Opinion ID: 75967
Heading Depth: 3
Heading Rank: 1

Heading: Telephone Regulation

Text: Not long after Alexander Graham Bell invented the telephone, government regulators sought to deal with the public policy issues inherent in a service that was both considered to be a natural monopoly (due to the economies of scale and network effects of local telephony) and essential for the day-to-day functioning of the American public. Prior to 1996, government regulators operated under the assumption that local exchange carriers (LECs) should not only be rate-regulated, but also quarantined to the business of local telephony. The latter premise was embodied by the consent decree that broke up AT&T. In the government’s 1974 antitrust suit against AT&T, the government argued that AT&T (1) discriminated against rivals who needed access to the local loop (such as long distance companies or providers of information services) and (2) engaged in predatory pricing against rivals – a scheme of cross-subsidization that was made more likely by the fact that AT&T simultaneously operated in both regulated/monopolistic and unregulated/competitive markets. See Roger Noll & Bruce Owen, The Anticompetitive Uses of Regulation: United States v. AT&T, in The Antitrust 3 Revolution 290, 295-96 (J. Kwoka & L. White, eds., 1989). District Judge Harold Greene approved a consent decree between the government and AT&T in the form of the Modified Final Judgment (MFJ) entered in 1982. See United States v. Am. Tel. & Tel. Co., 522 F. Supp. 131 (D.D.C. 1982), aff’d, 460 U.S. 1001.1 Judge Greene retained jurisdiction over the case, and the Department of Justice promised to report to court every three years regarding the continuing need for the “line of business” restrictions. With the case on his docket for eighteen years, Judge Greene in effect became the telecommunications czar of the nation. 1996 marked a paradigm change in telephone regulation; competition, not quarantine, would best advance the public interest. In that year, Congress passed monumental legislation, the Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (codified at 57 U.S.C. § 151 et seq.). The legislation aimed to spark competition in the provision of local telephony. Congress also hoped to foster additional competition in telecommunications markets which had, due the MFJ’s line-of-business restrictions, been insulated from competition by very important competitors – namely, the RHCs. See Glen Robinson, The Titanic Remembered: AT&T and the Changing World of Telecommunications, 5 Yale J. on Reg. 517, 1 The MFJ split AT&T’s local service into seven Regional Holding Companies (RHCs): U.S. West, Pacific Telesis, Southwestern Bell, Ameritech, Nynex, Bell Atlantic, and BellSouth. The MFJ also employed various line-of-business restrictions which, for example, precluded the RHCs from providing long distance service or information services. 4 534-44 (1988). The 1996 Act has three components which are especially noteworthy. First, the Act made an important change in who regulates the telecommunications industry. The Act abolished the MFJ, see Pub. L. 104-104, Title VI, § 601, 110 Stat. 142 (codified at 47 U.S.C. § 152 note),2 and it delegated to the FCC authority to implement regulations that advance the pro-competition objectives of the Act, see, e.g., 47 U.S.C. § 251 (d)(1).3 Judge Greene was, in short, replaced by the FCC.4 Second, the Act substantively changed the way the telecommunications industry is regulated by imposing various obligations on incumbent local exchange carriers (ILECs). These obligations are defined by 2 The provision states: Any conduct or activity that was, before the date of enactment of this Act [Feb. 8, 1996], subject to any restriction or obligation imposed by the AT&T Consent Decree shall, on and after such date, be subject to the restrictions and obligations imposed by the Communications Act of 1934 as amended by this Act . . . and shall not be subject to the restrictions and obligations imposed by such Consent Decree. 3 The statute provides that “[w]ithin 6 months after February 8, 1996, the Commission shall complete all actions necessary to establish regulations to implement the requirements of this section.” 4 As the Seventh Circuit explained: Long before the 1996 Act was passed . . . it had become clear that comprehensive regulation of the rapidly advancing telecommunications markets was not a task well suited to the federal courts. Thus, one of the first things Congress did in the 1996 Act was to shift the remaining authority the district court was exercising under the MFJ over to the FCC. Goldwasser v. Ameritech Corp., 222 F.3d 390, 393 (7th Cir. 2000). 5 section 251,5 whereas section 252 governs the implementation of the obligations. Specifically, section 252(a) provides that ILECs and competitive local exchange carriers (CLECs) can voluntarily enter into interconnection agreements, and section 252(b) provides that state public service commissions (PSCs) can fashion an agreement through arbitration in the event that negotiations stall. The Act thus contemplates top-down regulation by the FCC, voluntary or arbitrated agreements,6 and resolution of post-agreement disputes in the form of contract adjudication. Section 252 also covers additional matters, such as the grounds PSCs must give in order to reject an agreement,7 what happens if a PSC chooses not to make an approve-or-reject determination at all,8 and how PSC or FCC decisions can be 5 These include: the duty to negotiate interconnection agreements in good faith; the obligation to interconnect with competitors; the obligation to provide competitors with unbundled access to its network elements (“UNEs”) at reasonable rates; the duty to offer for resell at wholesale rates any telecommunications service that the ILEC provides at retail; and the duty to allow collocation of the CLECs’ equipment on the ILEC’s premises. See 47 U.S.C. § 251(c). The 1996 Act thus envisions “three entry options: entry through resale, entry through pure facilities-based competition, and entry via the purchase of unbundled network elements.” Stuart Benjamin, Douglas Lichtman, & Howard Shelanski, Telecommunications Law and Policy 718 (2001). 6 There are thousands of existing agreements throughout the United States, and over 400 in BellSouth’s territory. 7 Section 252(e)(2) allows state commissions to reject an interconnection agreement only if the agreement discriminates against a third-party CLEC or is inconsistent with “the public interest, convenience, and necessity.” 8 Section 252(e)(5) instructs the FCC to act in the event of a PSC default. 6 appealed to a federal court.9 The final component of the Act is the removal of the line-of-business restrictions. Some restrictions, for example, sunset automatically. See, e.g., 47 U.S.C. § 275 (precluding RBOC10 entry into the alarm monitoring business until 2001). Others are removed only after ILECs prove that they have fulfilled their obligations under the 1996 Act. See 47 U.S.C. § 271(c)(2)(B) (establishing a fourteen-point “competitive checklist” that RBOCs must meet before they may offer in-region long distance service.).