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Competitive Debacle in Local Telephony: Is the 1996 Telecommunications Act to Blame?

Publication Title

Washington University Law Quarterly

Abstract

Part I of this Article outlines a few fundamentals upon which the subsequent analysis is based. It argues that despite technological advances, access to the local wireline telephone infrastructure is still critically important. Further, there is precious little competition today in wireline telephony, and competition can flourish only with appropriate regulation. Part II examines the Act’s network disaggregation provisions, with a particular focus on two fundamental questions: What portions of the network should be unbundled? And at what price? It argues that while the statute itself is sound, the regulations promulgated under it evince basic economic confusion that has harmed the incumbent local exchange carriers (“ILECs”), and provoked a series of reactions and retaliations. Surprisingly and ironically, the unbundling provisions have decimated the competitive local exchange carriers (“CLECs”)—the very people the regulations were supposed to help. A new regulatory framework is proposed. Part III shifts to consideration of the Act’s provisions that open up long distance to regional Bell operating companies (“RBOCs”) and argues that while the overly formalistic statutory language may have some flaws, again, the implementing regulations have floundered—this time to the advantage of the RBOCs. Again, a possible solution is explored. Part IV considers the thorny subject of federalism—here, unlike unbundling and long distance, the complexities appear to be an inevitable part of our broader federal system. Nonetheless, Congress was again able to devise an innovative new approach—this time to address evolving issues of federalism. A fundamental theme throughout Parts II, III, and IV is that, contrary to Chairman Hundt’s belief, the courts have tried their best to backfill for the FCC, and that their intuition about where to intervene has been excellent. The courts are, however, limited as a generalist judiciary by lack of institutional expertise. In the end, the Article argues that getting the fundamentals of deregulation right will go a long way to curing the telecommunications industry’s ills. Chairman Powell has stated that the need for regulatory reform is most pressing in local markets where a network access policy “that promotes competition, investment and innovation to deploy advanced networks” is needed. Put simply, this Article argues that rather than tossing out the Act, a better approach would be for the FCC to develop regulations that coincide with economic and technological reality.

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