Progress and Regress on InterLATA Competition

I. INTRODUCTION Over sixty-six billion dollars were spent in 1997 on interstate and international long-distance telecommunications services.(1) MacAvoy and Taylor argue that, despite price decreases, this telecommunications market is characterized by prices that exceed competitive levels because the price decreases have not kept pace with decreases in costs.(2) Some counter that this conclusion results from incorrect measurement of prices, but Taylor and Zona reexamine the question from many perspectives and still conclude "that it is very unlikely that the interstate long-distance market is effectively competitive."(3) Due to the sheer size of the market, even a potential failure of competition must be taken seriously. Departures from competitive outcomes can have enormous welfare consequences.(4) This was one motivation behind passage of the Telecommunications Act of 1996 (Act),(5) which, among other things, removed the legal prohibition that prevented Bell Operating Companies (BOCs) from providing certain interLATA (long-distance) services.(6) The theory is that, under the right conditions, the BOCs could inject vigorous new competition into interLATA markets and could also compete to provide new services for which there is pent-up demand, such as one-stop shopping for telecommunications services.(7) Section 271 of the Act outlines the process that BOCs use to obtain relief from their line-of-business restriction on interLATA services.(8) BOCs must apply on a state-by-state basis to the Federal Communications Commission (FCC) for permission to offer interLATA services, and the FCC must render its decision within ninety days.(9) The FCC may not grant permission unless it finds that four broad conditions are met.(10) First, the BOC must either provide access and interconnection to its network pursuant to agreements with competing providers of local exchange services or have received no requests for access and interconnection.(11) The former is called a "Track A" application, while the latter is known as "Track B."(12) Second, the BOC must satisfy a competitive checklist, either through its interconnection agreements or through a statement of generally available terms for access and interconnection (SGAT).(13) Third, the BOC must provide its interLATA services through a separate affiliate that meets certain structural requirements and nondiscrimination safeguards.(14) Fourth, BOC provision of interLATA service must be "consistent with the public interest, convenience, and necessity."(15) At this writing, the FCC has rejected five applications, approved one, and is currently reviewing one.(16) Southwestern Bell was first to apply, requesting permission to offer interLATA service in Oklahoma.(17) After deciding that Southwestern Bell met neither the Track A nor Track B requirements, the FCC denied this application.(18) Ameritech Michigan followed and was the first application to pass the first condition.(19) Although the FCC declared that Ameritech satisfied Track A, the FCC decided that several checklist items were not met and that Ameritech's long-distance affiliate did not satisfy the structural requirements and denied the application.(20) BellSouth submitted applications in South Carolina and Louisiana.(21) In regard to the South Carolina application, the FCC decided that BellSouth did not meet the Track B requirements, did not seriously apply under Track A, and did not satisfy some checklist items.(22) The FCC did not rule on whether BellSouth met Track A or Track B in Louisiana. Instead, the FCC relied exclusively on its decision that the checklist problems from South Carolina were also present in Louisiana.(23) BellSouth reapplied in Louisiana exclusively under Track A.(24) Despite much disagreement, the FCC declined to rule on whether BellSouth met the Track A requirements and denied the application due to ongoing checklist problems and some problems with the structural and nondiscrimination compliance of BellSouth's long-distance affiliate. …