The Next Stage of Local Telephone Regulatory Reform

Abstract

We stand at a crossroads in the local telephone market and its regulation. Six years ago the nation codified a new vision of the industry, towards competition and away from the prior franchise monopoly.¹ Along with that new vision came two instructions for regulators — to embrace certain transitional forms of regulation to stimulate local competition, while also to phase out regulatory legacies that would stand in the way of the new competitive world.² However, many post-mortem analyses of the Telecommunications Act of 1996 (Act) have expressed disappointment at promises not fulfilled, particularly with regard to local competition.³ As well, many also criticize the Act’s regulatory burdens, costs, and delays. While common in larger cities and for many business customers, alternative wireline phone service is offered in relatively few residential neighborhoods. Likewise, rather than the “deregulation” often described in the popular press, the past six years have seen an expansion of detailed economic regulatory oversight perhaps unprecedented for any American industry.⁴

Helpful comments were received from Michael Crew, Richard Clarke of AT&T, Michael Pelcovits of WorldCom, and others at Verizon and at the Rutgers’ Center for Research in Regulated Industries May, 2002 Research Seminar. Opinions expressed and any errors contained are the responsibility of the authors and not the commenters or their organizations

The Telecommunications Act of 1996 became law on February 8, 1996

Its Conference Report identifies the Act as creating a “pro-competitive, de-regulatory national policy framework.” The Act requires the Federal Communications Commission (FCC) to oversee unbundling of incumbent wireline providers’ networks (Sections 251–252), and to forbear from applying existing regulations that have become unnecessary, including preempting subsequent state—level efforts to enforce them (Sections 401–402).

E.g., TR Daily 2002a.

For example, the regulatory regimen of mandated unbundling at forward-looking TELRIC prices under strict supervision of wholesale operational performance appears unique to the local telephone industry. To our knowledge, while a number of industries have been subject to unbundling requirements, no such package of measures has been applied to other industries in regulatory transition (e.g. airlines, natural gas, trucking, electricity, wireless telephony, cable TV).