Opinion ID: 543181
Heading Depth: 2
Heading Rank: 1

Heading: The First and Second Computer Inquiries

Text: 57 In the First Computer Inquiry (Computer I ), 6 the FCC considered for the first time the appropriate regulatory treatment of telephone company participation in the newly emerging, competitive industry of delivering data processing services over telephone lines. The Commission required that any telephone carrier offering such enhanced services do so by means of a separate corporate subsidiary. The structural separation requirement was applied to all carriers with annual revenues exceeding $1,000,000, although the Commission never explained why it drew its regulatory line at the $1,000,000 mark. Structural separation was not initially regarded as applying to the American Telephone & Telegraph Company (AT & T) and its local exchange affiliates (the Bell System), because those companies were thought to be barred from offering data processing services by a 1956 antitrust consent decree. United States v. Western Elec. Co., 1956 Trade Cas. (CCH) p 68,246 (D.N.J. Jan. 24, 1956); see GTE Serv. Corp., 474 F.2d at 730 n. 7. 58 In its 1980 Second Computer Inquiry (Computer II ) decision, 7 the FCC redefined regulated communications services and unregulated data processing. By creating a regulatory distinction between basic and enhanced services, the Commission sought to draw a bright line between activities that would be regulated as common carrier offerings and those that would not. See Computer II Final Decision, 77 F.C.C.2d at 423, 428-30, 438-47. In Computer II, the FCC also preempted state regulation of the sale of both customer premises equipment (CPE) 8 and enhanced services. 59 Although the FCC in Computer II continued to rely on structural separation as the principal means of preventing cross-subsidization and discriminatory access, it restricted the requirement to members of the Bell System and removed it from all other carriers regardless of whether their revenues exceeded $1,000,000. 9 Thus only AT & T and its operating subsidiaries were required to form separate corporate subsidiaries to provide enhanced services. 10 The Commission's decision to switch from regulating all carriers with revenues in excess of $1,000,000 to regulating only AT & T apparently went unchallenged. The FCC attempted to predicate the need for regulation on a carrier's national market power, which only AT & T had. However, the Commission neither defined the national market at issue nor explained why it drew its regulatory line between national market power and substantial regional market power such as that enjoyed by GTE Service Corporation (GTE) and Continental Telephone. The FCC again stressed the importance of a carrier's monopoly control of local bottleneck facilities and the ability to abuse that control either by providing inferior access to competitors or by cross-subsidizing its own enhanced services with monopoly revenues derived from captive ratepayers. Computer II Final Decision, 77 F.C.C.2d at 466-68.