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A competitive local exchange carrier (CLEC) is a local telephone provider that is in competition with the established local telephone provider, known as the incumbent local exchange carrier (ILEC). In the United States, an incumbent local exchange carrier is defined as a company that provided local telephone service as of the passage of the Telecommunications Act of 1996. Both the competitive local exchange carrier and the incumbent local exchange carrier have their roots in the breakup of the AT&T and Bell System telephone monopoly in 1984.
Prior to the break-up of the Bell System, almost all of the telephone service in the United States was provided through AT&T and the Bell System. Local exchange companies, known as Bell Operating Companies, provided local telephone service within a geographic area. AT&T, through its Long Lines division connected the local exchange companies with long telephone lines to provide long distance service. With control of the local and long-distance telephone market, AT&T and its Bell System became a monopoly, albeit one that was allowed and regulated by the United States government.
As part of its agreement with the United States government, AT&T was required to divest ownership of 22 local Bell Operating Companies. While the dismantling of the Bell System monopoly allowed other companies to enter the long distance market, the local Bell Operating Companies continued as regional monopolies providing local telephone service. The post-divestiture AT&T would then provide long distance service and expand into new technologies and services.
The Telecommunications Act of 1996 helped make it easier for competitive local exchange carriers to enter a market in competition with the incumbent local exchange carrier, most of which were Regional Bell Operating Companies. A competitive local exchange carrier may use its own lines and exchanges or lease the use of existing lines and exchanges from the incumbent local exchange carrier. The Act also required competitive local exchange carriers to allow competitors to lease the use of its lines and exchanges, thereby allowing competitors to enter markets immediately. Competitive local exchange carriers are also governed by different sets of rules than incumbent local exchange carriers to encourage competition.
In response to competition entering local markets, incumbent local exchange carriers were allowed to offer long distance services to consumers. This allowed consumers the convenience of having one provider for local and long distance telephone services. Today it is not uncommon for a competitive local exchange carrier and an incumbent carrier to be integrated communications providers; offering its customers internet and television in addition to traditional telephone services.