Local telecommunications providers in New York may be struggling to stay afloat in an over-funded sector, but pricing competition is alive and well in local markets, says Verizon Communications Inc.

"Anyone who says otherwise is flat-out dead wrong," says John Bonomo, a spokesman for Verizon. "There is more competition in New York than anywhere else in the world."

But as competitive local exchange carriers (CLECs) declare bankruptcy or struggle to compete with incumbent providers such as Verizon, industry observers and players say the flaws of the 1996 Telecommunications Act are on display.

One of the stipulations of the landmark legislation was that local incumbent Bell companies such as Verizon could eventually get into the long-distance business in other markets once they proved to federal regulators that their local markets were open to competition.

Bonomo says New York-based competitive carriers have access to three million lines and that the start-up carriers are getting access to unbundled network elements at fair prices.

"We're not going to give away the network for free. We provide open access to our network at a discounted cost. The telecom market in New York is wide open. Even with companies filing for Chapter 11, there are more than a hundred competitors of ours in New York and it's been that way for years."

The degree of competition, however, is part of the issue.

"I'm using their facilities to compete against them and therein lies the rub," says Davide Salustri, a vice president and general manager of the New York office of XO Communications (a CLEC).

When a CLEC's largest competitor is its supplier, "in my mind, that borders on strategic incompetence. Your main competitor can't be your best supplier."

Dave Burstein, the editor of DSL Prime.com, a widely read publication about the telecommunications industry, argues that competition is so thin that it is virtually non-existent

"If there were competition, the prices for telephony would be going down. The telcos are trying to increase profits in a business that's flat. The best way to do that is to have a monopoly. And the evidence is that telcos are raising their prices," he says.

The price for DSL service has increased by $10 to about $50 a month, for example.

Burstein also says Verizon's recent application in New York State for a 6 percent rate increase doesn't make sense when the actual cost of delivering basic telephony is between 1 and 3 percent.

Bonomo argues that the increase in DSL prices reflects what the market is bearing, and that most providers are right around that price point.

And as far as the rate increase goes, the rate plan is a reflection of the state's intensely competitive telecommunications market.

"Verizon has invested $10 billion in the last six years in its New York network to meet exploding demand for phone service, data communications and other high-tech services," the company says. "To help Verizon continue to provide New Yorkers the most advanced network services available and the highest level of customer service, the regulatory proposal includes a $1.25 monthly increase in basic phone rates, the first in 10 years."

And New York isn't the only state where critics are pointing fingers over Verizon's pricing and approach to competition.

The Massachusetts Attorney General's office recently filed a lawsuit against the Federal Communications Commission (FCC) over its decision to let Verizon get into long-distance service in the Bay State, where it provides local service.

The state is appealing the commission's ruling, saying Verizon hasn't gone far enough to allow competition in local telephone markets and therefore should not be allowed to move into long-distance service.

Long distance provider AT&T has also filed a similar complaint in Pennsylvania, where Verizon has filed to get into long distance service.

In a brief filed with utility regulators last week, AT&T said "Verizon has attempted to paint a rosy picture of its compliance with the commission's market opening rules, but its marketplace activities contradict this picture."

Kevin Werbach, the editor of the influential montly publication Esther Dyson's Release 1.0, helped work on the Telecom Act as a policy attorney in the FCC. He says it's too early to condemn the legislation.

"The 96 Act was designed to open up local markets to competition, and on some levels, that's happened with many new competitors in the market."

While Werbach agrees that incumbents such as Verizon have fought tooth and nail to protect the lucrative revenues - and market share -- they get from local service, at the same time, Wall Street has sent conflicting signals to the marketplace.

"The capital markets made available huge sums of equity and debt, and then with the downturn of the market in the past year, suddenly that tap has been shut off."

So one has to question whether the Act is a failure of strategy or just a victim of bad luck in terms of market timing, he says.

"The fact of the matter is, too many entrants were taking on too much debt for the size of the market that's available today."

But having said that, "I think it's too early to write the final chapter for the Telecom Act. Much as we would like it to happen, it takes years if not decades to truly shift from a closed monopoly communications market to an open competitive market."