Deregulating Telecommunications in Internet Time

I. IntroductionThe Telecommunications Act of 1996 was both intended and expected to usher in a new era of competition in telephony and emerging data services. Advertised as the "most deregulatory [law] in history,"1 the Act was designed to "fundamentally restructure[]"2 local telecommunications-replacing long-monopolized markets with vigorous competition. Unfortunately, the Act has largely failed on its own terms. Its core provisions-opening the incumbent monopolists' networks to lease by other providers-have yielded more legal battles than competition.3 Key parts of this structure have been to the Supreme Court twice,4 and the D.C. Circuit has just reversed the FCC's third attempt to devise rules to implement the Act's network sharing scheme, the first two attempts having been struck down as well.5 Indeed, in recent years, the percentage of local markets served by new carriers purchasing pieces of the incumbents' networks has actually fallen.And yet, despite the poor showing of the 1996 Act's unbundling regime, there are glimmers of hope for local telecommunications competition. Increasing numbers of young people are "cutting the cord"-relying on their cell phones for all of their voice needs. And, with a giddiness not seen since before the Internet crash, cable and Internet companies-and even regulatorsare touting voice-over-internet-protocol (VoIP) services that could provide alternative phone service for the increasing number of broadband users. Finally, direct broadcast satellite has begun competing well against cable television companies.These glimmers require a reassessment and reworking of communications law to ensure that, now, true competition can take hold. Although sixty-two years passed between the original 1934 Communications Act and its 1996 overhaul, and only eight since, technological developments and competitive markets now require a regulatory structure that can accommodate the rapid and unpredictable advances of "Internet time."6 Indeed, the 1996 Act's focus on fostering competition through the device of unbundling the incumbent's network seems incomplete at best.This Article begins a reassessment of the 1996 Act and a comprehensive prescription for a new regulatory agenda. This reassessment necessarily begins with the precedents upon which Congress itself relied: deregulation of the transportation industries and of long-distance. Congress thought that the 1996 Act would prompt the same, relatively quick development of competition that followed these earlier deregulatory efforts. It is indisputable that, shortly after deregulation of the transportation industries, those markets began to behave much more competitively-with the benefits and detriments that usually accompany competitive markets. And long-distance markets became more competitive shortly following the Bell System's demise. This paper therefore compares these previous examples of deregulation to the 1996 Act's approach to local markets and, by so doing, identifies the piece missing from Congress's attempt to introduce competition into local telecommunications markets. If deregulation could produce competition in so many other markets, the 1996 Act's failure to prompt widespread local telecommunications competition demands some explanation.The answer, or at least a significant part of the answer, is that the most significant prior efforts at deregulation-the elimination of traditional regulation over transportation industries-shared a common presumption that the markets had become (or always were) structurally competitive. Once deregulated, the markets very quickly conformed to expectations and competition developed. In the case of trucking and airlines, the consensus and reality was that the markets were internally competitive. The elimination of legal entry barriers and other regulatory burdens permitted multiple trucking firms and airlines to compete freely, with the familiar results of lower prices and increased quantity. …