The Concrete Barrier at the End of the Information Superhighway: Why Lack of Local Rights-of-Way Access Is Killing Competitive Local Exchange Carriers

I. INTRODUCTION The Telecommunications Act of 1996 (1996 Act) (1) contained the promise of a deregulated national telecommunications market with unfettered competition in both the local and long-distance telecommunications markets. Unfortunately, five years after the 1996 Act was signed into law, competition in local telephony is still not a reality in many areas of the United States. While some of the blame for the failure of local competition may be placed on failed business models and the withdrawal of venture capital from the market, (2) a series of regulatory failures have also served to create an inhospitable environment for competitive local exchange carriers ("CLECs"). One of the areas where this failure has been most evident is in Congress and the Federal Communications Commission's ("FCC") failure to adequately address municipal rights-of-way access for CLECs. (3) This Article analyzes this regulatory failure, and presents a number of legislative and regulatory suggestions that could lead to a more coherent national scheme of regulation governing public rights-of-way access for telecommunications carriers. The first Section of this Article provides an overview of the two general business models that developed for CLECs in the wake of the 1996 Act, and addresses the general failure of the resale carrier model. The second Section of this Article provides an overview of Section 253 of the 1996 Act, and the various municipal and judicial interpretations of Section 253 that have created a patchwork of local regulation governing rights-of-way access throughout the country. The third Section of this Article provides a series of legislative and administrative proposals that would serve to create a more unified, procompetitive scheme of rights-of-way regulation throughout the United States. II. COMPETITIVE TELECOMMUNICATIONS CARRIER MODELS Under the framework of the 1996 Act, there are two basic ways a new entrant into a local telecommunications market can provide service. The first method is to provide service by "reselling" the services of another carrier. (4) The second method of providing service is through the construction of telecommunications facilities for the provision of services. (5) A. Resale Carriers Under the 1996 Act, all local telecommunications carriers are required to resell their services to other local telecommunications carriers. (6) Under this model, a new carrier can approach a facilities-based carrier and request that carrier to resell its service at a "discounted" retail rate. (7) This discount, or wholesale rate, is generally set by state regulators. (8) The new carrier then attempts to make a profit on the provision of this resold service by reselling it at a rate that is generally equal to or lower than the rates charged by the incumbent carrier in the market. After passage of the 1996 Act, a number of CLECs attempted to provide service using a business model based solely on the provision of resold service. (9) Many of the new entrants, however, soon realized that it was impossible to turn a profit due to administrative costs and other expenses that were higher than the discount spread between the cost of the wholesale rate and the rate that the new entrants marketed the service to end users. (10) B. Facilities-Based Carriers Another model for new entrants is the facilities-based carrier model. Under this model, a new entrant constructs either some or all of the facilities that are required to operate a telecommunications network. (11) New entrants that only construct switching facilities on private property and utilize the incumbent carrier's facilities in the public rights-of-way are often referred to as "limited" facilities-based carriers, and are often regulated in a somewhat different manner than "full" facilities-based carriers that actually construct facilities in the public rights-of-way. …