*Pages 1--33 from  Microsoft Word - 19675.doc*
 Federal  Communications  Commission  Office  of  Plans  and  Policy 
 445  12th  Street,  SW  Washington,  DC  20554 

 OPP  Working  Paper  Series 
 36  The  Potential  Relevance  to  the  United  States  of  the  European  Unions  Newly  Adopted  Regulatory 
 Framework  for  Telecommunications 

 July  2002 
 J.  Scott  Marcus 
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 The  Potential  Relevance  to  the  United  States  of  the  European  Unions  Newly  Adopted  Regulatory  Framework  for  Telecommunications 
 J.  Scott  Marcus* 
 smarcus@  fcc.  gov 
 Federal  Communications  Commission 

 Office  of  Plans  and  Policy 
 Washington,  DC  20554 

 July  4,  2002 
 OPP  Working  Paper  No.  36 

 The  FCC  Office  of  Plans  and  Policys  Working  Paper  Series  presents  staff  analysis  and  research  in  various  states.  These  papers  are  intended  to  stimulate 
 discussion  and  critical  comment  within  the  FCC,  as  well  as  outside  the  agency,  on  issues  in  communications  policy.  Titles  may  include  preliminary  work  and 
 progress  reports,  as  well  as  completed  research.  The  analyses  and  conclusions  in  the  Working  Paper  Series  are  those  of  the  authors  and  do  not  necessarily 
 reflect  the  view  of  other  members  of  the  Office  of  Plans  and  Policy,  other  Commission  Staff,  or  any  Commissioner.  Given  the  preliminary  character  of 
 some  titles,  it  is  advisable  to  check  with  the  authors  before  quoting  or  referencing  these  working  papers  in  other  publications. 

 *The  author  is  deeply  indebted  to  Donald  K.  Stockdale,  Jr.  of  the  Office  of  Plans  and  Policy  (OPP)  of  the  FCC,  and  has  borrowed  extensively  from  his  work.  Donald  Abelson  (FCC  International  Bureau  [IB]) 
 provided  invaluable  guidance  and  support.  Matthew  Conway  (recently  of  the  UK  Department  of  Trade  and  Industry  [DTI])  provided  an  extensive  and  extraordinarily  helpful  review.  The  author  is  also  grateful  for 
 the  helpful  comments  and  suggestions  of  many  other  colleagues  on  both  sides  of  the  Atlantic,  including  Patricia  Cooper  (FCC  IB),  Sherille  Ismail  (FCC  OPP),  Peter  Scott  (European  Commission),  Paul  Verhoef 
 (European  Commission),  Tracey  Weisler  (FCC  IB),  and  Irene  Wu  (FCC  IB). 
 This  document  is  available  on  the  FCCs  World  Wide  Web  site  at  http://  www.  fcc.  gov/  opp. 
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 Abstract  Technological  convergence  poses  daunting  challenges  to  regulators  everywhere.  It  is 
 difficult  for  a  regulatory  system  based  on  statutory  definitions  of  networks  and  services  to  adapt  with  enough  speed  and  flexibility  to  changes  driven  by  technology  and  the 
 marketplace.  The  European  Union  recently  adopted  an  entirely  new  regulatory  framework  in  an  effort  to  deal  with  convergence  in  a  different  way.  It  is  too  soon  to 
 know  how  well  the  system  will  work  in  practice,  but  it  represents  a  promising  experiment  on  a  dramatically  large  scale.  The  FCC  could  benefit  from  close  study  of  both  the 
 theoretical  underpinnings  and  the  actual  implementation  of  the  European  system. 
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 Contents  Abstract  ...............................................................................................................................  ii 
 Convergence:  A  Challenge  to  the  Regulator  ......................................................................  1 
 Convergence  and  the  US  Legal  and  Regulatory  Framework..............................................  3 
 Legal  Framework  of  Telecommunications  Regulation...................................................  3 
 The  Computer  Inquiries..............................................................................................  4 
 The  Regulatory  Framework  and  the  Internet  ..............................................................  7 
 Antitrust  Analysis  in  the  US  ...........................................................................................  7 
 Investigative  Authority  and  Access  to  Information  ........................................................  9 
 Deregulation..................................................................................................................  10 
 Centralization  versus  Decentralization  .........................................................................  10 
 The  New  European  Regulatory  Framework  .....................................................................  12 
 Market  Definition..........................................................................................................  13 
 Significant  Market  Power  (SMP)..................................................................................  14 
 Access  Requirements  ....................................................................................................  15 
 Investigative  Authority  and  Access  to  Information  ......................................................  16 
 Deregulation..................................................................................................................  16 
 Centralization  versus  Decentralization  .........................................................................  16 
 Benefits  .........................................................................................................................  17 
 Comparative  Results  .........................................................................................................  19 
 Computer  Inquiries  .......................................................................................................  19 
 Competitive  Carrier  Proceeding  ...................................................................................  19 
 Streamlining  the  Regulation  of  AT&  T  .........................................................................  21 
 Obligations  for  Interconnection,  Resale  of  Retail  Services,  Unbundled  Network  Elements  (UNEs),  and  Collocation...............................................................................  22 

 Entry  of  Bell  Operating  Companies  into  Long  Distance  ..............................................  23 
 Rates  for  Cable  Service.................................................................................................  24 
 Implementation  Challenges  ..............................................................................................  25 
 The  Role  of  the  European  Commission  versus  that  of  the  NRAs.................................  25 
 Emerging  or  Nascent  Services  ......................................................................................  25 
 Relevance  to  the  United  States  .........................................................................................  27 
 References.........................................................................................................................  29 
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 Convergence:  A  Challenge  to  the  Regulator  Not  so  long  ago,  specific  services  and  the  associated  networks  were  closely  intertwined. 
 Telecommunications  networks  delivered  voice  telephony.  Broadcast  systems  delivered  radio  and  television.  The  introduction  of  cable  television  and  satellite  transmission 
 resulted  in  only  a  marginal  increase  in  complexity. 
 Today,  one  can  no  longer  say  that  the  service  and  the  network  are  inextricably  intertwined.  Voice  telephony  is  delivered  over  wireline  telecommunications,  wireless, 

 cable  and  the  Internet.  Radio  and  television  programming  are  delivered  over  radio,  cable  and,  to  a  limited  but  growing  degree,  the  Internet.  Indeed,  the  Internet  is  fundamental  to 
 the  challenges  of  convergence,  insofar  as  it  totally  decouples  the  application  from  the  underlying  mechanisms  of  transmission. 

 Convergence  poses  vexing  problems  for  the  regulator.  In  the  US,  the  Communications  Act  of  1934  1  (the  statute  governing  telecommunications  regulation)  provides  for 
 substantially  different  treatment  for  wireline,  mobile  wireless,  and  cable-  based  services.  To  the  extent  that  the  Act  fails  to  account  for  present  technical  and  market  realities, 
 notably  including  the  rapid  growth  of  the  Internet,  there  may  be  the  risk  of  irrational  results,  regulatory  arbitrage,  or  distortions  in  the  development  of  technology  or  coverage. 

 Convergence  is  by  no  means  confined  to  the  United  States.  It  is  a  global  phenomenon.  Responses,  however,  have  varied  from  region  to  region. 
 The  European  Unions  telecommunications  regulatory  framework  adopted  in  March  2002  represents  a  bold  and  innovative  response  to  the  challenges  of  convergence.  2  It 
 recognizes  that  much  of  telecommunications  regulation  exists  as  a  means  of  addressing  potential  and  actual  abuses  of  market  power.  With  that  in  mind,  the  EU  attempts  a 
 comprehensive,  technology-  neutral  approach  to  regulation,  which  borrows  concepts  of  market  definition  and  of  market  power  from  competition  law. 

 This  paper  assesses  potential  strengths  and  weaknesses  of  the  EU  approach,  and  considers  its  possible  relevance  to  the  very  different  legal  and  regulatory  framework  in 
 the  United  States. 
 The  paper  addresses  the  following  questions,  among  others.  First,  why  is  it  that  the  two  systems  appear  to  frequently  generate  similar  results?  When  might  the  two  systems 

 generate  different  results,  and  why? 
 Perhaps  most  intriguing  of  all:  Why  do  we  regulate  the  things  that  we  regulate?  What  light  does  the  new  EU  regulatory  framework  shed  on  this  question? 

 1  48  Stat.  1064  (1934)  (codified  as  amended  at  47  U.  S.  C.    151  et  seq.),  hereinafter  the  Act. 
 2  Indeed,  the  framework  is  in  large  part  a  response  to  convergence  challenges  raised  in  the  Green  Paper 
 of  1997.  Regulation  needs  to  be  transparent,  clear  and  proportional  and  distinguish  between  transport  (transmission  of  signals)  and  content.  This  implies  a  more  horizontal  approach  to  regulation  with  a 

 homogenous  treatment  of  all  transport  network  infrastructure  and  associated  services,  irrespective  of  the  nature  of  the  services  carried.  See  http://  europa.  eu.  int/  ISPO/  convergencegp/  ip164en.  html. 
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 In  this  paper,  we  consider  first  the  U.  S.  telecommunications  regulatory  system,  and  then  that  of  the  European  Union.  We  consider  each  system  in  terms  of  its  regulatory 
 framework,  its  competition  law  framework,  the  ability  of  regulators  to  obtain  the  information  they  need  and  to  protect  sensitive  third  party  data,  the  support  for 
 deregulation,  and  the  balance  struck  between  centralization  and  decentralization.  We  then  evaluate  specific  outcomes  of  the  U.  S.  regulatory  system,  and  then  pose  the  question 
 in  each  case  as  to  whether  the  new  EU  system  could  potentially  generate  similar  outcomes.  We  proceed  to  review  briefly  certain  implementation  challenges  to  the  new 
 EU  system,  and  close  by  considering  the  potential  relevance  of  the  new  European  framework  to  regulatory  practice  in  the  United  States. 
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 Convergence  and  the  US  Legal  and  Regulatory  Framework 
 As  previously  noted,  convergence  has  been  widely  recognized  as  representing  a  regulatory  challenge.  Particularly  vexing  issues  relate  to  the  regulatory  treatment  of 
 broadband  services  over  cable  and  wireline  media,  and  potentially  of  IP  telephony. 
 For  example,  a  recent  report  from  the  National  Academy  of  Sciences  noted: 
 The  Telecommunications  Act  of  1996,  which  for  the  most  part  assumes  the  continued  existence  of  a  number  of  distinct  services  that  run  over  distinct  communications 

 technologies  and  separate  infrastructure,  does  not  fully  reflect  the  convergent  nature  of  broadband  (different  communications  infrastructures  are  able  to  deliver  a  similar 
 set  of  services  using  a  common  platform,  the  Internet)  .  3 
 In  this  section,  we  consider  the  legal  framework  for  telecommunications  regulation  in  the  United  States.  4  We  then  proceed  to  consider  merger  and  competition  law  in  the  U.  S.,  in 

 order  to  gain  a  comparative  sense  of  how  it  relates  to  equivalent  practice  in  Europe. 

 Legal  Framework  of  Telecommunications  Regulation  Telecommunications  in  the  U.  S.  is  primarily  governed  by  the  Communications  Act  of 
 1934  5  ,  which  was  substantially  amended,  most  notably  by  the  Telecommunications  Act  of  1996.  6 

 Within  the  Act,  Title  I  establishes  the  structure  and  jurisdiction  of  the  FCC,  and  also  provides  definitions  used  throughout  the  Act.  Title  II  addresses  the  regulation  of 
 Common  Carriers,  which  represent  the  traditional  world  of  telephony.  Title  III  concerns  wireless  services  and  broadcast  Radio  and  television,  while  Title  VI  addresses  the 
 regulation  of  Cable  Communications. 
 Title  II  contains  a  wide  range  of  obligations  applicable  to  telecommunications  common  carriers.  These  provisions  govern,  for  instance,  the  prices  they  may  charge  for  services  7  , 

 3  Broadband:  Bringing  Home  the  Bits,  Computer  Science  and  Telecommunications  Board,  National 
 Academy  of  Sciences,  January,  2002,  pg.  32.  4 
 In  this  section,  we  deal  with  telecommunications  regulation  in  its  present  form.  For  a  treatment  of  the  history  of  telecommunications  regulation  in  this  country,  as  it  relates  to  competition  and  deregulation,  see 

 Donald  K.  Stockdale,  The  Regulation,  Deregulation  and  Nonregulation  of  Telecommunications  and  the  Internet  in  the  United  States  (unpublished  manuscript,  2001).  Portions  of  what  follows  appeared  in  that 
 paper  in  a  different  form.  5 
 48  Stat.  1064  (1934)  (codified  as  amended  at  47  U.  S.  C.    151  et  seq.),  hereinafter  the  Act.  6 
 Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104,  110  Stat.  56  (1996  Act),  codified  at  47  U.  S.  C.    151  et  seq.  (Hereinafter,  all  citations  to  the  1996  Act  will  be  to  the  1996  Act  as  it  is  codified  in  the  United 

 States  Code.)  7 
 47  U.  S.  C.  201. 
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 obligations  to  publish  those  prices  in  tariffs  8  ,  limitations  on  their  ability  to  discriminate  9  ,  and  obligations  to  interconnect  with  other  carriers  and  to  provide  collocation  and 
 Unbundled  Network  Elements  10  .  Notably,  there  is  a  prohibition  against  Bell  Operating  Companies  (BOCs)  offering  interLATA  (long  distance)  services  within  their  historic 
 service  areas  until  they  have  demonstrated  that  they  have  sufficiently  opened  their  local  markets  to  telecommunications  competition  within  the  state  in  question.  11 

 These  obligations  are  not  applicable  to  wireless  broadcasters  or  cable  operators  (except  to  the  extent  that  they  offer  telecommunications  services  over  their  facilities).  Broadcasters 
 and  cable  operators  are,  however,  subject  to  a  different  set  of  rules,  many  of  which  relate  to  the  content  that  they  carry,  or  to  the  spectrum  over  which  wireless  services  operate.  12 

 Under  the  Act,  organizations  that  provide  telecommunications  services  are  held  to  be  common  carriers  and  thus  subject  to  Title  II  regulation.  Telecommunications  service  is 
 defined  as  the  offering  of  telecommunications  for  a  fee  directly  to  the  public,  or  to  such  classes  of  users  as  to  be  effectively  available  directly  to  the  public,  regardless  of  the 
 facilities  used.  13  Telecommunications,  in  turn,  is  defined  as  the  transmission,  between  or  among  points  specified  by  the  user,  of  information  of  the  user's  choosing,  without 
 change  in  the  form  or  content  of  the  information  as  sent  and  received.  14  The  definitional  category  turns  on  the  nature  of  the  service  that  is  offered,  not  necessarily  on  the 
 technology  over  which  it  is  offered.  15 

 The  Computer  Inquiries 
 The  Computer  Inquiries  were  a  series  of  FCC  regulatory  proceedings  that  addressed  the  perceived  convergence  between  telecommunications  and  computing.  16  The  Computer 

 8  47  U.  S.  C.  203. 
 9  47  U.  S.  C.  202. 
 10  47  U.  S.  C.  251. 
 11  47  U.  S.  C.    271. 
 12  47  U.  S.  C.    301-  396  and  601-  653.  Particularly  noteworthy  are  must  carry  rules  for  cable  (  612). 
 Sherille  Ismail  suggests  that  differences  in  must  carry  regulatory  treatment  of  cable  compared  to  that  of  broadcast  or  DBS  satellite  may  result,  at  least  in  part,  from  differences  among  these  three  in  their  degree  of 

 monopsony  market  power  in  the  programming  market.  (  Achieving  Regulatory  Parity  in  Communications  Policy,  forthcoming) 
 13  47  U.  S.  C.    3. 
 14  Ibid. 
 15  See  also  the  Universal  Service  Report,  often  referred  to  as  the  Stevens  Report,  at  59:  This  functional 
 approach  is  consistent  with  Congress's  direction  that  the  classification  of  a  provider  should  not  depend  on  the  type  of  facilities  used.  A  telecommunications  service  is  a  telecommunications  service  regardless  of 

 whether  it  is  provided  using  wireline,  wireless,  cable,  satellite,  or  some  other  infrastructure.  Its  classification  depends  rather  on  the  nature  of  the  service  being  offered  to  customers 
 16  In  the  Matter  of  Regulatory  and  Policy  Problems  Presented  by  the  Interdependence  of  Computer  and 
 Communications  Services  and  Facilities,  (hereinafter  Computer  I  Inquiry),  7  FCC  2d  11  (1966).  See  generally  Huber,  P.,  Kellogg,  M.,  &  Thorne,  J.  (1999),  at  1086-  1103;  and  Oxman,  J.  (1999). 
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 Inquiries  strongly  influenced  the  Telecommunications  Act  of  1996;  at  the  same  time,  certain  of  the  orders  remain  in  effect  today. 
 In  Computer  I,  the  Commission  made  two  decisions  that  laid  the  foundation  for  its  regulatory  approach  to  services  provided  by  computer  data  processing  service  providers. 
 First,  the  Commission  concluded  that  the  public  interest  would  not  be  served  by  regulating  such  data  processing  services,  since  the  provision  of  such  services  was  deemed 
 to  be  essentially  competitive.  17  Second,  while  the  Commission  determined  that  the  participation  of  common  carriers  in  the  data  processing  market  would  benefit  consumers, 
 it  expressed  concern  that  common  carriers  might  engage  in  unfair  competition.  The  dangers  of  unfair  competition,  the  Commission  explained,  relate  primarily  to  the  alleged 
 ability  of  common  carriers  to  favor  their  own  data  processing  activities  by  discriminatory  services,  cross-  subsidization,  improper  pricing  of  common  carrier  services,  and  related 
 anticompetitive  practices  and  activities.  18  Accordingly,  the  Commission  concluded  that  there  was  a  need  for  competitive  safeguards,  and  it  required  common  carriers  seeking  to 
 offer  data  services  to  do  so  through  a  structurally  separate  affiliate.  19  These  safeguards  were  intended  to  ensure  that  carriers  would  not  give  any  preferential  treatment  to  their 
 data  processing  affiliates  and  that  competing  data  service  providers  would  therefore  have  nondiscriminatory  access  to  the  underlying  communications  components  used  in 
 providing  their  services.  20 
 The  Commission  continued  its  examination  of  these  issues  in  the  Computer  II  proceeding,  which  it  initiated  in  1976.  21  In  Computer  II,  the  Commission  reaffirmed  its 

 basic  regulatory  approach  to  the  provision  of  computer  data  services,  but  refined  its  analysis.  In  particular,  the  Commission,  attempting  to  define  and  distinguish  regulated 
 telecommunications  services  and  unregulated  data  services,  created  the  categories  of  basic  services  and  enhanced  services.  22  The  Commission  also  specified  in  greater  detail 

 17  The  Commission  specifically  found  that  there  is  ample  evidence  that  data  processing  services  of  all 
 kinds  are  becoming  available  .  .  .  and  that  there  are  no  natural  or  economic  barriers  to  free  entry  into  the  market  for  these  services.  Computer  I,  Tentative  Decision,  28  FCC  2d  291,  at  para.  20  (1970) 

 18  Computer  I,  Final  Decision  and  Order,  28  FCC  2d  267,  at  para.  12  (1971). 
 19  Id.,  at  paras.  12  et  seq. 
 20  Id.,  at  para.  21. 
 21  In  the  Matter  of  Amendment  of  Section  64.  702  of  the  Commissions  Rules  and  Regulations  (Second 
 Computer  Inquiry),(  hereinafter  Computer  II),  Notice  of  Inquiry  and  Proposed  Rulemaking,  61  FCC  2d  103  (1976). 

 22  The  Commission  defined  the  term  basic  service,  which  referred  to  traditional  common  carrier 
 telecommunications  offerings  as  the  offering  of  transmission  capacity  for  the  movement  of  information.  Computer  II,  Final  Decision,  (Computer  II  Final  Decision),  77  FCC  2d  584,  at  para.  93  (1980).  The 

 Commission  defined  enhanced  services  as: 
   services,  offered  over  common  carrier  transmission  facilities  used  in  interstate  communications,  which  employ  computer  processing  applications  that  act  on  the  format, 

 content,  code,  protocol,  or  similar  aspects  of  the  subscribers  transmitted  information;  provide  the  subscriber  additional,  different  or  restructured  information;  or  involve 
 subscriber  interaction  with  stored  information.  (46  C.  F.  R.    64.  702(  a)). 
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 the  extent  of  structural  separation  required  between  the  incumbent  telephone  provider  and  its  enhanced  services  affiliate.  23 
 In  1986,  the  Commission  further  extended  this  line  of  reasoning  with  its  Computer  III  decision.  24  Computer  III  offered  an  alternative  set  of  competitive  safeguards  to  protect 
 competitive  providers  of  enhanced  services.  Specifically,  the  Commission  gave  AT&  T  and  the  BOCs  that  sought  to  provide  enhanced  services  the  option  of  continuing  to 
 comply  with  Computer  IIs  strict  separate  subsidiary  requirements,  or  alternatively  of  complying  with  new  nonstructural  safeguards. 

 Finally,  in  order  to  prevent  any  improper  shifting  of  costs  from  unregulated  to  regulated  activities,  the  Commission,  in  its  Joint  Cost  proceeding,  25  adopted  new,  and  more 
 detailed,  accounting  rules  that  applied  to  all  incumbent  local  exchange  carriers  and  to  dominant  interexchange  carriers.  26 

 Thus,  in  the  Computer  Inquiries,  the  Commission  reaffirmed  its  commitment  to  its  essential  policy  of  regulating  only  the  common  carrier  basic  transmission  service,  while 
 exempting  enhanced  services  (which  represented  a  blending  of  computation  and  communications)  from  common  carrier  regulation.  Enhanced  services  did  not  themselves 
 provide  bottleneck  facilities,  but  they  depended  on  bottleneck  facilities  controlled  by  the  traditional  carriers.  The  FCC  therefore  concluded  that  enhanced  services  per  se  did  not 
 need  to  be  regulated  as  basic  (telecommunications)  services.  The  equipment  necessary  to  implement  enhanced  services  was  available  on  the  open  market.  Barriers  to  entry  were 
 potentially  low.  The  FCC  wisely  chose  to  let  market  forces  drive  the  evolution  of  enhanced  services,  without  regulatory  interference. 

 At  the  same  time,  the  Commission  continued  to  emphasize  the  need  for  competitive  safeguards  to  ensure  that  common  carriers  did  not  use  their  bottleneck  facilities  to 
 compete  unfairly  against  unaffiliated  enhanced  service  providers. 
 The  Telecommunications  Act  of  1996  formalized  and  codified  the  distinction  between  basic  services  (renamed  telecommunication  services)  and  enhanced  services  (renamed 

 information  services).  The  Act  defines  an  information  service  as  the  offering  of  a  capability  for  generating,  acquiring,  storing,  transforming,  processing,  retrieving, 
 utilizing,  or  making  available  information  via  telecommunications,  and  includes  electronic  publishing,  but  does  not  include  any  use  of  any  such  capability  for  the 

 23  Computer  II  Final  Decision,  77  FCC  2d  at  paras.  190-  266. 
 24  In  the  Matter  of  Amendment  of  Section  64.  702  of  the  Commissions  Rules  and  Regulations,  Report  and 
 Order,  (Computer  III),  104  FCC  2d  958  (1986),  vacated  California  v.  FCC,  905  F.  2d  1217  (9  th  Cir.  1990).  25 
 Separation  of  Costs  of  Regulated  Telephone  Service  from  Costs  of  Nonregulated  Activities,  Report  and  Order,  (Joint  Cost  Order),  2  FCC  Rcd  1298  (1987),  on  recons.,  2  FCC  Rcd  6283  (1984)  (Joint  Cost 

 Reconsideration  Order);  on  further  recons.,  3  FCC  Rcd  6701  (1988)  (Joint  Cost  Further  Reconsideration  Order). 
 26  In  Computer  III,  the  Commission  also  aimposed  new  rules  governing  disclosure  of  network  changes  and 
 the  handling  of  customer  proprietary  network  information.  Computer  III  Order,  104  FCC  2d,  at  paras.  241-65. 
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 management,  control,  or  operation  of  a  telecommunications  system  or  the  management  of  a  telecommunications  service.  27 
 The  Regulatory  Framework  and  the  Internet 
 The  Computer  I,  II  and  III  rulings  and  their  embodiment  in  the  Telecommunications  Act  of  1996  represent  the  underpinnings  of  U.  S.  deregulatory  policy  toward  the  Internet.  On 

 the  one  hand,  they  led  to  the  view  that  the  Internet  should  be  viewed  as  an  enhanced  service,  and  that  the  Internet  consequently  should  not  itself  be  subject  to  significant 
 regulation.  On  the  other  hand,  they  sought  to  ensure  that  the  traditional  carriers  would  not  be  permitted  to  withhold  or  to  discriminate  in  the  provision  of  the  building  blocks 
 essential  to  the  creation  of  the  Internet. 
 In  1998,  the  FCC  prepared  a  report  to  Congress  on  the  likely  impact  of  the  Internet,  and  of  Internet  telephony,  on  contributions  to  the  Universal  Service  Fund  (USF).  28  The  USF 

 is  a  mechanism  whereby  the  price  of  telecommunications  service  in  areas  of  low  teledensity  (e.  g.  rural  areas)  is  subsidized  in  order  to  ensure  that  it  is  affordable  to  all.  A 
 number  of  senators,  notably  including  Senator  Stevens  of  Alaska,  were  concerned  that  unregulated  Internet  services,  which  were  not  obliged  to  contribute  to  the  USF,  would 
 ultimately  undermine  the  financial  viability  of  the  USF. 
 The  Stevens  Report  confirmed  that  Internet  access  services  should  continue  to  be  viewed  as  information  services,  consistent  with  longstanding  FCC  practice.  It  also  analyzed  IP 

 telephony  at  length.  In  doing  so,  it  established  many  of  the  underpinnings  of  current  regulatory  practice  in  the  U.  S.  as  regards  converged  services  in  general  and  the  Internet  in 
 particular. 
 It  is  noteworthy  that  a  telecommunications  bill  enacted  a  scant  six  years  ago  explicitly  references  the  Internet  in  only  two  places    in  section  230  (the  Communications 

 Decency  Act),  and  in  referencing  the  support  of  advanced  services  to  schools  and  libraries  in  section  254(  h)  of  the  Act.  29  This  dramatically  illustrates  the  pace  at  which  the 
 technology  and  the  marketplace  have  progressed  in  the  intervening  years. 

 Antitrust  Analysis  in  the  US  In  the  U.  S.,  the  relationship  between  telecommunications  regulation  and  antitrust  is 
 complex. 

 27  47  U.  S.  C.  3(  20). 
 28  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Report  to  Congress  (  Stevens 
 Report),  13  FCC  Rcd  11501,  11516-  17  (1998),  FCC  document  98067.  pdf.  29 
 This  brief  reference  appears  in  47  U.  S.  C.    271.  In  addition,  U.  S.  C.    254  refers  to  advanced  services,  while  section  706  of  the  1996  Act  refers  to  broadband  as  advanced  telecommunications  capability   

 arguably,  there  are  many  implicit  references  to  the  Internet. 
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 The  FCC,  as  the  independent  regulatory  body  for  communications,  has  statutory  responsibility  in  a  number  of  instances  for  determining  the  permissible  portion  of  a 
 national  or  local  market  that  a  single  entity  may  own.  It  also  has  responsibility  for  restricting  certain  forms  of  cross  ownership  (for  instance,  between  broadcast  television 
 and  newspaper  publishing  in  the  same  local  market). 
 In  the  U.  S.,  antitrust  concerns  sometimes  arise  as  a  result  of  the  conduct  of  a  single  firm.  The  American  attitude  to  large  corporations  has  always  been  somewhat  ambivalent    we 

 worry  about  the  power  that  large  corporations  wield,  and  yet  at  the  same  time  we  appreciate  the  potential  benefits  associated  with  the  economies  of  scale  and  scope  that 
 they  command.  Consequently,  it  is  not  held  to  be  a  problem  for  a  firm  to  possess  market  power;  rather,  what  is  problematic  is  the  abuse  of  that  market  power. 

 Somewhat  different  antitrust  issues  may  present  themselves  when  two  companies  attempt  to  merge,  particularly  when  the  merger  would  dramatically  expand  their  presence  in  a 
 relevant  market.  One  of  two  U.  S.  agencies  will  take  the  lead  in  investigating  any  merger    either  the  Federal  Trade  Commission  (FTC),  or  the  Department  of  Justice  (DoJ).  30  In 
 either  case,  the  relevant  agency  determines  whether  the  merger  would  constitute  a  violation  of  competition  law.  31  In  parallel  with  this  evaluation,  the  FCC  assesses  the 
 same  merger  using  a  very  different  standard:  Does  it  serve  the  public  interest?  32 
 The  DoJ/  FTC  Horizontal  Merger  Guidelines  set  forth  the  methodology  that  these  enforcement  agencies  will  apply  in  analyzing  horizontal  mergers  (mergers  between 

 participants  in  the  same  industry).  33  The  guidelines  attempt  to  provide  a  rigorous  economic  methodology  for  evaluating  the  prospective  impact  of  a  merger. 

 Under  the  Guidelines,  one  begins  by  defining  relevant  markets.  A  relevant  product  market  is  defined  as    a  product  or  group  of  products  such  that  a  hypothetical  profit 
 maximizing  firm  that  was  the  only  present  and  future  seller  of  those  products  likely  would  impose  at  least  a  small  but  significant  and  nontransitory  increase  in  price.  34  In 
 applying  this  definition,  the  antitrust  authorities  employ  a  smallest  market  principle.  That  is,  they  begin  by  identifying  a  narrow  group  of  products  that  includes  a  product  or 
 products  of  the  merging  firms.  They  then  consider  the  effect  of  a  small  but  significant  and  nontransitory  increase  in  price  on  a  hypothetical  monopolist  that  was  the  sole 
 supplier  of  that  product  or  products.  If  the  price  increase  would  result  in  such  a  large  reduction  in  demand  that  the  price  increase  would  have  been  unprofitable,  then  the  next 
 best  substitute  or  substitutes  would  be  added  to  the  relevant  product  group.  The  agency  applies  this  procedure  iteratively  until  it  has  identified  the  narrowest  group  of  products 

 30  In  recent  years,  for  instance,  the  Department  of  Justice  analyzed  the  WorldCom/  MCI  merger  and  the 
 attempted  WorldCom/  Sprint  merger,  while  the  Federal  Trade  Commission  analyzed  the  AOL/  Time  Warner  merger.  Note  that  the  FTC  has  no  jurisdiction  over  common  carriers. 

 31  The  competition  law  provisions  applicable  to  mergers  are  contained  in  section  1  of  the  Sherman  Act  and 
 section  7  of  the  Clayton  Act.  32 
 47  U.  S.  C.  sections  214,  310  and  314.  33 
 U.  S.  Department  of  Justice  and  Federal  Trade  Commission,  Horizontal  Merger  Guidelines,  57  Fed.  Reg.  41557  (April  2,  1992,  as  revised  April  8,  1997),  http://  www.  ftc.  gov/  bc/  docs/  horizmer.  htm. 

 34  DoJ/  FTC  Merger  Guidelines  1.  1,  Market  Definition.. 
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 where  the  price  increase  would  be  profitable.  This  group  of  products  would  then  constitute  the  relevant  product  market.  35 
 The  agency  then  proceeds  to  identify  participants  in  the  relevant  product  market  36  ,  and  to  determine  the  market  shares  of  the  market  participants  (typically  based  on  dollar  sales  or 
 shipments).  A  shorthand  tool  that  is  often  used  to  assess  the  impact  of  a  prospective  merger  is  the  Herfindal-  Hirschman  Index  (HHI).  The  HHI  is  calculated  by  summing 
 the  squares  of  the  individual  market  shares  of  all  the  participants.  37  In  a  perfectly  monopolized  market,  the  HHI  would  be  10,000;  in  a  market  with  a  vast  number  of  tiny 
 competitors,  it  would  approach  zero.  The  HHI  is  thus  a  measure  of  relative  concentration.  In  a  highly  concentrated  market  (HHI  greater  than  1,800  after  a  merger), 
 a  merger  that  results  in  an  increase  in  the  HHI  of  100  or  more  is  felt  ceteris  paribus  to  potentially  raise  significant  competitive  concerns  38  . 

 With  this  information  in  hand,  the  agency  proceeds  to  analyze  the  likely  competitive  effects  of  a  proposed  merger,  considering  all  relevant  factors,  including  the  likelihood  of 
 subsequent  competitive  entry,  and  any  beneficial  efficiencies  that  might  flow  from  the  merger. 

 The  DoJ  or  FTC  will  coordinate  with  the  FCC  insofar  as  possible  (see  below)  during  a  merger  review;  however,  there  is  no  assurance  that  FTC/  DoJ  market  definitions  and 
 competitive  threats  will  be  directly  reflected  in  FCC  regulatory  policy. 

 Investigative  Authority  and  Access  to  Information  In  assessing  a  merger,  one  needs  a  great  deal  of  information.  Typically,  much  of  the 
 relevant  information  is  in  the  hands  of  the  merging  parties,  not  initially  in  those  of  the  competition  authorities. 

 The  Department  of  Justice  is  an  investigative  agency.  When  it  needs  information  relevant  to  a  merger,  it  generally  issues  a  Civil  Investigative  Demand  (CID),  which  has 
 legal  force  similar  to  that  of  a  subpoena.  Information  received  pursuant  to  a  CID  is  maintained  in  strict  confidence,  much  as  would  be  the  case  in  a  criminal  prosecution. 

 The  FCC  is  not  an  investigative  agency,  but  rather  an  administrative  agency  subject  to  the  Administrative  Procedure  Act  (APA)  39  .  Nonetheless,  it  has  full  statutory  authority  to  use 
 compulsory  process  to  obtain  information  when  necessary.  40  Furthermore,  the  parties  to 
 35  Ibid. 
 36  Ibid.,  1.3,  Identification  of  Firms  that  Participate  in  the  Relevant  Market.  The  Guidelines  necessarily 
 consider  the  possibility  of  supply  response.  37 
 Ibid.  1.  5,  Concentration  and  Market  Shares.  38 
 Ibid.  39 
 5  U.  S.  C.  551  et  seq.  40 
 47  U.  S.  C.  409(  e):    the  Commission  shall  have  the  power  to  require  by  subpena  (sic)  the  attendance  and  testimony  of  witnesses  and  the  production  of  all  books,  papers,  schedules  of  charges,  contracts, 

 agreements,  and  documents  relating  to  any  matter  under  investigation. 
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 a  merger  will  tend  to  be  motivated  to  respond  in  order  to  gain  permission  to  consummate  the  transaction. 
 In  general,  external  documents  received  in  connection  with  a  permit  and  disclose  proceeding  must  be  placed  in  the  public  record;  however,  sensitive  documents  can  be 
 made  subject  to  protective  order.  41  Under  the  APA,  all  participating  parties  are  in  general  entitled  to  see  any  material  submitted  by  any  other  party  to  proceeding;  consequently, 
 third  parties  may  be  reluctant  to  provide  information,  especially  where  there  is  threat  of  retaliation  from  the  merging  parties. 

 Deregulation  A  number  of  specific  deregulatory  initiatives  are  described  later  in  this  paper.  The 
 primary  statutory  mechanisms  for  deregulation  are  the  FCC's  forbearance  authority,  and  the  Biennial  Review. 

 The  Telecommunications  Act  of  1996  directs  the  FCC  to  forbear  (refrain)  from  applying  any  provision  of  the  Act  where  analysis  of  the  relevant  market  leads  the  FCC  to  conclude 
 that  associated  charges  are  neither  unreasonable  nor  discriminatory,  and  where  forbearance  does  not  harm  the  consumers  and  is  generally  in  the  public  interest.  42  In 
 doing  so,  the  FCC  must  specifically  consider  whether  forbearance  will  promote  competitive  market  conditions. 

 The  FCC  is  also  required  to  conduct  a  Biennial  Review  of  all  of  its  regulations  issued  pursuant  to  the  Act  to  determine  whether  any  are  no  longer  necessary  in  the  public 
 interest  as  the  result  of  meaningful  economic  competition.  43  The  Biennial  Review  seeks  to  ensure  that  any  deregulatory  opportunities  will  be  examined  not  less  frequently  than  at 
 two  year  intervals. 

 Centralization  versus  Decentralization  The  United  States  is  a  federal  system.  The  Federal  government  has  responsibility  for 
 interstate  communications,  while  the  states  have  responsibility  for  activities  within  their  state.  In  the  case  of  the  Internet,  the  FCC  has  taken  the  position  that  its  traffic  is 
 interstate,  and  thus  not  subject  to  state  or  local  jurisdiction. 
 In  practice,  the  relationship  is  complex.  States  regulate  many  aspects  of  local  telephone  competition,  including  local  interconnection  agreements.  Local  or  municipal 

 governments  generally  establish  franchise  arrangements  for  cable  operators.  This  division  of  authority  is  sometimes  problematic,  but  it  also  is  sometimes  a  source  of 

 41  A  more  complex  question  relates  to  requests  for  sensitive  information  made  pursuant  to  the  Freedom  of 
 Information  Act  (FOIA).  42 
 47  U.  S.  C.    160.  43 
 47  U.  S.  C.    161. 
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 strength  and  resiliency  for  the  U.  S.  regulatory  system,  enabling  support  for  local  preferences,  and  also  providing  a  more  flexible  vehicle  in  some  cases  for  local 
 experimentation  with  new  and  innovative  regulatory  models. 
 Convergence  places  special  challenges  on  these  complex  national/  state/  municipal  interrelationships.  First,  it  impacts  the  players  in  somewhat  different  ways    and  their 

 interests  are  not  fully  aligned.  Second,  it  slows  the  speed  with  which  regulation  can  respond  to  changes  in  the  marketplace,  because  regulation  must  adapt  in  different  layers. 
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 The  New  European  Regulatory  Framework  The  European  Union  has  been  playing  a  progressively  larger  role  in  the  regulation  of 
 telecommunications.  In  March  2002,  the  European  Union  adopted  a  new  regulatory  framework  that  effectively  standardizes  the  regulatory  framework  for  all  EU  member 
 states. 
 An  unusual  confluence  of  factors  appears  to  have  motivated  the  EU  to  take  a  fresh  and  daring  look  at  telecommunications  regulation.  First,  EU  regulations  required  a 

 comprehensive  regulatory  review  by  the  end  of  1999.  Second,  the  EU  per  se  was  not  burdened  with  as  long  a  history  of  preexisting  regulation  as  is  the  United  States. 
 Moreover,  most  EU  Member  States  have  migrated  only  in  the  last  few  years  from  government  ownership  of  telecommunications,  primarily  on  a  monopoly  basis,  to  private 
 ownership  and  competition.  They  are,  in  consequence,  acutely  aware  of  the  benefits  of  competitive  free  market  mechanisms.  They  are  technologically  sophisticated,  and 
 recognize  the  impact  of  convergence.  They  also  understand  that,  in  the  European  context,  even  where  there  is  consensus  for  change,  it  can  be  time-  consuming  or 
 challenging  to  translate  that  consensus  into  legislation    therefore,  when  they  make  a  change,  it  has  to  last  for  quite  some  time.  Finally,  there  are  ongoing  tensions  within  the 
 European  Union  between  a  strong  internal-  market  role  for  the  European  Commission,  the  executive  arm  of  the  E.  U.,  and  freedom  for  Member  States  to  act  as  they  wish.  These 
 tensions  can  be  particularly  acute  when  a  sector,  such  as  telecommunications,  is  still  in  the  process  of  opening  to  competition  for  the  first  time.  All  of  these  factors  contributed  to 
 the  willingness  of  the  EU  to  make  so  substantial  a  break  with  the  past. 
 The  Europeans  recognized  that  the  bulk  of  all  telecommunications  regulation  deals,  in  one  way  or  another,  with  responses  to  market  power.  In  particular,  they  associate  the 

 possession  of  Significant  Market  Power  (SMP)  with  obligations  that  could  include  transparency  44  ,  non-  discrimination  45  ,  accounting  separation  46  ,  access  to  and  use  of 
 specific  network  facilities  (including  Unbundled  Network  Elements  [UNEs],  wholesale  obligations,  collocation,  and  interconnection)  47  ,  price  controls  and  cost  accounting  48  , 
 making  necessary  leased  lines  available  49  ,  and  carrier  selection  and  pre-  selection  50  . 

 44  Directive  2002/  19/  EC  of  the  European  Parliament  and  of  the  Council  of  7  March  2002  on  access  to,  and 
 interconnection  of,  electronic  communications  networks  and  associated  facilities  (Access  Directive),  Official  Journal  of  the  European  Communities,  L  108,  April  24,  2002,  Article  9. 

 45  Ibid.,  article  10. 
 46  Ibid.,  article  11. 
 47  Ibid.,  article  12. 
 48  Ibid.,  article  13. 
 49  Directive  2002/  22/  EC  of  the  European  Parliament  and  of  the  Council  of  7  March  2002  on  universal 
 service  and  users  rights  relating  to  electronic  communications  networks  and  services  (Universal  Service  Directive),  Official  Journal  of  the  European  Communities,  L  108,  April  24,  2002,  Article  18. 

 50  Ibid.,  article  19. 
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 The  basic  concept  of  the  regulation  is  simple  and  straightforward.  The  European  Commission  will  begin  by  defining  a  series  of  relevant  telecommunications  markets,  and 
 by  providing  a  set  of  guidelines  for  determining  the  presence  or  absence  of  market  power,  all  based  on  methodologies  borrowed  from  competition  law  and  economics.  Within  each 
 market,  the  National  Regulatory  Authority  (NRA)  in  each  member  state  will  determine  whether  one  or  more  parties  possess  Significant  Market  Power  (SMP).  If  SMP  exists,  the 
 NRA  will  impose  appropriate  obligations  from  the  set  noted  in  the  previous  paragraph,  taking  into  account  the  specifics  of  the  particular  marketplace  in  question.  51  These 
 obligations  are  imposed  ex  ante,  based  on  the  presence  of  SMP    it  is  not  necessary  to  demonstrate  that  market  power  has  been  abused.  Conversely,  if  the  NRA  fails  to  find 
 SMP,  then  any  such  obligations  that  may  already  be  in  place  must  be  rolled  back. 
 In  doing  so,  the  EU  seeks  to  move  completely  away  from  technology-  specific  and  service-  specific  legislation.  This  is  a  significant  and  dramatic  innovation. 

 We  now  consider  each  element  of  the  framework  in  greater  detail. 

 Market  Definition  In  the  new  framework,  it  is  the  European  Commission,  the  executive  branch  of  the 
 European  Union,  that  provides  a  Recommendation  on  Relevant  Product  and  Service  Markets,  in  accordance  with  the  principles  of  competition  law.  52  Annex  I  of  the 
 Framework  Directive  provides  an  initial  list  of  such  markets. 
 National  Regulatory  Authorities  then  take  the  European  Commissions  recommendation  and  define  markets  within  their  geographic  territories.  They  are  to  take  the  utmost 

 account  of  the  recommendation,  but  the  Framework  Directive  also  envisions  that  NRA  definitions  might  diverge  from  those  of  the  European  Commission  in  some  instances. 

 The  European  Commission  may  also  adopt  a  Decision  identifying  transnational  markets,  markets  that  span  all  or  a  substantial  portion  of  the  EU.  53  In  these  markets,  additional 
 procedures  are  required  to  ensure  that  NRAs  work  in  concert  with  one  another. 
 The  process  for  market  definition  is  described  in  a  document  referred  to  as  the  Guidelines  54  .  The  Guidelines  adopt  a  common  framework  for  National  Regulatory 

 51  There  is  no  automatic  presumption  that  any  obligation  will  be  appropriate.  If  a  competition  authority  is 
 about  to  act,  for  example,  regulatory  action  may  well  be  inappropriate.  52 
 Directive  2002/  20.  EC  of  the  European  Parliament  and  of  the  Council  of  7  March  2002  on  a  common  regulatory  framework  for  electronic  communications  networks  and  services  (Framework  Directive), 

 Official  Journal  of  the  European  Communities,  L  108,  April  24,  2002,  Article  15.  53 
 A  preliminary  draft  Recommendation  exists:  On  relevant  Product  and  Service  Markets  within  the  electronic  communications  sector  susceptible  to  ex  ante  regulation  in  accordance  with  Directive  2002/../  EC 

 of  the  European  Parliament  and  of  the  Council  on  a  common  regulatory  framework  for  electronic  communication  networks  and  services. 
 54  Commission  Working  Document  on  Proposed  New  Regulatory  Framework  for  Electronic 
 Communications  Networks  and  Services,  Draft  Guidelines  on  market  analysis  and  the  calculation  of  significant  market  power,  Brussels,  March,  3,  2001. 
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 Authorities  (NRAs)  and  National  Competition  Authorities  (NCAs),  with  the  recognition  that  this  should  ideally  lead  to  equivalent  market  definitions;  however,  the  Guidelines 
 recognize  that  the  European  Commission  or  national  competition  authorities  may  in  some  instances  diverge  from  market  definitions  established  by  European  Commission  or 
 national  regulators  for  good  and  valid  reasons.  They  are  dealing  with  somewhat  different  issues. 

 European  competition  law  is  similar  to  that  of  the  United  States  as  regards  market  definition.  The  economic  procedure  employed  is  based  on  a  hypothetical  monopolist  test, 
 assuming  a  small  but  significant,  lasting  increase  of  5%  to  10%  in  price  of  a  product  or  service.  55  The  relevant  market  then  includes  all  products  and  services  that  are  readily 
 substitutable  for  the  services  in  question.  56 
 This  market  definition  immediately  addresses  a  number  of  fundamental  convergence  issues,  and  technological  neutrality  is  a  direct  consequence.  As  the  Guidelines  note: 

 Although  the  aspect  of  the  end  use  of  a  product  or  service  is  closely  related  to  its  physical  characteristics,  different  kind  of  products  or  services  may  be  used  for  the 
 same  end.  For  instance,  consumers  may  use  dissimilar  services  such  as  cable  and  satellite  connections  for  the  same  purpose,  namely  to  access  the  Internet.  In  such  a 
 case,  both  services  (cable  and  satellite  access  services)  may  be  included  in  the  same  product  market.  Conversely,  paging  services  and  mobile  telephony  services,  which 
 may  appear  to  be  capable  of  offering  the  same  service,  that  is,  dispatching  of  two-  way  short  messages,  may  be  found  to  belong  to  distinct  product  markets  in  view  of  their 
 different  perceptions  by  consumers  as  regards  their  functionality  and  end  use.  57 

 Significant  Market  Power  (SMP)  Per  the  Framework  Directive,  [  a]  n  undertaking  shall  be  deemed  to  have  significant 
 market  power  if,  either  individually  or  jointly  with  others,  it  enjoys  a  position  equivalent  to  dominance,  that  is  to  say  a  position  of  economic  strength  affording  it  the  power  to 
 behave  to  an  appreciable  extent  independently  of  competitors,  customers  and  ultimately  consumers.  58 

 The  Guidelines  distinguish  between  determining  market  power  ex  post  and  ex  ante.  In  an  ex  ante  world,  the  only  meaningful  measure  of  market  power  is  the  ability    of  the 

 55  Guidelines,  at  31. 
 56  Ibid.,  at  35.  According  to  settled  case-  law,  the  relevant  product/  service  market  comprises  all  those 
 products  or  services  that  are  sufficiently  interchangeable  or  substitutable,  not  only  in  terms  of  their  objective  characteristics,  by  virtue  of  which  they  are  particularly  suitable  for  satisfying  the  constant  needs 

 of  consumers,  but  also  in  terms  of  the  conditions  of  competition  and/  or  the  structure  of  supply  and  demand  on  the  market  in  question.  Products  or  services  which  are  only  to  a  small,  or  relative  degree  interchangeable 
 with  each  other  do  not  form  part  of  the  same  market.  57 
 Ibid.,  at  36.  58 
 Framework  Directive,  Article  14,  at  2. 
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 undertaking  concerned  to  raise  prices  by  restricting  output  without  incurring  a  significant  loss  of  sales  or  revenues.  59 
 As  a  proxy  for  market  power,  the  Guidelines  suggest  computing  market  shares,  typically  based  on  sales  volume  or  sales  value.  SMP  is  normally  viewed  as  being  a  factor  only 
 where  the  market  share  exceeds  40%.  Where  the  market  share  exceeds  50%,  SMP  is  assumed  to  be  present.  60 

 This  notion  of  concentration  is  roughly  equivalent  to  that  of  a  highly  concentrated  market,  as  described  in  the  DoJ/  FTC  guidelines.  A  market  share  of  40-  50%  would  imply 
 an  HHI  of  at  least  1,600  to  2,500,  assuming  that  all  other  market  participants  were  extremely  small.  Note  that  an  HHI  of  1,800  or  greater  implies  a  highly  concentrated 
 market  to  the  DoJ.  Thus,  the  level  of  concentration  at  which  the  US  and  EU  would  consider  a  market  to  be  problematic  are  in  the  same  general  range. 

 The  Guidelines  also  deal  with  market  power  in  upstream  or  downstream  vertically  related  markets  61  ,  and  with  collective  dominance.  62 

 Access  Requirements  As  previously  noted,  the  EU  Framework  requires  NRAs  to  impose  appropriate  remedies 
 ex  ante  from  the  list  of  possible  options  63  where  one  or  more  firms  are  found  to  have  SMP,  but  to  eliminate  restrictions  absent  SMP: 

 Where  a  national  regulatory  authority  concludes  that  the  market  is  effectively  competitive,  it  shall  not  impose  or  maintain  any  of  the  specific  regulatory  obligations 
 referred  to  in  paragraph  2  of  this  Article.  In  cases  where  sector  specific  regulatory  obligations  already  exist,  it  shall  withdraw  such  obligations  placed  on  undertakings  in 
 that  relevant  market.  An  appropriate  period  of  notice  shall  be  given  to  parties  affected  by  such  a  withdrawal  of  obligations. 

 Where  a  national  regulatory  authority  determines  that  a  relevant  market  is  not  effectively  competitive,  it  shall  identify  undertakings  with  significant  market  power 
 on  that  market    and  the  national  regulatory  authority  shall  on  such  undertakings  impose  appropriate  specific  regulatory  obligations  referred  to  in  paragraph  2  of  this 
 Article  or  maintain  or  amend  such  obligations  where  they  already  exist.  64 

 59  Guidelines,  at  65. 
 60  Ibid.,  at  67. 
 61  Ibid.,  at  74-  76. 
 62  Ibid.,  at  77-  79.  The  concept  of  collective  dominance  has  become  well  established  in  European  case  law. 
 By  contrast,  collective  dominance  is  rarely  raised  as  a  concern  in  the  U.  S.  unless  there  is  actual  evidence  of  collusion. 

 63  Framework  Directive,  Article  16,  at  2. 
 64  Ibid.,  at  3-  4. 
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 Investigative  Authority  and  Access  to  Information  When  the  European  Commission  assesses  a  merger,  it  has  full  authority  to  issue 
 information  requests  with  subpoena-  like  legal  force,  and  it  also  has  the  obligation  to  protect  confidential  information  that  it  receives  pursuant  to  those  requests.  In  these 
 regards,  its  authority  is  similar  to  that  of  the  U.  S.  DoJ  or  FTC. 
 The  new  framework  recognizes  the  need  for  regulators  to  obtain  data  on  which  to  base  market  definitions  and  determination  of  SMP.  It  accords  NRAs  rights  and 

 responsibilities  equivalent  to  those  of  NCAs: 
 Member  States  shall  ensure  that  undertakings  providing  electronic  communications  networks  and  services  provide  all  the  information,  including  financial  information, 

 necessary  for  national  regulatory  authorities  to  ensure  conformity  with  the  provisions  of,  or  decisions  made  in  accordance  with,  this  Directive  and  the  Specific  Directives. 
 These  undertakings  shall  provide  such  information  promptly  on  request  and  to  the  timescales  and  level  of  detail  required  by  the  national  regulatory  authority.  The 
 information  requested  by  the  national  regulatory  shall  be  proportionate  to  the  performance  of  that  task.  The  national  regulatory  authority  shall  give  the  reasons 
 justifying  its  request  for  information.  65 

 The  EU  regulatory  framework  also  establishes  parameters  whereby  NRAs  can  exchange  the  data  that  they  thus  obtain  with  NCAs,  the  European  Commission,  and  other  NRAs, 
 but  only  to  the  extent  necessary  and  proportionate  to  enable  implementation  of  the  Framework.  66 

 Deregulation  Under  the  new  Framework,  regulation  and  deregulation  are  handled  symmetrically. 
 Where  SMP  is  present,  appropriate  remedies  must  be  applied.  Where  SMP  is  absent,  those  remedies  may  not  be  applied,  and  if  already  present  must  be  removed. 

 No  specific  timeframe  is  specified. 

 Centralization  versus  Decentralization  If  the  U.  S.  is  a  federal  system,  the  E.  U.  might  be  said  to  be  more  akin  to  the  U.  S.  under 
 the  Articles  of  Confederation,  particularly  in  regard  to  areas  such  as  foreign  policy,  defense  and  internal  security.  67  The  European  historical  experience  has  differed  from 
 that  of  the  United  States,  and  the  European  system  is  in  consequence  significantly  less  centralized  than  that  of  the  U.  S.  today  in  many  respects. 

 65  Framework  Directive,  Article  5,  at  1. 
 66  Ibid.,  at  2. 
 67  Cf.  Guido  Tabellini,  The  Assignment  of  Tasks  in  an  Evolving  European  Union,  Centre  for  European 
 Policy  Studies,  January  2002,  pages  4-  6. 
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 The  tensions  of  centralization  and  decentralization  that  have  been  fought  over  in  the  U.  S.  for  many  decades  are  arguably  even  more  intense  in  the  European  context.  In  most 
 respects,  EU  member  states  are  sovereign  states.  They  work  together  in  certain  ways  in  order  to  achieve  specific  goals,  such  as  uniform  competition  policy  or  a  single  currency. 

 In  establishing  a  common  regulatory  framework,  it  was  necessary  to  delicately  balance  the  prerogatives  of  NRAs  against  the  needs  of  the  single  market,  and  the  prerogatives  of 
 the  European  Commission  in  maintaining  that  single  market. 
 The  balance  that  was  struck  preserves  the  ability,  in  general,  of  NRAs  to  operate  unilaterally,  but  with  notice  to  the  European  Commission  and  to  other  NRAs.  The 

 European  Commission  retains  the  ability  to  require  that  a  market  definition  or  a  designation  of  SMP  be  withdrawn  where  it  would  create  a  barrier  to  the  single  European 
 marketplace,  or  would  be  incompatible  with  the  EU  policy  objectives  embodied  in  Article  8  of  the  Framework  Directive.  68 

 A  particularly  knotty  case  relates  to  transnational  markets,  markets  that  span  all  or  a  substantial  portion  of  the  EU.  In  the  case  of  transnational  markets  ,  the  national 
 regulatory  authorities  concerned  shall  jointly  conduct  the  market  analysis  taking  the  utmost  account  of  the  Guidelines  and  decide  on  any  imposition,  maintenance,  amendment 
 or  withdrawal  of  regulatory  obligations  referred  to  in  paragraph  2  of  this  Article  in  a  concerted  fashion.  69 

 For  there  to  be  tension  between  centralization  and  decentralization  in  the  implementation  of  the  new  telecommunications  regulatory  framework  in  the  E.  U.  is  perhaps  not 
 surprising    similar  tensions  have  existed  in  many  political  systems,  and  in  many  eras.  70 

 Benefits  There  is  much  to  be  said  for  the  new  EU  framework. 
 It  attempts  to  address  convergence  by  using  fluid  market  definitions  instead  of  enshrining  technology-  based  definitions  within  the  law.  It  thus  offers  the  potential  of  regulating  at  a 
 velocity  that  approaches  that  of  the  changes  in  underlying  technology  and  marketplace. 
 The  notion  of  regulating  in  a  completely  technology-  neutral  fashion  is  promising.  If  one  service  is  substitutable  for  another,  then  it  should  be  subject  to  roughly  the  same 

 regulatory  constraints,  irrespective  of  the  technologies  used  to  deliver  the  services.  This  is  a  very  elegant  and  appealing  concept;  however,  it  does  not  sit  well  with  regulatory 
 practice  in  the  U.  S.,  as  we  shall  see. 

 68  Framework  Directive,  Article  7. 
 69  Framework  Directive,  Article  16,  at  5. 
 70  Indeed,  this  is  a  classic  problem  in  social  sciences.  Tabellini,  op.  cit.,  applies  established  theory  to  the  EU 
 environment,  noting  trade-  offs  between  the  ability  to  cope  with  heterogeneity  of  local  preferences  and  to  exploit  local  information,  versus  the  impact  of  spill-  over  effects  on  specific  public  goods.  He  notes  the 

 need  to  avoid  excessive  centralisation.  He  also  draws  a  key  distinction  between  the  bureaucratic  accountability  that  arguably  characterizes  Europe  today,  versus  democratic  accountability. 
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 At  the  same  time,  the  proof  of  this  pudding  must  lie  in  its  eating    and  significant  questions  remain.  We  take  up  this  topic  later  in  the  paper. 
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 Comparative  Results  It  is  impossible  to  say  exactly  how  the  new  European  framework  will  be  applied  in 
 practice,  either  by  the  European  Commission  or  by  the  NRAs.  It  is  nonetheless  an  interesting  thought  exercise  to  consider  how  it  might  be  applied,  and  to  compare  the 
 results  to  those  of  U.  S.  regulatory  practice  in  a  number  of  specific  instances. 
 It  is  perhaps  not  meaningful  to  ask,  What  would  the  Europeans  do?  More  meaningful  is  to  ask,  Is  this  a  plausible  outcome  in  the  context  of  the  European  framework? 

 The  examples  that  follow  are  drawn  from  well-  established  precedent,  particularly  in  the  area  of  traditional  telecommunications  services.  We  necessarily  refrain  from 
 commenting  on  matters  currently  before  the  Commission. 

 Computer  Inquiries  We  noted  earlier  that,  in  the  Computer  Inquiries,  the  FCC  ruled  that  enhanced  services 
 should  not  be  regulated  because  they  implicated  no  bottleneck  facilities,  and  did  not  entail  a  significant  risk  of  monopolization.  This  notion  was  carried  forward  in  the 
 Telecommunications  Act  of  1996,  with  its  introduction  of  the  concept  of  information  services,  and  represents  a  key  foundation  block  for  deregulatory  U.  S.  policies  toward  the 
 Internet. 
 This  result  would  appear  to  be  entirely  consistent  with  the  EU  regulatory  framework.  In  the  absence  of  SMP,  none  of  the  remedies  for  SMP  should  be  applied. 

 Competitive  Carrier  Proceeding  In  1979,  the  FCC  initiated  the  Competitive  Carrier  proceeding  71  to  consider  how  its 
 regulations  should  be  modified  for  new  firms  entering  formerly  monopoly  markets.  In  a  series  of  orders,  the  Commission  distinguished  two  kinds  of  carriers    those  with 
 individual  market  power  (dominant  carriers)  and  those  without  market  power 

 71  Policy  and  Rules  Concerning  Rates  for  Competitive  Common  Carrier  Services  and  Facilities 
 Authorizations  Therefor,  CC  Docket  No.  79-  252,  Notice  of  Inquiry  and  Proposed  Rulemaking,  77  FCC  2d  308  (1979);  First  Report  and  Order,  85  FCC  2d  1  (1980)  (First  Report  and  Order);  Further  Notice  of 

 Proposed  Rulemaking,  84  FCC  2d  445  (1981)  (Further  Notice  of  Proposed  Rulemaking);  Second  Further  Notice  of  Proposed  Rulemaking,  FCC  82-  187,  47  Fed.  Reg.  17,  308  (1982);  Second  Report  and  Order,  91 
 FCC  2d  59  (1982)  (Second  Report  and  Order);  Order  on  Reconsideration,  93  FCC  2d  54  (1983);  Third  Report  and  Order,  48  Fed.  Reg.  46,  791  (1983)  (Third  Report  and  Order);  Fourth  Report  and  Order,  95  FCC 
 2d  554  (1983)  (Fourth  Report  and  Order);  vacated,  AT&  T  v.  FCC,  978  F.  2d  727  (D.  C.  Cir.  1992),  cert.  denied,  MCI  Telecommunications  Corp.  v.  AT&  T,  113  S.  Ct.  3020  (1993);  Fifth  Report  and  Order,  98  FCC 
 2d  1191  (1984)  (Fifth  Report  and  Order);  Sixth  Report  and  Order,  99  FCC  2d  1020  (1985),  vacated  MCI  Telecommunications  Corp.  v.  FCC,  765  F.  2d  1186  (D.  C.  Cir.  1985)  (collectively  referred  to  as  the 
 Competitive  Carrier  proceeding). 
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 (nondominant  carriers).  72  The  Commission  found  AT&  Ts  Long  Lines  Department,  which  provided  interstate  long-  distance  services,  to  be  dominant  in  the  interstate,  long-distance 
 market  (including  the  long-  distance  private  line  market).  It  also  found  AT&  Ts  23  local  telephone  companies  as  well  as  independent,  incumbent  local  telephone 
 companies  to  be  dominant,  because  they  possess  control  of  essential  facilities.  73  The  Commission  further  found  that  specialized  common  carriers  and  resale  carriers,  both  of 
 which  provided  interstate,  long-  distance  services  in  competition  with  AT&  T,  to  be  nondominant. 

 The  Commission  determined  that  nondominant  carriers  were  unable  to  charge  unreasonable  rates  or  to  engage  in  discriminatory  practices  that  would  contravene  the 
 requirements  of  the  Communications  Act,  both  because  they  lacked  market  power  and  because  affected  customers  always  had  the  option  of  taking  service  from  an  incumbent 
 dominant  carrier  whose  rates,  terms,  and  conditions  for  interstate  services  remained  subject  to  close  scrutiny  by  the  Commission.  74  Accordingly,  the  Commission  gradually 
 relaxed  its  regulations  of  nondominant  carriers.  Specifically,  the  Commission  eliminated  rate  regulation  for  nondominant  carriers  and  presumed  that  tariffs  filed  by  nondominant 
 carriers  were  reasonable  and  lawful.  It  also  streamlined  tariff  filing  requirements,  which,  inter  alia,  had  required  dominant  carriers  to  file  tariffs  with  notice  periods  of  up  to  120 
 days,  and  to  submit  cost  support  with  their  tariffs.  For  nondominant  carriers,  in  contrast,  the  Commission  required  only  that  tariffs  be  filed  on  14  days  notice  and  did  not  require 
 any  cost  support.  Finally,  the  Commission  reduced  existing  Section  214  requirements,  which  required  dominant  carriers  to  file  a  request  for  authorization  before  constructing 
 new  lines;  under  the  Commissions  streamlined  rules,  nondominant  carriers  only  had  to  file  a  simple,  semi-  annual  report  on  circuit  additions,  but  did  not  have  to  obtain  prior 
 authorization.  75 

 72  The  Commission  defined  market  power  as  the  ability  to  raise  prices  by  restricting  output  and  as  the 
 ability  to  raise  and  maintain  prices  above  the  competitive  level  without  driving  away  so  many  customers  as  to  make  the  increase  unprofitable.  See  Competitive  Carrier  Fourth  Report  and  Order,  95  FCC  2d  at  558, 

 para.  7.  73 
 Competitive  Carrier  First  Report  and  Order,  85  FCC  2d  at  22-  24.  The  Commission  specifically  noted  that  it  would  treat  control  of  bottleneck  facilities  as  prima  facie  evidence  of  market  power  requiring 

 detailed  regulatory  scrutiny.  Id.,  at  21.  The  Commission  also  found  Western  Union,  domestic  satellite  carriers,  and  miscellaneous  common  carriers  that  relay  video  signals  to  be  dominant  in  various  relevant 
 markets.  Id.,  at  24-  28.  It  acknowledged,  however,  that  market  developments  were  likely  to  erode  the  market  power  of  these  carriers  over  time. 
 74  Id.,  at  31. 
 75  Competitive  Carrier  First  Report  and  Order,  85  FCC  2d  at  31-  37,  39-  44.  Subsequently,  the  Commission 
 announced  a  policy  of  permissive  forbearance,  under  which  it  would  forbear  from  applying  the  tariff  filing  requirements  of  Section  203  and  the  entry,  exit,  and  construction  authorization  requirements  of 

 Section  214  to  nondominant  carriers.  See  Competitive  Carrier  Second  Report  and  Order,  91  FCC  2d  at  73;  Competitive  Carrier  Fourth  Report  and  Order,  95  FCC  2d  at  557;  Competitive  Carrier  Fifth  Report  and 
 Order,  98  FCC  2d  at  1193,  1209.  In  1985,  the  Commission  decided  to  shift  from  permissive  to  mandatory  forbearance,  thus  requiring  detariffing  by  all  nondominant  carriers.  Competitive  Carrier, 
 Sixth  Report  and  Order,  99  FCC  2d  at  1030-  32.  Federal  Court  of  Appeals  reversed  this  finding,  holding  that  the  Commission  lacked  statutory  authority  to  prohibit  the  filing  of  tariffs,  and  in  a  subsequent  appeal, 
 the  court  further  found  that  the  Commission  lacked  the  authority  to  allow  permissive  detariffing.  See  MCI 
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 Again,  these  regulatory  outcomes  would  appear  to  be  entirely  consistent  with  European  thinking.  Retail  tariff  regulations  flow  from  the  possession  of  SMP  (which  is  roughly 
 equivalent  to  U.  S.  concepts  of  market  dominance);  in  the  absence  of  SMP,  there  should  be  neither  rate  regulation  nor  the  obligation  to  publish  retail  tariffs.  76 

 Streamlining  the  Regulation  of  AT&  T  As  competition  developed  in  the  interstate,  long-  distance  market,  the  Commission 
 initiated  two  proceedings  to  determine  whether  it  should  streamline  its  regulation  of  AT&  T,  the  sole  dominant  long-  distance  carrier.  In  1990,  the  Commission  initiated  the 
 Interstate  Interexchange  Competition  proceeding  to  consider  streamlining  the  regulation  of  certain  AT&  T  services.  77  After  analyzing  the  level  of  competition  for  particular 
 classes  of  long-  distance  service,  the  Commission  found  that  certain  services  provided  by  AT&  T  had  become  substantially  competitive,  and  accordingly,  it  streamlined  the 
 regulation  of  those  services.  78  Specifically,  for  services  that  it  found  to  be  subject  to  substantial  competition,  the  Commission  removed  those  services  from  price  cap 
 regulation  (i.  e.,  eliminated  rate  regulation),  reduced  the  notice  period  for  tariff  filings  relating  to  those  services;  and  eliminated  the  cost-  support  requirement  for  those  tariffed 
 services.  79  In  addition,  the  Commission  permitted  AT&  T  and  other  interstate  long-distance  carriers  to  offer  services  pursuant  to  individually  negotiated  contracts  (i.  e.,  to 
 offer  contract  tariffs).  80 
 Subsequently,  AT&  T  filed  a  petition  to  be  reclassified  as  a  nondominant  carrier  in  the  provision  of  interstate  interexchange  services.  In  1995,  the  Commission  granted  AT&  Ts 

 motion,  based  on  its  finding  that  AT&  T  lacked  individual  market  power  in  the  interstate, 

 v.  FCC,  765  F.  2d  1186  (D.  C.  Cir.  1985);  AT&  T  v.  FCC,  1993  WL  260778  (D.  C.  Cir.  1993),  affd  MCI  v.  AT&  T,  512  U.  S.  218  (1994). 
 76  Universal  Service  Directive,  article  17. 
 77  Competition  in  the  Interstate  Interexchange  Marketplace,  Notice  of  Proposed  Rulemaking,  5  FCC  Rcd 
 2627  (1990);  Report  and  Order,  6  FCC  Rcd  5880  (1991)  (First  Interstate  Interexchange  Competition  Order);  Memorandum  Opinion  and  Order,  6  FCC  Rcd  7569  (1991);  Memorandum  Opinion  and  Order,  7 

 FCC  Rcd  2677  (1992);  Memorandum  Opinion  and  Order  on  Reconsideration,  8  FCC  Rcd  2659  (1993);  Second  Report  and  Order,  8  FCC  Rcd  3668  (1993)  (Second  Interstate  Interexchange  Competition  Order); 
 Memorandum  Opinion  and  Order,  8  FCC  Rcd  5046  (1993);  Memorandum  Opinion  and  Order  on  Reconsideration,  10  FCC  Rcd  4562  (1995)  (collectively  referred  to  as  the  Interstate  Interexchange 
 Competition  proceeding).  78 
 In  the  First  Interstate  Interexchange  Competition  Order,  the  Commission  found  that  services  provided  to  large-  and  medium-  size  business  customers  had  become  substantially  competitive,  while  in  the  Second 

 Interstate  Interexchange  Competition  Order,  the  Commission  found  that,  with  the  introduction  of  800  number  portability,  the  market  for  800  services  (except  for  800  directory  assistance  where  AT&  T  had  a 
 monopoly)  had  become  substantially  competitive.  See  First  Interstate  Interexchange  Competition  Order,  6  FCC  Rcd  at  5911,  para.  188;  Second  Interstate  Interexchange  Competition  Order,  8  FCC  Rcd  at  3668, 
 para.  1.  79 
 See  First  Interstate  Interexchange  Competition  Order,  6  FCC  Rcd  at  5894,  para.  74.  80 
 Id.,  at  5897,  at  para.  91. 
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 domestic,  interexchange  market.  81  Thus,  the  Commission  freed  AT&  T  from  price  cap  regulation  for  all  of  its  domestic,  interstate,  interexchange  services,  subjected  it  to  the 
 same  streamlined  tariffing  and  Section  214  regulations  that  applied  to  its  nondominant  competitors,  and  eliminated  certain  accounting  and  reporting  requirements  applicable 
 only  to  dominant  carriers.  82  In  1986,  the  Commission  reclassified  AT&  T  as  nondominant  in  the  market  for  international  services.  83 

 Once  again,  this  seems  to  be  altogether  consistent  with  European  thinking.  Once  SMP  has  been  alleviated,  competitive  safeguards  are  no  longer  necessary  and  should  be 
 eliminated. 

 Obligations  for  Interconnection,  Resale  of  Retail  Services,  Unbundled  Network  Elements  (UNEs),  and  Collocation 
 Section  251  of  the  Act  provides  for  a  very  modest  series  of  obligations  for  local  exchange  carriers  in  general  84  (including  competitive  local  exchange  carriers  [CLECs]),  but  an 
 extensive  series  of  additional  obligations  for  incumbent  local  exchange  carriers  (ILECs)  85  .  Notable  among  these  are  obligations  to  provide: 

 (2)  INTERCONNECTION.--  The  duty  to  provide,  for  the  facilities  and  equipment  of  any  requesting  telecommunications  carrier,  interconnection  with  the  local  exchange 
 carrier's  network  (A)  for  the  transmission  and  routing  of  telephone  exchange  service  and  exchange  access;  (B)  at  any  technically  feasible  point  within  the  carrier's 
 network;  (C)  that  is  at  least  equal  in  quality  to  that  provided  by  the  local  exchange  carrier  to  itself  or  to  any  subsidiary,  affiliate,  or  any  other  party  to  which  the  carrier 
 provides  interconnection;  and  (D)  on  rates,  terms,  and  conditions  that  are  just,  reasonable,  and  nondiscriminatory,   

 (3)  UNBUNDLED  ACCESS.--  The  duty  to  provide,  to  any  requesting  telecommunications  carrier  for  the  provision  of  a  telecommunications  service, 
 nondiscriminatory  access  to  network  elements  on  an  unbundled  basis  at  any  technically  feasible  point  on  rates,  terms,  and  conditions  that  are  just,  reasonable,  and 
 nondiscriminatory   
 (4)  RESALE.--  The  duty  (A)  to  offer  for  resale  at  wholesale  rates  any  telecommunications  service  that  the  carrier  provides  at  retail  to  subscribers  who  are 

 not  telecommunications  carriers;   
 (6)  COLLOCATION.--  The  duty  to  provide,  on  rates,  terms,  and  conditions  that  are  just,  reasonable,  and  nondiscriminatory,  for  physical  collocation  of  equipment 

 necessary  for  interconnection  or  access  to  unbundled  network  elements  at  the  premises  of  the  local  exchange  carrier,   

 81  Motion  of  AT&  T  Corp.  to  Be  Reclassified  as  a  Nondominant  Carrier,  Order,  11  FCC  Rcd  3271,  para.  1, 
 3356,  para.  164  (1995).  82 
 Id.,  at  3281,  para.  12.  83 
 Motion  of  AT&  T  to  Be  Declared  Non-  dominant  for  International  Service,  11  FCC  Rcd  17,  963  (1996).  84 
 47  U.  S.  C.  251(  a)  and  251(  b).  85 
 47  U.  S.  C.  251(  c). 
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 If  we  assume  arguendo  that  ILECs  possess  SMP,  then  this  regulatory  outcome  appears  to  be  precisely  analogous  to  that  described  in  the  Access  Directive.  Article  12,  Obligations 
 of  access  to,  and  use  of,  specific  network  facilities,  enumerates  a  number  of  obligations  that  NRAs  may  impose  upon  undertakings  that  possess  SMP,  including  obligations: 

 (a)  to  give  third  parties  access  to  specified  network  elements  and/  or  facilities,  including  unbundled  access  to  the  local  loop;   
 (d)  to  provide  specified  services  on  a  wholesale  basis  for  resale  by  third  parties;   
 (f)  to  provide  co-  location  or  other  forms  of  facility  sharing,  including  duct,  building,  or  mast  sharing;   

 (i)  to  interconnect  networks  or  network  facilities. 

 A  significant  difference  between  the  two  regulatory  systems,  however,  entails  the  manner  in  which  such  constraints  might  be  lifted  if  market  conditions  were  to  change  and  if 
 effective  competition  were  to  emerge. 
 Under  the  European  framework,  the  NRA  should  in  theory  automatically  lift  these  obligations  if  market  conditions  were  to  change  over  time  in  such  a  way  that  the 

 undertaking  in  question  no  longer  possessed  SMP. 
 The  equivalent  mechanism  in  the  U.  S.  would  be  for  the  FCC  to  forbear  from  imposing  portions  of  section  251(  c).  As  previously  noted,  the  Act  provides  the  FCC  with  authority 

 to  forbear  from  imposing  any  regulation  or  any  provision  of  the  Act  where  the  FCC  determines  that  such  forbearance  is  in  the  public  interest,  is  not  necessary  to  protect 
 consumers,  and  is  not  needed  to  prevent  discriminatory,  unjust  or  unreasonable  charges  or  terms  and  conditions.  86  In  determining  to  forbear,  the  Act  explicitly  asks  the 
 Commission  to  weigh  the  competitive  impact  of  forbearance. 
 As  it  happens,  however,  the  Act  specifically  prohibits  the  FCC  from  forbearing  from  applying  requirements  under  sections  251(  c)  or  271  until    those  requirements  have 

 been  fully  implemented.  87  This  might  in  practice  be  somewhat  circuitous,  and  perhaps  less  certain  in  its  execution  than  the  European  solution,  but  the  net  effect  could 
 potentially  be  precisely  analogous  to  that  envisioned  in  the  European  framework    once  SMP  has  been  eliminated,  the  remedies  to  SMP  must  be  rolled  back. 

 Entry  of  Bell  Operating  Companies  into  Long  Distance  One  of  the  most  significant  sections  of  the  Telecommunications  Act  of  1996  is  Section 
 271.  Section  271  prohibits  Bell  operating  companies  (BOCs)  or  their  affiliates  from 

 86  47  U.  S.  C.    160. 
 87  47  U.  S.  C.    160(  d). 
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 offering  interLATA  (i.  e.  long  distance)  services  in  any  in-  region  state  88  until  and  unless  the  BOC  in  question  can  demonstrate  to  the  satisfaction  of  state  and  federal  authorities 
 that  it  is  providing  access  and  interconnection  to  competitors  in  that  state.  Section  271  includes  a  fourteen  point  checklist  of  conditions  that  the  BOC  must  demonstrably  meet  in 
 order  to  be  granted  authorization  to  provide  interLATA  services  in  that  state. 
 This  may  not  directly  fit  the  European  model,  but  it  is  consistent  in  spirit  with  it.  The  EU  framework  does  not  envision  a  prohibition  on  a  carriers  ability  to  provide  a  vertically 

 integrated  service  as  one  of  the  listed  regulatory  remedies  to  SMP,  ;  indeed,  Member  States  may  only  prevent  a  carrier  from  providing  networks  and  services  for  overriding 
 reasons  of  public  policy,  public  security  or  public  health.  89  One  might  view  the  BOCs  as  having  possessed  SMP  in  1996  (which  is  not  an  unreasonable  assumption,  considering 
 that  they  were  formed  through  a  consent  decree).  The  notion,  then,  that  a  regulatory  remedy  to  SMP  should  be  lifted  once  effective  competition  has  been  established  is 
 entirely  consistent  with  the  European  model. 

 Rates  for  Cable  Service  Video  services  are  subject  to  different  rules,  but  many  of  the  underlying  principles  are  the 
 same  as  those  for  common  carriers.  As  one  conspicuous  example,  [  i]  f  the  Commission  finds  that  a  cable  system  is  subject  to  effective  competition,  the  rates  for  the  provision  of 
 cable  service  by  such  system  shall  not  be  subject  to  regulation  by  the  Commission  or  by  a  State  or  franchising  authority  90  This  is  entirely  consistent  with  the  new  EC 
 framework,  in  that  regulatory  rate  setting  is  inappropriate  in  the  absence  of  SMP. 

 88  An  in-  region  state  is  any  of  the  states  allocated  to  that  Bell  operating  company  under  AT&  T  Consent 
 Decree  of  August  24,  1982.  47  U.  S.  C.  271(  i)(  1).  89 
 Authorisation  Directive,  Article  3,  at  1.  90 
 47  U.  S.  C.    543(  a)(  2). 
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 Implementation  Challenges  The  new  European  regulatory  framework  appears  to  be  both  comprehensive  and 
 theoretically  elegant.  Implementation  issues  might  nonetheless  significantly  impact  its  practical  effectiveness. 

 Are  there  aspects  of  implementation  that  are  particularly  worrisome? 

 The  Role  of  the  European  Commission  versus  that  of  the  NRAs  As  we  have  seen,  the  Framework  represents  delicate  compromises  between  granting  new 
 powers  to  the  European  Commission  and  preserving  the  autonomy  of  the  Member  State  NRAs.  On  balance,  the  new  framework  increases  centralization  of  the  European  Union 
 insofar  as  telecommunications  regulation  is  concerned.  One  might  reasonably  expect  that  the  new  framework  will  drive  an  increase  in  regulatory  consistency  across  the  Member 
 States  91  ,  but  possibly  at  some  loss  in  the  ability  of  the  system  as  a  whole  to  reflect  diverse  local  needs  or  to  enable  innovative  experiments  at  the  Member  State  level. 

 This  tension  between  centralization  and  decentralization  would  appear  to  represent  a  potentially  significant  fault  line  in  the  implementation  of  the  new  regulatory 
 framework.  The  ability  of  European  Commission  and  NRA  regulators  to  apply  the  system  in  a  sensitive  and  appropriate  manner,  and  to  find  workable  day-  to-  day 
 compromises,  may  play  a  large  role  in  determining  the  success  of  the  new  framework  in  practice. 

 The  framework  envisions  possible  differences  in  judgment  among  NRAs,  and  between  NRAs  and  the  European  Commission,  and  it  includes  mechanisms  for  resolving  those 
 differences.  It  is  difficult  to  predict  how  well  those  mechanisms  will  work  in  practice.  This  is  an  area  that  bears  close  watching. 

 Emerging  or  Nascent  Services  The  definition  of  SMP  is,  by  default,  based  on  market  share.  In  many  cases,  emerging 
 new  services  represent  a  challenge  to  the  power  of  entrenched  incumbents,  and  thus  represent  an  enhancement  to  competition. 

 There  is,  however,  a  risk  in  regard  to  new  services.  A  provider  of  a  new  service  might  initially    thanks,  perhaps,  to  first  mover  advantages    possess  a  large  market  share  of  a 
 tiny,  emerging  market.  If  this  were  to  be  interpreted  as  SMP,  there  is  a  risk  that  the  regulatory  apparatus  of  the  state  would  be  brought  to  bear  in  a  way  that  impedes 
 competitive  entry  instead  of  fostering  it. 
 The  Guidelines  recognize  this,  and  note  that  emerging  markets  should  not  be  subject  to  inappropriate  ex-  ante  regulation.  This  is  because  premature  imposition  of  ex-  ante 

 91  Indeed,  this  is  an  explicit  objective  for  the  NRAs.  Framework  Directive,  Article  8,  at  3,  especially  (d). 
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 regulation  may  unduly  influence  the  competitive  conditions  taking  shape  within  a  new  and  emerging  market.  At  the  same  time,  foreclosure  of  such  emerging  markets  by  the 
 leading  undertaking  should  be  prevented.  92 
 In  principle,  this  would  appear  to  represent  appropriate  guidance.  In  practice,  it  may  be  difficult  for  NRAs  to  determine  whether  the  imposition  of  ex  ante  regulation  is 

 appropriate  or  not,  and  it  is  natural  to  wonder  whether  different  NRAs  will  be  able  to  apply  this  guidance  in  a  consistent  way  across  the  EU. 

 92  Draft  Guidelines  on  market  analysis  and  the  assessment  of  significant  market  power  under  the 
 Community  regulatory  framework  for  electronic  communications  networks  and  services,  Brussels,  21.  02.  2002,  para.  32. 
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 Relevance  to  the  United  States  As  we  have  just  seen,  in  a  great  many  cases  the  new  European  regulatory  framework 
 might  well  tend  to  reach  conclusions  similar  to  those  which  we  reach  in  the  United  States.  Given  that  the  methodologies  are  radically  different,  why  should  the  results  be  so  similar? 

 Biologists  speak  of  convergent  evolution.  Two  unrelated  species  may  evolve  functionally  equivalent  organs  in  order  to  deal  with  similar  environmental  stresses.  The  human  eye  is 
 not  the  same  as  that  of  a  fruit  fly,  but  they  perform  the  same  function.  93 
 Analogously,  the  new  EU  framework  and  the  U.  S.  regulatory  environment  tend  to  address  similar  issues  in  similar  ways,  not  necessarily  because  of  equivalent 

 methodologies,  but  rather  because  our  policy  objectives,  broadly  stated,  are  similar.  We  are  trying  to  solve  roughly  the  same  problems. 

 There  are,  however,  important  distinctions  to  be  drawn.  In  the  U.  S.,  our  laws  and  regulations  contain  specific  regulatory  outcomes,  while  the  EU  Framework  defines  a 
 process  for  reaching  similar  results. 
 If  both  methodologies  potentially  lead  to  roughly  equivalent  regulatory  outcomes,  is  there  reason  to  prefer  one  methodology  to  the  other? 

 The  EU  framework  is  extremely  logical,  and  has  as  we  have  seen  the  potential  to  generate  good  results.  In  addition,  it  has  certain  advantages  in  comparison  with  the  U.  S. 
 methodology: 
   In  many  instances,  the  notion  of  SMP  more  accurately  expresses  the  need  for  regulation  than  does  the  U.  S.  equivalent  regulatory  category. 

   The  notion  that  certain  regulatory  impositions  should  be  imposed  in  the  presence  of  SMP,  and  lifted  in  its  absence,  may  express  regulatory  desiderata  and  the  desired 
 timing  of  regulation  and  deregulation  more  clearly  and  more  simply  than  do  equivalent  U.  S.  statutes. 

   In  leaving  the  determination  of  SMP,  and  of  suitable  remedies,  to  regulation  rather  than  to  statute,  the  European  system  may  be  able  to  respond  to  change  more  nimbly 
 than  that  in  the  United  States. 
   The  European  system  arguably  deals  with  technology  convergence,  which  blurs  regulatory  categories,  far  more  effectively  than  that  of  the  U.  S. 

 Thus,  there  would  seem  to  be  much  to  recommend  the  European  framework. 
 Unfortunately,  the  European  approach  does  not  fit  neatly  into  U.  S.  regulatory  practice.  It  is  important  to  bear  in  mind  that  the  Europeans  were  able  to  initiate  this  monumental 

 overhaul  of  their  system  because  they  had  far  less  relevant  regulatory  history  to  contend 

 93  See,  for  instance,  Richard  Dawkins,  Climbing  Mount  Improbable,  W.  W.  Norton  &  Company,  New  York, 
 1996,  pages  19-  22. 
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 with  than  do  we  in  the  U.  S.  They  were  thus  able,  with  the  benefit  of  experience,  to  revisit  and  rewrite  their  regulation  anew. 
 Our  law  and  our  history  do  not  lend  themselves  to  direct  application  of  the  EU  framework.  The  law,  as  we  have  seen,  is  based  on  regulatory  categories  that  imperfectly 
 correspond  to  market  power.  More  significantly,  the  law  embodies  a  complex  history  that  reflects  innumerable  social  compacts.  The  Communications  Act  of  1934  was  itself 
 an  agglomeration  of  earlier  practice.  Title  III,  dealing  with  radio,  was  added  after  the  fact.  The  FCC  subsequently  established  regulations  for  cable  television,  which 
 subsequently  led  to  the  Cable  Television  Act  of  1992  and  then  to  Title  VI  of  the  Act. 
 In  the  U.  S.  system,  the  balances  between  regulation  and  deregulation,  and  between  federal,  state  and  local  authority  all  entailed  delicate  compromises.  The  European 

 framework  is  elegant  in  its  simplicity  and  directness,  but  it  does  not  capture  those  nuances. 

 There  would  also  be  certain  practical  difficulties  in  any  direct  application  of  the  European  framework  in  this  country.  The  EU  framework  depends,  as  we  have  seen,  on  acquisition 
 of  sufficient  data  to  enable  NRAs  to  unambiguously  determine  relevant  markets  and  the  possession  of  SMP.  In  the  U.  S.,  however,  the  FCC  is  the  national  regulatory  authority. 
 The  FCC  lacks  the  authority  to  get  the  information  that  it  would,  and  may  also  lack  the  ability  to  protect  that  information  from  public  disclosure. 

 Additional  challenges  exist.  Europeans  may  tend  to  trust  governments  more  than  they  trust  corporations.  In  the  US,  it  is  largely  the  reverse.  It  is  not  clear  that  Americans 
 would  be  willing  to  give  regulators  such  broad  authority. 
 The  EU  telecommunications  regulatory  framework  nonetheless  provides  a  convenient  and  natural  way  to  think  about  the  public  policy  implications  of  many  of  the  choices  that 

 confront  the  FCC.  As  we  have  seen,  the  EU  framework  often  provides  a  very  simple  and  direct  way  of  visualizing  regulatory  outcomes.  It  could  be  a  very  useful  exercise  for  the 
 FCC  to  use  the  European  methodology  as  a  means  of  visualizing  and  understanding  the  public  policy  implications  of  the  most  challenging  regulatory  decisions  that  we  confront. 
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 References  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104,  110  Stat.  56  (1996  Act),  codified 
 at  47  U.  S.  C.    151  et  seq.  The  1996  Act  amended  the  Communications  Act  of  1934  (the  Act). 

 U.  S.  Department  of  Justice  and  Federal  Trade  Commission,  Horizontal  Merger  Guidelines,  57  Fed.  Reg.  41557  (April  2,  1992,  as  revised  April  8,  1997), 
 http://  www.  ftc.  gov/  bc/  docs/  horizmer.  htm. 
 Directive  2002/  20.  EC  of  the  European  Parliament  and  of  the  Council  of  7  March  2002  on  a  common  regulatory  framework  for  electronic  communications  networks  and  services 

 (Framework  Directive),  Official  Journal  of  the  European  Communities,  L  108,  April  24,  2002. 

 Directive  2002/  19/  EC  of  the  European  Parliament  and  of  the  Council  of  7  March  2002  on  access  to,  and  interconnection  of,  electronic  communications  networks  and  associated 
 facilities  (Access  Directive),  Official  Journal  of  the  European  Communities,  L  108,  April  24,  2002. 

 Directive  2002/  22/  EC  of  the  European  Parliament  and  of  the  Council  of  7  March  2002  on  universal  service  and  users  rights  relating  to  electronic  communications  networks 
 and  services  (Universal  Service  Directive),  Official  Journal  of  the  European  Communities,  L  108,  April  24,  2002. 

 Commission  Working  Document  on  Proposed  New  Regulatory  Framework  for  Electronic  Communications  Networks  and  Services,  Draft  Guidelines  on  market  analysis  and  the 
 calculation  of  significant  market  power,  Brussels,  March,  3,  2001. 
 Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Report  to  Congress  (  Universal  Service  Report),  13  FCC  Rcd  11501,  11516-  17  33  (1998) 

 Computer  I,  Final  Decision  and  Order,  28  FCC  2d  267. 
 In  the  Matter  of  Amendment  of  Section  64.702  of  the  Commissions  Rules  and  Regulations  (Second  Computer  Inquiry),  Notice  of  Inquiry  and  Proposed  Rulemaking,  61 

 FCC  2d  103  (1976). 
 In  the  Matter  of  Amendment  of  Section  64.702  of  the  Commissions  Rules  and  Regulations,  Report  and  Order,  (Computer  III),  104  FCC  2d  958  (1986),  vacated 

 California  v.  FCC,  905  F.  2d  1217  (9  th  Cir.  1990). 
 Broadband:  Bringing  Home  the  Bits,  Computer  Science  and  Telecommunications  Board,  National  Academy  of  Sciences,  January,  2002. 
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