A telecommunications provider company (or “carrier”) competing with other, already established carriers, generally the incumbent local exchange carrier (ILEC). CLECs arose as a result of the Telecommunications Act of 1996, which was intended to stimulate competition and interconnection among long distance and local phone service providers.

The physical wire connection between the local exchange and the customer is known as a “local loop”, and is owned by the incumbent local exchange carrier (ILEC). Local loop unbundling (LLU or LLUB) is the regulatory process of allowing multiple telecommunications operators (typically, CLECs)to use the physical connections from the telephone exchange to the customer’s premises.

Non-facilities-based CLECs may employ a Resale strategy. The Telecommunications Act of 1996 states that any telecommunications service that an ILEC offers to retail customers must be offered to a CLEC at a wholesale discount.  This saves the CLEC from the up-front investment in switches, fiber optic transmission facilities, and collocation arrangements. However, those costs are accounted for in the wholesale price offered by the ILEC.