6
18.8%
4
Softswitch is an abbreviation for software switch, the most modern version of central offices. Softswitches were
originally designed for packet-switched (a.k.a., internet protocol (IP)) traffic but have evolved for use by both IP and
circuit-switched traffic.
5 Other services include miscellaneous internet services and reselling video and wireless services.
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As Figure 1, below, illustrates, in 2014 all 32 ILECs provided switched access and DSL
service; 90.6 percent provided private line service; 43.8 percent provided long distance
service; 93.8 percent provided access service to long distance or interexchange
carriers; 46.9% provided directory assistance service; and 34.4 percent provided
operator service. The 2014 participation of ILECs in all service types is not materially
different than their participation in 2013.
Figure 1. ILEC Service Types and Distributions
Percentage of ILECs Providing Service Types - 2014
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
% Types
Switched
Private line
100.0%
90.6%
Long
distance
43.8%
xDSL
100.0%
Access
Service
93.8%
Directory
Assistance
46.9%
Operator
34.4%
b) CLEC Service Types
Figure 2 and Table 4 display the number and percentages of CLECs providing various
telecommunications services in 2014. As of December 2014, 153 (74.3 percent) of the
206 certificated CLECs were providing one or more of the identified telecommunications
services in Oregon. Of the 153 CLECs providing service, 66 provided local exchange
switched service compared to 57 CLECs providing switched service in 2013. In 2014,
82 CLECs provided long distance service and 49 provided intrastate private line
services.
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Figure 2. CLECs Providing Service by Type and Distributions
Percentage of CLECs Providing Service byType - 2014
60%
40%
20%
0%
% Types
Switched
Private
line
Long
distance
xDSL
Access
Service
43.1%
32.0%
53.6%
24.8%
28.1%
Directory
Assistan
ce
16.3%
Operator
13.1%
Table 4. CLEC Market Coverage by Service Category
CLEC Service Types
Operating CLECs
Local Exchange Switched Service
Local Exchange Private Line Service:
Lower Capacity
Higher Capacity
Long Distance Service
DSL (Digital Subscriber Line)
Access service
Directory Assistance
Operator
Telecom using Cable TV Facilities
Telecom using VoIP
Others
III.
# of CLECs
Providing Service
153
66
49
16
45
82
38
43
25
20
8
50
38
% of CLECs
Providing Service
43.1%
32.0%
10.5%
29.4%
53.6%
24.8%
28.1%
16.3%
13.1%
5.2%
32.7%
24.8%
Switched Services – Market Size and Share Analysis
a) Total Market Size and Shares
As shown in Table 5, below, the 153 CLECs competing in Oregon’s local
telecommunication services market in 2014 had switched service market shares ranging
from 33.5 percent to 46.3 percent depending on the metric used. The three metrics for
measuring market share are switched access lines, revenues, and customers. Each of
these metrics provides a different look at market share.
In 2014, using switched access lines as the standard, the ILECs had a 54.4 percent
market share and the CLECs had 45.6 percent share. When this standard changed to
revenues, the ILECs share jumped to 66.5 percent leaving the CLECs with only a 33.5
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percent share. The CLECs fared best when their market share was measured using
counts of retail business and residential customers6 as the standard. Using this metric,
the ILECs got 53.7 percent of the customers compared to the 46.3 percent going to the
CLECs.
Figure 3 shows the ILEC-CLEC market share using customers as the standard. This
chart shows that the customer base is very close to being equally divided between
ILECs and CLECs. What it does not show is that ILECs, on a revenue basis, are still
significantly ahead of the CLECs.
Figure 3. Market Share for Switched Service by Number of Customers
Switched Service Market Share by CUSTOMER - 2014
CLEC, 46.3%
ILEC, 53.7%
Oregon ILECs and CLECs together serve 916,000 local exchange switched customers
and 1.4 million local switched telephone lines,7 which is nearly identical number of lines
reported in 2013. The drop in lines between 2013 and 2014 was relatively small and
not a good indicator of what has taken place. In 1999, the ILECs alone had 2.1 million
lines; they are now down to 780,000 lines. Comparing the 2.1 million lines in 1999 to
the present line count for ILECs and CLECs shows that 700,000 lines have been lost
between then and now. Much of this loss can be attributed to cell phones.
6
The survey instructions define a customer as a person or entity that had applied for, been accepted, and was
receiving service for a price during the period covered by this report. A customer that has multiple lines counts as one
customer.
7 Local exchange line – the traditional definition is a voice-level transmission path (64 kbps digital, or less than 4 kHz
analog) linking an end user location with the switching center providing dial tone. For purposes of this report, we
include fixed interconnected VoIP lines provided by cable companies in this category.
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Table 5. 2014 Oregon Switched Service Market Shares
2014
Customers
Lines
Revenue-($M)
ILECS
CLECS
Total
492,046
423,997
916,043
780,842
654,993
1,435,835
276.1
139.3
415.5
%
Customers
Lines
Revenue
ILECS
CLECS
Total
53.7%
46.3%
100.0%
54.4%
45.6%
100.0%
66.5%
33.5%
100.0%
Table 5 also shows that total retail revenues from the local switched access services,
which are included in this survey, were an estimated $415.5 million in 2014 (down $15
million from the total for 2013). ILECs received $276.1 million8 (down $17 million from
2013), and CLECs received the remaining $139.3 million (down only $2 million from
2013).
Table 6, below, illustrates that ILEC average annual switched service revenue per line
was $354 in 2014 versus $309 in 2013. CLEC average annual switched service
revenue per line was $213 in 2014 versus $236 in 2013. This difference in revenues
per line is the reason the ILECs revenue share is significantly higher than its customer
share. The driver of this difference does not appear to be the average number of lines
per customer. This is almost identical for the two classes of companies.
Table 6. Selected 2014 Switched Service Averages
2014
CLECs
ILECs
1.5
1.6
Annual Revenue Per Line
$213
$354
Annual Revenue Per Customer
$329
$561
Lines Per Customer
8
Both ILEC and CLEC revenues discussed in this section refer to that subset of revenues from local exchange
switched service only (including cable fixed interconnected VoIP service).
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Table 7, below, compares the “big four” ILECs - CenturyTel, Qwest, United, and Frontier
- with total ILECs and CLECs. In 2014, the “Big Four” had a 50 percent share of all
ILEC and CLEC switched lines, and 61 percent of all reported switched service
revenues.
Table 7. 2014 Market Share of ILECs, CLECs, and the Big 4 ILECs
Market Shares
ILECs/Total
CLECs/Total
Big-4 ILECs/Total
Residential Lines
51.5%
48.5%
45.7%
Business Lines
54.7%
45.3%
51.6%
Wholesale Lines
70.3%
29.7%
70.3%
Total Lines
54.4%
45.6%
50.0%
ILECs/Total
CLECs/Total
Residential Revenues
60.5%
39.5%
51.8%
Business Revenues
68.4%
31.6%
65.5%
Wholesale Revenues
93.1%
6.9%
93.1%
Total Revenues
66.5%
33.5%
61.0%
REVENUES
b) Business Market Share
Share of business lines:
As shown in Figure 4, below, CLECs served 45.3 percent of business switched access
lines in 2014, approximately the same figure for 2013. The ILEC and CLEC business
switched access services market, based on the last two years may be reaching a stable
level.
Share of Business Revenues:
As shown in Table 7, above, CLECs had a 31.6 percent share of business switched
service revenues in 2014, compared to 33.5 percent (see Table 7) of total switched
service revenues. A significant reason for this gap is the large difference in revenues
per line.
Revenue per line:
CLECs reported revenue per business line of $260.33 in 2014. ILECs reported $468.13
per business line in 2014. Since Figure 4, below, indicates the business-line market
share of the ILECs is less than 10 percent higher that CLECs, the substantially higher
revenue per business line of the ILECs suggests they are serving a greater proportion
of high revenue per line accounts than the CLECs.
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Figure 4. Market Share as Measured by Business Switched Lines
Market Share of Business Lines - 2014
CLECs, 45.3%
ILECs, 54.7%
Figure 5, below, illustrates the market share trend of the CLEC business switched
access lines in the past ten years. The annual percentage share peaked at 48.8
percent in 2010. Beginning in 2011, the trend has dropped modestly every year with
2014 reaching 42.8 percent.
Figure 5. CLEC Business Switched Access Line Market Share Growth
CLEC Market Share - Business
Switched Access Lines 2005- 2014
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
Business Lines
2005
37.0%
2006
39.4%
2007
39.6%
2008
42.4%
2009
48.2%
2010
48.8%
2011
47.3%
2012
47.6%
2013
43.1%
2014
42.8%
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c) Residential Market Share
In 2014, CLECs served 49.8 percent of the residential customer market (see Table 8,
below). According to the survey, Oregon carriers provided local exchange switched
services to 769,517 Oregon residential customers. ILECs served 386,210 customers, or
50.2 percent of the total, while CLECs served 383,307 residential customers, or 49.8
percent of the total.
CLEC residential market share remained relatively flat, near 5 percent, until 2007. Then
cable companies began entering the market with more authority offering fixed
interconnected VoIP telephone service as an alternative to the traditional landlines
provided by ILECs.
ILECs served 51.5 percent of residential local exchange lines in 2014, slightly down
from 55.3 percent in 2013. The “big four” ILECs - CenturyTel, Qwest, United, and
Frontier - provided 45.7 percent of total ILEC and CLEC residential lines in 2014 (see
Table 7). Residential phone service is believed to be less profitable than business
service due to the higher costs and lower revenues per line characteristics of the
residential local exchange market. The lower concentration of residential customers
directly drives the costs to serve the residential market. Additionally, residential local
exchange rates are substantially lower than business rates. CLECs provided 48.5
percent of total residential lines, while ILECs provided 51.5 percent.
Revenues from the residential market in 2014 were an estimated $202.2 million.
Revenues were $208.2 million in 2013.
Table 8. 2014 Residential Switched Services Market Share
Residential
Residential
Residential
Residential
Market Shares
Customers
Lines
Revenues ($M)
ILECs
386,210
419,599
122.3
CLECs
383,307
394,620
79.9
Total
769,517
814,219
202.2
ILECs/Total
50.2%
51.5%
60.5%
CLECs/Total
49.8%
48.5%
39.5%
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d) Ten Year Market Trends in Switched Access Services
Table 9, below, illustrates the ILEC and CLEC switched-access-lines market trends.
The CLEC market access line share has steadily increased in the last ten years,
reaching 45.6 percent in 2014, perhaps giving too strong an impression that the market
size is increasing. However, both ILEC and CLEC total line counts have dropped due to
service alternatives and customer demographics.
ILECs lines have been steadily declining since the advent of the 1996 Communications
Act due in part to the elimination of UNE-P services and increasing competition from
wireless and VoIP alternatives. After nearly 20 years of competition, residential lines for
ILECs may have reached a relatively steady state that is perhaps determined more by
customer demographics (age, loyalty, income, household movement, technology
awareness, etc.) than direct industry competition.
The CLEC and ILEC shares of switched access lines in 2014 are 45.6 percent and 54.4
percent, respectively.
Table 9. Trends in Switched Access Lines, 2005 to 2014
Date
ILEC Lines
CLEC Lines
Total
CLEC Share
2005
1,803,832
346,923
2,150,755
16.1%
2006
1,652,900
330,407
1,983,307
16.7%
2007
1,605,911
403,121
2,009,032
20.1%
2008
1,436,946
526,692
1,963,638
26.8%
2009
1,265,459
641,064
1,906,523
33.6%
2010
1,123,531
650,237
1,773,768
36.7%
2011
1,003,865
641,032
1,644,897
39.0%
2012
902,114
639,438
1,541,552
41.5%
2013
838,130
598,576
1,436,706
41.7%
2014
780,842
654,993
1,435,835
45.6%
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Figure 6, below, illustrates the declining trend for the ILEC switched access services
from 2005 to 2014. The ILEC and CLEC shares may be relatively stable but the market
size is in major decline. From 2005 to 2014, the total access lines served by ILECs and
CLECs declined by 33 percent, from 2,150,755 in 2005 to 1,435,835 in 2014. ILEC and
CLEC local exchange market is becoming a smaller share of expanding
telecommunications market. The market expansion is being driven by wireless and
VoIP alternatives.
Figure 6. ILEC Switched Access Services Market Share, 2005 to 2014
ILEC Market Share Percentage in Switched
Access Services, 2005 - 2014
100%
95%
90%
85%
80%
75%
70%
66.47%
65%
Revenues
60%
54.38%
55%
50%
2005
Lines
53.71%
2006
2007
2008
2009
2010
2011
2012
2013
Customers
2014
Figure 7. below, illustrates the CLEC switched access line trend from 2005 to 2014. As
indicated in prior year reports, CLEC switched lines grew an average of 22.6 percent
per year from 1998 (85,146 lines) to 2004 (271,344 lines). Total CLEC lines increased
by 218 percent over that timeframe. During the same period, ILEC switched access
lines declined by an average of 1.2 percent per year, from 2.12 million lines in 1998 to
1.96 million lines in 2004. Since 2005, total ILEC lines have declined by 57 percent.
The total number of switched access lines, both ILEC and CLEC, has declined by
43 percent since 2005.
As discussed at many points in this report, the ILEC and CLEC universe has been
heavily impacted by wireless and VoIP technology alternatives. The latter equates to a
full displacement of ILEC or CLEC landline service when customer transition occurs.
The customer transition to wireless, however, is more complex and can take much
longer since wireless it is not a direct substitute and is priced higher because of the
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mobility functionality.9 Before completely displacing a landline phone, customers often
add wireless phones, then over time shift their usage minutes to wireless and eventually
displace their landline service as their understanding of wireless quality, prices and
service reaches an acceptable level. The introduction of wireless to much younger and
technology sophisticated customers will change this pattern. No replacement will ever
take place as such customers will begin with wireless and will never have subscribed to
ILEC or CLEC landline telephone services.
Figure 7. CLEC Switched Access Lines
CLEC Switched Access Line Trend 2005-2014
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
CLEC Lines
2005
346,923
2006
330,407
2007
403,121
2008
526,692
2009
641,064
2010
650,237
2011
641,032
2012
639,438
2013
598,576
2014
654,993
Figure 8, below, illustrates the CLEC total switched access services market share trend.
From 2005 to 2014, CLEC total market share of revenues derived from switched service
was an average of 25.8 percent, starting at 17.5 percent in 2005 and ending with 33.5
percent in 2014. In the same period, the CLEC market share of switched access lines
averaged 31.8 percent; it started at 16.7 percent and ended at 45.6 percent in 2014.
The CLEC total switched-service, customer share was an average of 26 percent in the
same period, starting at 6.3 percent in 2005 and ending with 46.3 percent in 2014.
9
The quality of wireless service is often influenced by the geography and customer concentration.
Wireless prices often appear much higher than landline since wireless voice is more tightly bundled with
wireless broadband services. Wireless dialing, network access and phones are similar but different in key
aspects from switched access line equivalents.
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Figure 8. CLEC Switched Access Services Market Share 2005 to 2014
CLEC Market Share Percentage in
Switched Access Services, 2005 - 2014
46.3%
50%
Customers
45%
45.6%
40%
Lines
35%
33.5%
30%
Revenue
25%
20%
15%
10%
5%
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Figure 9, below, illustrates the CLEC residential switched access services market share
trend. From 2005 to 2014, CLEC residential switched service revenue market share of
was an average of 21.2 percent, starting at 10.1 percent in 2005 and ending with 39.5
percent in 2014. In the same period, the CLEC residential switched-access-line market
share was an average of 25.1 percent, starting at 7.4 percent and ending at 48.5
percent in 2014. The CLEC residential switched-service customer share was an
average of 26.5 percent in the same period, starting at 5.1 percent in 2005 and ending
with 49.8 percent in 2014.
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Competition Survey
Year 2015 Final Report
Figure 9. CLEC Residential Market Shares for Switched Access Services: 2005 to 2014
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2005
CLEC Residential Market Share in
Switched Service, 2005-2014
48.5%
Lines
49.8%
Customers
39.5%
Revenue
2006
2007
2008
2009
2010
2011
2012
2013
2014
Figure 10, below, illustrates the CLEC business switched-access services market share
trend. From 2005 to 2014, CLEC business switched-service revenue market share was
an average of 33.1 percent, starting at 29 percent in 2005 and ending with 31.6 percent
in 2014. In the same period, the CLEC business switched-access-line market share
was an average of 44.6 percent, starting at 37 percent and ending at 45.3 percent in
2014. The CLEC business switched service customer share was an average of 25.3
percent in the same period, starting at 19.8 percent in 2005 and ending with 22.3
percent in 2014.
Figure 10. CLEC Business Market Shares for Switched Access Service: 2005 to 2014
CLEC BUSINESS Sector Market Share
for Switched Service, 2005-2014
60%
50%
45.33%
Lines
40%
31.56%
30%
Revenues
20%
10%
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
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Competition Survey
Year 2015 Final Report
Figure 11, below, was included in the 2014 report to illustrate how the CLEC switchedaccess-line share in Oregon compares with the CLEC share nationally.
The
comparison was based on the Federal Communications Commission’s (FCC) Local
Telephone Competition, October 2014 Release, as of December 31, 2013.
Additional analysis of the data submitted by the carriers to the
issuance of the “October 2015 Release, as of December 31, 2014
2016. The information in Figure 11 is a comparison of the 2014
CLEC Market Share data with Staff’s estimate of the 2014 national
last available four years in the FCC’s October 2014 Release.
FCC has delayed
report” until March
Oregon ILEC and
data based on the
Page 17
Competition Survey
Year 2015 Final Report
Figure 11. Market Share Comparison of Switched Access Lines – U.S. vs. Oregon
2014 Market Share Comparison of
Switched Access Lines - US vs Oregon
100%
80%
60%
40%
20%
0%
US %
Oregon %
ILEC
55%
54%
CLEC
45%
46%
e) CLEC Provisioning of Switched Service
In 2014, 32 of the 66 CLECs (48%) that reported providing local switched service
participated in reselling ILEC services. Reselling requires that a CLEC buy retail service
from the ILECs at discounted rates, and resell the service, usually with terms and
conditions that equal, or are better than, ILEC tariff standards. CLECs will commonly
utilize CLEC branding to reach and serve end-users customers.
Facility-Based CLECs
In 2014, 31 of the 66 CLECs (47%) providing local switched service were either fully or
partially facility-based providers.10 These CLECs served some of their customers with
their own facilities. The remaining 53 percent provided service solely by reselling the
service of the ILECs. These fully or partially facility-based CLECs provided 654,918
switched access lines in 2014, essentially 100 percent of total CLEC lines. Cable
telephony providers provided the majority of these lines. This data supports the
generally understood service approach of CLECs – the resale of ILEC services is
combined with CLEC facilities-based services, as needed, to serve customers. Few, if
any, CLECs focus entirely on resale or facilities-based competition.
10
Facility-based providers own their switches and networks rather than lease assets from other providers.
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Competition Survey
Year 2015 Final Report
As illustrated in Figure 12, below, 51 percent of facilities-based CLEC local telephone
service was reported to be in the Portland region and 26 percent in the Willamette
Valley region.
Figure 12. Regional Distribution – Facility-based CLEC access lines
Switched Access Lines from Facility-
Central, 4%
East, 2%
Coast, 5%
SW , 12%
Portland, 51%
Willamette, 26%
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Competition Survey
Year 2015 Final Report
Competition based on Unbundled Network Elements (UNEs)11
Twenty-five CLECs reported purchasing ILEC UNEs for use in the provision of
switched, private line or DSL services.
Legal rulings that halted further UNE-P sales in 2007 resulted in a major decline. It is
now more obvious that the CLEC industry subsequently changed its focus regarding
UNE services. CLEC services based on UNE-P were at one time heavily oriented
towards serving the residential market. With the rule change, UNE-P services were
grandfathered and allowed to be churned-out with the shift of residence customers to
communication alternatives combined with housing relocation. The reduced use of
UNEs is expected to continue as ILECs shift from copper-based lines and end-user
services demand more modern technology solutions from CLECs.
Figure 13. UNE Lines in Oregon 2005-2014
UNE Lines in Oregon 2005-2014
250,000
200,000
150,000
100,000
50,000
0
UNE Lines
2005
210,695
2006
194,801
2007
138,506
2008
112,995
2009
103,357
2010
91,276
2011
84,903
2012
82,906
2013
72,362
2014
88,162
11
UNE is the commonly used industry term. In this report, it is intended to include UNE-Ps served in prior
years.
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Competition Survey
Year 2015 Final Report
IV.
High Speed Access Services
a) Private Line Service
Intrastate private lines are dedicated circuits used by customers to transmit information
between two or more pre-selected, fixed locations within the state of Oregon. Intrastate
private line services are available in a range of capacities or bandwidths. The survey
distinguishes between lower capacity circuits, with a bandwidth of less than 1.544
Megabits per second, and higher capacity circuits with a bandwidth of 1.544 Mbps or
greater.
Figure 14, below, illustrates that 54.5 percent of private line circuits were in the lower
capacity category with 45.5 percent in the higher capacity category.
Figure 14. Oregon Private Line Circuits by Types
All LECs Private Line Circuits by Type, 2014
Higher Capacity
44.1%
Lower Capacity
55.9%
Total revenue from intrastate private line services was 11 percent of the total 2014reported ILEC and CLEC revenues. Digital Subscriber Lines, or DSL, accounted for
26.1 percent of those revenues and switched service accounted for the remaining 62.9
percent of them. DSL is generally only provided by ILECs and CLECs utilizing circuitswitched technology. Non-certificated providers12 utilize an IP based broadband
service, usually bundled with video services. Revenues and line counts from such
providers are not included in this report.
Table 10, below, compares total counts and shows CLEC market share of intrastate
private line services. Sixty-one CLECs reported that they provide intrastate private line
12
Non-certificated providers are telecommunications companies that are not certificated by the OPUC.
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Competition Survey
Year 2015 Final Report
service. CLEC private line market shares ranged from 26.1 percent (measured by
circuits) to 63.3 percent (measured by revenue). The percentage depends on how
market share is defined. As with switched access lines, the survey measured CLECs’
market share in three ways: by customers, circuits, and revenues.13
Table 10. Intrastate Private Line Services
2014
Private Line Customers
Total Private Line Circuits
All LECs
CLECs
ILECs
CLEC Share
2,962
795
2,167
26.8%
14,868
3,882
10,986
26.1%
Lower Capacity
8,109
199
7,910
2.5%
Higher Capacity
6,759
3,683
3,076
54.5%
$58,210
$36,827
$21,383
63.3%
Annual Revenues ($000)
In 2014, the CLEC share of private line customers was 26.8 percent, or 795
customers,14 while ILECs provided local private line service to 2,167 customers, or 73.2
percent of the total.
The CLEC market share of all private line circuits was 26.1 percent. The CLEC market
share of lower capacity circuits was 2.5 percent, while the market share for higher
capacity circuits was 54.5 percent. CLEC private line circuits, including lower and
higher capacity circuits, totaled 3,882 in 2014.
Table 11, below, shows that the CLEC share of total local private line service
revenues15 was 63.3 percent. Total ILEC and CLEC revenues from local private line
services in 2014 were an estimated $58.2 million. Of the total estimated annual
revenues, ILECs received $21.4 million (36.7%) and CLECs $36.8 million (63.3%).
13
A circuit is a commonly accepted industry term for facilities, such DS1 and DS3 private lines or circuits,
rather than switched access lines. Circuits, however, can equate to switched access lines. For example,
a DS1 circuit can equal 24 switched access lines; a DS3 circuit can equal 672 switched access lines. A
circuit may connect two customer locations. If so, customers will be billed for each connection or
termination. Each circuit will have at least two terminations. The capacity of a circuit is determined by the
capacity delivered to the customer at the point of termination, even though the customer may further
subdivide that capacity using its own multiplexing or other equipment.
14 Note that survey results may overstate CLECs’ share of local private line customers, since local private
line customers may buy private line services from more than one carrier at a time. As a result, a CLEC
and an ILEC may report the same entity as a private line.
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Competition Survey
Year 2015 Final Report
Table 11. Private Line Service Revenues: 2014
2014
Share
$ Million/year
Total
ILECs
CLECs
100.0%
$58.2
36.7%
$21.4
63.3%
$36.8
b) DSL Service
Digital subscriber line (DSL) is a service that uses a technology that combines two-way
voice and data transmissions at very high speeds over copper telephone lines and
hybrid networks that combined copper and fiber technology. The total number of ILEC
and CLEC DSL lines in Oregon was 365,500 in 2014 and 365,228 in 2013. About
93 percent of the lines were provided by ILECs and 7 percent were provided by CLECs
(see Figure 15, below).
Figure 15. Oregon Digital Subscriber Lines (DSL)
Digital Subscriber Lines
(DSL) Service in Oregon 2014
CLEC
7%
ILEC
93%
DSL and private line services accounted for 32.2 percent of total local exchange
revenue in 2014, a decrease of 2 percent over the 34.2 percent in 2013.
Figure 16, below, illustrates the trend of high-speed digital access as a percentage of
both ILEC and CLEC total revenue.16 In 2005, combined intrastate private line and DSL
revenue comprised 16.6 percent of total revenues. The steady increase continued,
reaching 32.2 percent in 2014. Broadband penetration is believed to be nearly 100
16
Total revenue here is limited to switched access lines, intrastate private lines and DSL.
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Competition Survey
Year 2015 Final Report
percent in metro areas. As penetration levels increase in markets outside of metro
areas, revenues will increase accordingly.
Figure 16. Trend of Private Line and DSL Access in Oregon
High-Speed Digital Access Share in Oregon Measured by Revenue
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% 16.6% 19.4% 18.4% 21.4% 25.6% 25.7% 27.5% 32.4% 34.2% 32.2%
c) VoIP Service
The information available in 2013 indicated an upward trend in active VoIP telephone
numbers, a surrogate for VoIP lines. Figure 17, below, illustrates that based on 2014
information the increase in residential and business VoIP service in Oregon has
continued. Fixed interconnected VoIP Service is a service that enables real-time, twoway voice communications; requires Internet-protocol (IP) compatible customerpremises equipment (CPE); and permits users generally to receive or initiate calls that
may originate or terminate, respectively, on the public switched telephone network
(PSTN).
The total number of Oregon active VoIP phone numbers reported in 2013 was 396,676,
served by 29 reporting carriers. Cable companies served a large majority of the
numbers. Figure 17, below, indicates that 485,744 VoIP phone numbers were reported
in 2014 and were served by 45 reporting carriers.
Although service details are not known, the generally accepted belief is that cable
companies focus on residential customers. Additional 2014 information and analysis
indicates that the huge majority of active Oregon VoIP phone numbers are being utilized
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Competition Survey
Year 2015 Final Report
by CLECs and non-certificated affiliates17 believed to focus on business services. The
2014 information and analysis points to as many as 64 CLEC and non-certificated
affiliates serving over 1.5 million VoIP phone numbers and participating in the delivery
of Oregon VoIP services, some of which are known to not directly compete with Local
Changes Services.
Additional analysis will be needed to determine what percentage of the total CLEC and
non-certificated VoIP phone numbers are used to displace local exchange service
landlines and what percentage are used for the non-local exchange services.
Figure 17. VoIP Trend
Estimated Active Oregon CLEC & Non-certificated Affiliated
VoIP Telephone Numbers
485,744
600,000
396,676
500,000
355,786
400,000
369,602
311,004
300,000
200,000
100,000
0
2010
2011
2012
2013
2014
d) CLEC Provisioning of Private Line Circuits
Twenty-eight CLECs provided private line services by reselling ILEC services. Eleven
CLECs provided private line service by reselling services of other CLECs. Most of this
resale activity was to business customers in the Portland Metropolitan and Willamette
Valley areas.
17Non-certificated
affiliates depend on certificated CLEC affiliates, such as subsidiaries or parent
companies, to facilitate local exchange interconnection needs and telephone number services.
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Competition Survey
Year 2015 Final Report
V. Market Segments by Region and Type of Service
The survey divided Oregon into six geographic regions. The following map shows the
makeup of the regions based on the counties. The six regions are:
Portland Metropolitan, Willamette Valley, Southwest Interior, Coast, Central, and East.
Regions by Counties
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Competition Survey
Year 2015 Final Report
a) Market Segments by Region
Switched Services by Region
The survey asked each LEC to report the number of switched local exchange lines
served in each region. The Portland Metropolitan region, the most populous area of the
state, continues to be the regional market with the largest share of lines with 46.1
percent (see Figure 18, below) of all local exchange switched lines in the state. The
region with the second largest share was the Willamette Valley with 25.2 percent of
switched access lines. The remaining four regions collectively accounted for nearly 30
percent: Southwest Interior (10.6%), Coast (7.1%), Central (6.1%), and East (4.9%).
Figure 18. Oregon LEC Switched Lines by Region
Switched Line Distribution by Region, All LECS, 2014
75.0%
50.0%
25.0%
0.0%
%
Portland
46.1%
Willamette
25.2%
S.W.
10.6%
Coast
7.1%
Central
6.1%
East
4.9%
Survey responses indicate that CLECs provided local switched service in all six Oregon
regions. Statewide, CLECs had a 45.6 percent share of switched local exchange lines.
For the Residential market, CLECs had 48.5 percent of lines in the state in 2014. For
the Business market, CLECs had 45.3 percent of lines in the state.
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Competition Survey
Year 2015 Final Report
Figure 19, below, illustrates the distribution of residential and business lines served by
the CLECs across the six regions. Business lines comprise approximately 33.6 percent
of the total lines served by CLECs. Sixty-eight percent of CLEC business switched lines
are provisioned in the Portland region, with lower provisioning levels in the Willamette
Valley, the Southwest, Central, Coast, and East regions.
Residential lines comprise 60 percent of the 654,918 total lines served by CLECs.
Slightly over 40 percent of all CLEC residential lines were reported in the Portland area
with the Willamette area not far behind at 32.3 percent.
Figure 19. Distribution of CLEC Switched Access Lines by Region
Distribution of CLEC Provided Switched Access Lines in Oregon - 2014
60.0%
40.0%
20.0%
0.0%
Residential
Business
Portland
40.2%
Willamette
32.3%
S.W.
14.7%
Coast
7.0%
Central
3.3%
East
2.5%
68.2%
15.9%
5.2%
1.7%
6.2%
2.7%
Private Line Service by Region
Private lines are distributed across regions by circuit terminations rather than circuits.
Therefore, as measured by terminations, the Portland Metropolitan region is the largest
regional private line market, with 35 percent (see Figure 20, below) of all retail private
line circuits in the state. The second largest region was the Willamette Valley, with 23.1
percent of private line circuits. Results for the remaining four regions are Central
(11.3%), Southwest Interior (12.9%), East (9.6%), and Coast (8.0%).
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Competition Survey
Year 2015 Final Report
Figure 20. Private Line Circuits Terminations by Region: 2014
All LECs Private Line Distribution, 2014
40%
30%
20%
10%
0%
All LECs
Portland
35.0%
Willamette
23.1%
S.W.
12.9%
Coast
8.0%
Central
11.3%
East
9.6%
Of the state's 14,868 local exchange private line circuits, the majority (54.5%) were in
the lower capacity category. The Portland Metropolitan region was the largest market
for lower capacity circuits, with 32.2 percent (see Figure 21, below). The second largest
market was the Willamette Valley region with 25.8 percent, followed by the Central and
East (both 12.2%), Southwest Interior (10.7%), and Coast (6.8%) regions.
Figure 21. Lower Capacity Private Line Circuits by Region: 2014
All LECs Lower Capacity Circuits by Region, 2014
40%
30%
20%
10%
0%
All LECs
Portland
32.2%
Willamette
25.8%
S.W.
10.7%
Coast
6.8%
Central
12.2%
East
12.2%
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Competition Survey
Year 2015 Final Report
Higher capacity private line circuits accounted for 45.5 percent of the state's total private
line circuits. In 2014, the largest market for higher capacity private line circuit
terminations was the Portland Metropolitan region, with 38.6 percent of the state’s total
(see Figure 21). The second largest market was the Willamette Valley region, with 19.8
percent, followed by the Southwest Interior (15.6%), Central (10.2%), Coast (9.4%), and
East (6.4%) regions.
Figure 22. Oregon Higher Capacity Circuits by Region: 2014
All LECs Higher Capacity Circuits by Region, 2014
40%
30%
20%
10%
0%
All LECs
Portland
38.6%
Willamette
19.8%
S.W.
15.6%
Coast
9.4%
Central
10.2%
East
6.4%
The regional distribution of all LEC private lines has fluctuated over the last several
years as indicated in Figure 23, below. The Portland Metro region’s share of total
private line circuit terminations was 35 percent in 2014 and seems to be declining
slightly year over year.
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Competition Survey
Year 2015 Final Report
Figure 23. Private Line Circuits Distribution: 2010 through 2014
Private Line Circuits Distribution by Region, 2010-2014
40.0%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Portland
38.9%
Willamette
26.0%
S.W.
8.6%
Coast
8.1%
Central
9.3%
East
9.1%
2011
36.7%
19.9%
12.5%
9.6%
10.9%
10.4%
2012
37.70%
21.7%
12.7%
9.9%
8.7%
9.4%
2013
35.9%
24.1%
12.5%
8.7%
10.1%
8.7%
2014
35.0%
23.1%
12.9%
8.0%
11.3%
9.6%
2010
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Competition Survey
Year 2015 Final Report
DSL Service by Region
DSL (all types of digital subscriber lines) service was provided for 365,500 lines in 2014
and generated $138.8 million in revenue. Of all DSL, 47.9 percent was in the Portland
Metropolitan region (see Figure 24), followed by the Willamette Valley (21.3%),
Southwest Interior (9.5%), Coast (8%), Central (7%), and East (6.3%) regions.
Figure 24. Oregon DSL by Region
DSL in Oregon by Geographical Location 2014
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
DSL
Portland
47.9%
Willamette
21.3%
S.W.
9.5%
Coast
8.0%
Central
7.0%
East
6.3%
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Competition Survey
Year 2015 Final Report
VI. Business Plans and Competition
a) Capital Expenditures
Capital expenditures are funds invested to acquire or upgrade physical assets such as
telecommunication switches and fiber optic cable. The survey asked for information on
investment in capital assets. Total ILEC and CLEC capital expenditures in 2014
associated with providing local exchange service in Oregon were reported to be in the
range of $71- $285 million.
Only 154 of 206 certified CLECs responded to the request for capital expenditures. Of
the 154 CLEC respondents, 79.9 percent (123 of 154) reported capital expenditures
less than $10,000. As reported by the responding CLECs, 2014 capital expenditures
are estimated to range from $20 - $117 million. Since the upper range of the potential
CLEC capital investment actually exceeds the 2014 CLEC local exchange revenue of
$109 million, the likely investment is probably going to be on the low side or mid-range.
Thirty of the 32 certified ILECs reported capital expenditures in 2014. Total ILEC capital
expenditures were reported to range from $51 - $167 million.
Table 12. 2014 Capital Expenditures for Local Exchange Service
Capital Expenditures
ILECs
CLECs
All LECs
Less than $10,000
3
123
126
$10,000-50,000
1
7
8
$50,001-100,000
3
3
6
$100,001-1,000,000
9
11
20
$1,000,001-10,000,000
10
9
19
More than $10,000,000
4
1
5
30
154
184
$51 - $167
$20 - $117
$71 - $285
# of LECs making Capital Expenditures
Estimated Expenditures ($M)
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Competition Survey
Year 2015 Final Report
b) Competition for Residential Market
In response to the question "What do you believe are the reasons that you do not have
a bigger share of Oregon's residential market?”19 of 32 ILECs (59%) noted that cell
phone usage has reduced the demand for wireline (including second-line) services (see
Table 13, below). Nine ILECs indicated that the lower residential customer density (than
business density) made providing residential services difficult or expensive.
Of the 206 CLEC respondents, 158 provided responses to the same question stated
above. One hundred twenty-three of the responding CLECs indicated that they could
not compete on price. That figure nearly equals the number of CLECs that responded
to the entire set of question options in 2013 – 128 CLECs. Four indicated that they
could not compete on facilities, ten stated that the incumbent local exchange-carrier
name familiarity was a competitive issue, and 12 stated that they did not have enough
capacity. Only six of the 158 CLECs responding to the question (3.8%) indicated that
cell phone usage has reduced the demand for residential wireline services, and three
CLECs considered geographic location a competitive disadvantage for serving
residential customers.
No firm conclusion can be taken from the CLEC responses regarding the difficulties of
residential market competition. However, the extraordinary increase (123 in 2014
compared to 25 in 2013) in the selection of ‘price’ as a competitive disadvantage seems
consistent with the business focus of CLECs. The cable companies and wireless
companies are the key participants in residential local exchange services competition
rather than the CLECs.
Table 13. Residential Market Competition: 2014
Reasons
# of ILECs
# of CLECs
Cannot compete on price
4
123
Cannot compete on facilities
2
4
ILEC has name familiarity
0
10
Do not have enough capacity
0
12
19
6
9
3
12
0
Cell phone decreased the wireline demand
Hard to compete due to location
Other (explain):
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Competition Survey
Year 2015 Final Report
c) Landline telephone industry is shrinking
The 2014 survey results support the generally understood belief that ILEC and CLEC
market is declining as technology alternatives gain more acceptance.
Reasons for the shrinking landline market include the development of fiber optics, cable
telephony, and other new technologies, which enable alternatives for traditional landline
phone service in some geographic areas. In addition, an increasing number of
households have dropped landlines altogether and subscribe only to wireless telephone
services.
Oregon’s ILEC and CLEC lines have decreased from 2.1 million lines in 1999, when this
survey was initiated, to 1 million in 2014, and revenue declined from $976 million in
1999 to $531.2 million in 2014.
Conclusions
Oregon's ILEC and CLEC local telecommunications market in 2014 is a $531.2 million
industry that includes 1 million switched lines, 14,868 intrastate private line circuits, and
365,500 DSLs. Industry-wide, revenues for switched, private line and DSL services in
Oregon increased by $3.8 million from those reported in 2013, including cable company
information. The number of switched lines served in 2014 is approximately 35 percent
lower than in 1999. The decrease reflects the competitive impact of wireless phones,
and both mobile and fixed high-speed Internet access services and, just as important,
changing demographics.
Two major end-user factors are involved. End-users accustomed to only wireline local
exchange phones have shifted some usage to wireless phones. As this demographic
segment ages and drops local exchange service, the number of wireline local exchange
customers will decline accordingly. New users entering the telecommunications market,
however, are going directly to wireless phones without any dependence on wireline
phones.
A key provider factor is also involved. Rather than exit the residential market, as was
originally expected of the CLECs in response to the major change in UNE-P rules,
CLECs are choosing to compete indirectly for residential customers by providing
interconnection and number services to non-certificated affiliates who serve end-users
directly. This constitutes a business realignment strategy rather than an exit strategy.
Cable companies are examples of this alignment. The alignment in the residential
market may be a leading indicator of the alignment that will eventually occur in the
business local exchange market.
Page 35