Telecommunication Act Of 1996 12856

In February of 1996, the U.S.

Congress enacted the Telecommunications Act of1996. The Act was one of the most substantial changes in the regulation of anyindustry in recent history. The Act replaced all current laws, FCC regulations,and the consent degree and subsequent court rulings under which AT&T wasbroken into the "baby Bells." It also overruled all existing statelaws and prohibited states from introducing new laws. Practically overnight, thetelecommunications industry went from a highly regulated and legally restrictedmonopoly to open competition.

Or almost open competition. It has been more thanthree years since the Act became law, and while we have seen some changes, theyhave not been as substantial as many analysts, law- makers, and regulators hadanticipated. The Act addressed five major areas of telecommunications: 1) Localtelephone service, 2) Long distance telephone service, 3) Cable televisionservice, 4) Radio and television broadcasting, 5) Censorship of the internet.The primary goal of the Act was to promote competition for local telephoneservices, long distance telephone services, and cable TV services.Inter-exchange carriers (IXC) (such as AT&T, Sprint, and MCI) and cable TVcompanies (such as TCI and Jones Inter-cable) are permitted to offer localtelephone service. The "baby Bells" or Regional Bell OperatingCompanies (RBOC) (also called Local Exchange Carriers (LEC) such as BellSouthand Ameritech were permitted to offer long distance telephone services and cableTV services.

The RBOC were also permitted to manufacture their own equipment andto offer online information services and electronic publishing (but under tightcontrols until 2000). Incidentally, electric utility companies, anothertraditionally highly regulated industry, were permitted to enter the localtelephone market. I believe that the Act made the most impact on Local telephoneservice. Local telephone service had been a regulated monopoly for almost 100years. Local telephone services are currently controlled by a handful of RBOCswho have not been known for innovation or cost cutting. Under this new Act,local service was now open for competition.

Other companies are permitted tobuild their own local telephone facilities and offer services to customers.However, building entirely new facilities are prohibitively expensive. Under theAct, existing RBOCs would have to offer their telephone services to othercompanies (e.g., AT&T) at wholesale prices. These other companies will thenresell the services to consumers at retail prices in competition with the RBOC.

The wholesale prices are set by state regulatory agencies and typically arearound 20% under the RBOCs current retail prices (but some states have set themas low as 40% under retail). One of the major concerns of permitting opencompetition were the very real fear that the profit motive would lead companiesto focus on the most profitable markets and avoid the least profitable ones. Forexample, after deregulation of the airline industry, prices dropped dramaticallyfor large urban centers, but steadily rose for small rural centers. Common sensesuggested that the same events would occur in the telephone market. Urbancustomers would benefit from increased competition while rural customers wouldsee their prices increase sharply to accurately reflect the high cost ofproviding services in sparsely populated areas.

Many of the RBOCs proposed priceincreases of $10 per month in rural areas. Therefore, the Act contained auniversal service requirement, which mandated RBOCs to provide rural and otherhigh-cost areas with similar types and quality of services and technologies thatthey provide to other areas and to do so at reasonable rates. RBOCs were alsorequired to provide special, less expensive access to schools, hospitals, andlibraries. RBOCs (with the exception of small RBOCs) were required to contributeto a universal service fund, which was used to partially subsidize the RBOCsproviding services under the universal service requirements. One year after theAct was passed the expected competition for local telephone service had notmaterialized. The RBOCs launched several court challenges and managed to delayany real changes.

Several cable TV companies have test marketed local telephoneservice, but none have committed to providing full scale services; most havequietly terminated plans to enter the market after unsuccessful test-marketing.Similarly, most telephone companies have quietly terminated plans to providevideo to their customers. Most analysts expected the Big Three IXCs (AT&T,MCI, and Sprint) to quickly charge into the local telephone market. Sprint hasmade small moves also providing cellular telephone services in five urban areas.AT&T has barely begun test-marketing the reselling of RBOC services inCalifornia -- although it claims it will soon begin reselling RBOC services inall 50 states (something it has been claiming since early 1996). Only MCI hasbegun building its own local telephone network.

It has established fiber opticservices (SONET) in 18 large urban centers and is actively trying to lure thelargest corporate customers away from the local RBOCs. There has been activecompetition in the long distance telephone market for many years, but RBOCs havebeen specifically prohibited from providing long distance services. The Actpermitted the RBOCs to provide long distance outside the regions in which theyprovide local telephone services. However, they are prohibited from providinglong distance services inside their region until at one viable competitor existsfor local telephone services.

To date, several RBOCs (e.g., GTE and SNET) havemoved aggressively into the long distance market. They have focused exclusivelyon out-of-region long distance by buying long distance services from IXCs andreselling them, usually to large corporate accounts.

However, none have movedinto the in-region long distance market because none face real localcompetition. All of the RBOCs claim to have plans to offer in-region longdistance, but because they have been aggressively fighting court battles to keepcompetitors out of their local telephone markets. While more competition in thelong distance markets has occurred in recent years, it is still an open questionwhether most people will see competition in the long telephone market. Manyanalysts believe that local competition will focus on business customers, notthe more common household customer. Even with competition reaching households,most analysts believe it will be another few years for all customers to have aviable option for local telephone service.

On February 15, 1997, 68 countiessigned an historic agreement to deregulate or at least lessen regulation intheir telecommunications markets. The countries all agreed to permit foreignfirms to compete in their internal telephone markets. Major U.S. firms (e.

g.,AT&T, MCI, BellSouth) are now permitted to offer telephone service in mostof the industrialized and emerging nations in North America, South America,Europe, and Asia. Likewise, overseas telecommunications giants (e.g., BritishTelecom) are permitted to enter the U.S.

market. This increased competition inthe U.S., but the greatest effect is likely to be felt in emerging countries.

Cable television and television broadcasting also met changes. Deregulation ofthe cable industry meant big changes. Rate regulation requirements were removedthis year also allowing cable companies to offer long distance services. The actalso mandated the use of the “V-chip”.

A computer chip installed in new TVsto censor certain programs from children. The TV companies were allowed to reach35 percent of the nation’s televisions (previously 25 percent) giving them abroader audience. The terms for the licenses to broadcast were lengthened from 5to 8 years, and were given 6MHz of digital bandwidth, which equals to anadditional channel. The Telecommunications Act that sought Internet censorshipwas struck down by the Supreme Court in June 1996. It was ruled that Internetcensorship was unconstitutional.

The ACLU and many civil rights activists werefirmly against this policy. As Thomas Jefferson put it “ Congress shall makeno law respecting an establishment, or prohibiting the free exercise thereof; orabridging the freedom of speech, or of the press; or the right of the peoplepeaceably to assemble, and to petition the Government for a redress ofgrievances”. All in all, the Telecommunications Act of 1996 brought tremendouschanges into the telecommunications field. Such regulatory acts are needed toinsure consumer rights in this “Corporate” world we live in. The gift ofchoice, the freedom to revel in our options is one of the foundations of howthis great country came to be.

We need to cherish that fact…for eternity.