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Press Release

    Tech Bytes - Tid Bits in Tech News: Disappearing Act? Regulatory Checklists Are No Way To Promote Competition

    07/05/2000

    The stock symbols (BEL), (GTE), and (USW) disappeared from existence on Monday as the Bell Atlantic-GTE and Qwest-US West mergers were finalized. The mergers give hope that section 271 of the 1996 Telecommunications Act will meet a similar fate soon.

    Section 271 stipulates that a Regional Bell Operation Company (RBOC) must pass a fourteen-point litmus test before it can offer long distance service or most data services. Originally, a federal judge created seven RBOCs and soon after the Act passed, there were five firms held to this unique standard. Today, there are three companies that remain in this special legal category.

    The offensive part of the law creates special conditions – a 14 point checklist of requirements – for RBOCs to meet before they are allowed to combine local, long-distance, and data services into one package.

    The idea behind section 271 was to regulate the communications marketplace toward competition. While there has been plenty of regulation – thousands of pages of rulings from the Federal Communications Commission and various state regulatory agencies – little competition has developed in the marketplace for facilities-based local telephone service. Only two companies – Verizon and SBC – have been able to satisfy regulators of their compliance with 271 provisions.

    Regulatory restrictions on the line of business a given firm chooses to pursue are at best, marginally effective in an entirely regulated marketplace, and at worst, a firewall against the development of competition. Section 271 of the 1996 Telecommunications Act has proved to be a significant and nearly insurmountable barrier to entry for most affected firms.

    Why was this done? Two reasons. First, authors of the Act assumed that no firm would build a new communications network to rival the RBOCs. Therefore, a checklist was created to for RBOCs to demonstrate how their network was open to competitors. In a sense, lawmakers did not expect to see a new, competitive network so they agreed to regulate the old telephone network. This eliminated nearly all incentives to build new, faster and better networks to would reach all areas of the country.

    Second, the knotty problem of local competition – which was as sure to be slow to develop in 1996 as it is today – would be effectively handed to regulators. Elected officials could claim to have voted for competition and blame any remaining problems on regulators.

    While it is fair to say that most FCC telecommunications rules are not deregulatory, an equal amount of blame should be put at the feet of lawmakers who tried to pull a fast one on consumers. As Justice Scalia noted, the law “is in many important respects a model of ambiguity or indeed even self-contradiction.”1

    The 1996 Telecommunications Act promised “to promote competition and reduce regulation.” In order to fulfill that promise, it is time for Congress to rely more on deregulation than on regulators to promote competition.

    Last week, five more members of Congress signed on as co-sponsors of H.R. 2420, “The Internet Freedom and Broadband Deployment Act,” bringing the total number to 218. The bill would deregulate high-speed data transfer and allow RBOCs to provide Internet service to larger geographic areas.

    This is finally a step in the right direction.

    1 119 S.Ct. 721 (1999).