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 Union’s Newly 

Adopted Regulatory 

Framework for 

Telecommunications 

 July 2002

J. Scott Marcus 
The Potential Relevance to the United States of the European Union’s 

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 Policy’s 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 FCC’s World Wide Web site at http://www.fcc.gov/opp. 
 ii

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. 
 iii

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 
 1

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 19341 (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 Union’s 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. 
 2

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. 
 3

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 

19345, 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 services7

, 

 

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. 
 4

obligations to publish those prices in tariffs8, limitations on their ability to discriminate9, 

and obligations to interconnect with other carriers and to provide collocation and 

Unbundled Network Elements10. 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). 
 5

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 Commission’s 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 subscriber’s transmitted information; 

provide the subscriber additional, different or restructured information; or involve 

subscriber interaction with stored information. (46 C.F.R. § 64.702(a)).
 6

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 II’s 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 Commission’s Rules and Regulations, Report and 

Order, (Computer III), 104 FCC 2d 958 (1986), vacated California v. FCC, 905 F.2d 1217 (9th 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. 
 7

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. 
 8

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”.. 
 9

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 market36, 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.” 
 10

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. 
 11

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. 
 12

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 

transparency44, non-discrimination45, accounting separation46, access to and use of 

specific network facilities (including Unbundled Network Elements [UNEs], wholesale 

obligations, collocation, and interconnection)47, price controls and cost accounting48, 

making necessary leased lines available49, and carrier selection and pre-selection50. 

 

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. 
 13

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 Commission’s 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. 
 14

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. 
 15

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 

markets61, 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 options63 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. 
 16

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. 
 17

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.” 
 18

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. 
 19

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 proceeding71 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). 
 20

(nondominant carriers).72 The Commission found AT&T’s Long Lines Department, 

which provided interstate long-distance services, to be dominant in the interstate, longdistance market (including the long-distance private line market). It also found AT&T’s 

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 Commission’s 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 
 21

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 longdistance 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&T’s 

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), aff’d 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. 
 22

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 general84 (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). 
 23

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). 
 24

offering interLATA (i.e. long distance) services in any in-region state88 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 carrier’s 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). 
 25

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 

States91, 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). 
 26

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. 
 27

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. 
 28

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. 
 29

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 

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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 

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and services (Universal Service Directive), Official Journal of the European 

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Commission Working Document on Proposed New Regulatory Framework for Electronic 

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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 Commission’s Rules and 

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FCC 2d 103 (1976). 

In the Matter of Amendment of Section 64.702 of the Commission’s Rules and 

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California v. FCC, 905 F.2d 1217 (9th Cir. 1990). 

Broadband: Bringing Home the Bits, Computer Science and Telecommunications Board, 

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