Paved with Good Intentions: How interLATA Data Relief Undermines the Competitive Provisions of the 1996 Act

I. INTRODUCTION Just over five years ago, former President Clinton signed the Telecommunications Act of 1996 ("1996 Act") into law, effectively opening long-shut doors to competition.(1) Today, Congress faces the question whether to close those doors once again. H.R. 1542, the "Internet Freedom and Broadband Deployment Act of 2001," seeks to provide Bell Operating Companies ("BOCs") with interLATA relief for the provision of data services. This allows BOCs to provide data services across the LATA boundaries that have restrained them for the nearly two decades since the breakup of AT&T, without complying with the competitive provisions of the 1996 Act. H.R. 1542 aims to lift limitations on "consumer choice and welfare"(2) and to "bridge" the "digital divide."(3) The newly introduced H.R. 1542 takes the place of its identical twin from the 106th Congress, H.R. 2420.(4) This Note illustrates how legislative initiatives like H.R. 1542 not only will fail their essential purpose, but also will harm the consumer choice and welfare they claim to protect. As the market moves toward convergence among and within telecommunications industries, legislators evaluating H.R. 1542 must remember the purpose underlying AT&T's divestiture and the subsequent competitive provisions of the 1996 Act: "Free and open competition brings about the lowest possible prices and the mix of services that is most closely aligned with consumers' preferences."(5) Until the local exchange markets are open to robust competition, some regulation must remain in place to afford more choice and lower prices to consumers. If enacted, H.R. 1542 will destroy consumer choice and raise prices by toppling the painstakingly constructed balance struck by the 1996 Act. In the past few decades, the climate has transformed for telecommunications companies from unification to fragmentation and back again. Part II of this Note discusses the beginning of this cycle, the divestiture of AT&T, which imposed the original restrictions on BOCs with respect to the provision of interLATA service. Part III describes the competitive provisions of the 1996 Act, which replaced the twelve-year-old restrictions imposed by the divestiture of AT&T.(6) In light of this history, H.R. 1542 attempts to solve the problem of the digital divide by providing expansive interLATA relief for data services. Part IV examines the problem of the digital divide, and Part V provides the background of H.R. 1542. As this Note will show, several feasible solutions superior to H.R. 1542 already exist to address the same problem. Part VI discusses alternatives to changing the current law and why these alternatives are far better than H.R. 1542's heavy-handed solution. Part VII argues that the critical shortcoming of H.R. 1542 is not that it represents an ill-fitting, duplicative solution to the problem of the digital divide, but rather that it will harm consumers in rural and urban areas by eliminating choice and raising prices. II. THE HISTORY OF THE BELL OPERATING COMPANIES To properly understand the debate surrounding this type of legislation, one must understand the terminology and law that arose out of the divestiture of AT&T. The entrance of MCI and other companies into the long-distance market in the 1970s first foreshadowed a potential antitrust action against AT&T.(7) Despite competition from MCI and others, AT&T still commanded about eighty percent of the long-distance market in the late 1970s and early 1980s.(8) The Justice Department ("DOJ") leveled an antitrust suit against AT&T in 1974,(9) because "in the absence of restrictions on their ability to enter new lines of business, the BOCs would cross-subsidize competitive services with their monopolized local services, and would discriminate against competing long-distance companies when providing the connection to the local network."(10) On January 15, 1981, proceedings commenced before Judge Harold Greene in the DOJ's case to break up AT&T's monopoly. …