The 1996 Telecommunications Act v.2: will it last any longer than v.1?

Citation

Curwen, P. (2006), "The 1996 Telecommunications Act v.2: will it last any longer than v.1?", info, Vol. 8 No. 3. https://doi.org/10.1108/info.2006.27208cab.001

The 1996 Telecommunications Act v.2: will it last any longer than v.1?

A regular column on the information industries

The 1996 Telecommunications Act v.2: will it last any longer than v.1?

One decade ago in the USA, what was to become the Telecommunications Act 1996 was plodding its weary way towards the inevitable compromise wording that was expected to dictate the legal structure of the industry for decades to come. After all, the previous major overhaul of telecommunications law had taken place in 1934. But the timing was unfortunate since what legislators failed to appreciate, although the early signs were already apparent, was that the industry was about to undergo a period of radical change that would leave it in need of a further major legal overhaul well before even a further ten years had passed.

And what was the main driver of this change? In a word, technology, or in a more limited but more specific context, the internet. The 1996 Act was not designed to deal with legal relationships in a virtual world – it only mentioned the internet on two occasions. Indeed, it was not even much concerned with mobile communications. Rather, it set out to address the seemingly critical issues of the time, namely whether long-distance and local operators should be permitted to compete in each others’ markets, and the competitive relationship between telephony and cable operators.

The purpose of this comment is not to assess whether the 1996 Act achieved its objectives – the RBOCs do at least now provide long-distance services in every state and cable operators provide telephony – but rather to address what the Act did not encompass and whether this now needs to be rolled up into a second version. It is easy enough to identify the main issues. For example, not only are there roughly five times as many US citizens in possession of a mobile handset compared to a decade ago, but also increasing numbers are shutting down their landlines in favour of pure mobile connectivity; triple-play (voice,television, internet) is being provided by an ever-widening group of companies which a decade ago were seen as operating in distinct markets; and the capabilities of the internet – ultra-fast broadband, VoIP – have transformed the communications markets. To quote a much repeated advertisement: “When our telecom laws were written, a blackberry was just a fruit”.

A consequence of the approach taken in the mid-1990s was that distinct markets such as fixed-wire, wireless, cable and broadcast needed to be carefully delineated in order to assess how they related to one another. But once the distinctions were enshrined in law, and each category was regulated in accordance with its perceived characteristics, the legal framework rapidly became too inflexible to cope with a marketplace where technological advance was rendering these distinctions outmoded. Thus, for example, whereas the RBOCs were required to share their networks with competitors, cable operators were not.

Not surprisingly, the RBOCs came to believe that in a world of triple-play, line-sharing rules should be the same for everyone. But the cable operators understandably want to keep their advantages without the need to make concessions. Mobile operators have also prospered mightily over the past decade, in part because they have been favoured by relatively light regulation, and hence are broadly opposed to reform of the 1996 Act. However, the RBOCs are able to exert some pressure for reform that is in their interests by promising to upgrade investment plans that have been put in abeyance due to regulatory uncertainty – read, unfavourable regulations.

A thorny issue relates to the Universal Service Fund (USF). The list of contributors and recipients drawn up in 1996 no longer looks to be appropriate. The money essentially comes as a levy on long-distance and international calls and is rolled up within monthly phone bills. It is used to subsidise small rural operators – a group with political clout in a number of largely rural states – that also benefit from “inter-carrier compensation” payments. However, critics – including the White House – are increasingly unsure whether such cross-subsidies make economic sense in a world where competition is anyway transforming the industry.

Sponsored by Senator John Ensign, The Broadband Investment and Consumer Choice Act – which at the time of writing is only a bill – is intended to “establish a market driven telecommunications market-place, to eliminate government managed competition of existing communication service, and to provide parity between functionally equivalent services”. It is not possible to summarise the entire contents of the bill, but it stipulates, inter alia, that:

No State or local government shall have the authority to regulate through franchise agreements or otherwise direct-to-home satellite services (Sec. 3 (6)).

Mobile communications should not be regulated unless either there is an absence of competition or to protect public health and safety (Sec. 3 (7))

The FCC shall not take any action to impede the development of seamless mobility (defined as “the ability of a consumer and connecting devices of consumer to move easily and smoothly between and among internet protocol enabled technology platforms, facilities and networks”) (Sec. 3 (8)).

Subsequently, in discussing the obligations of incumbent local exchange carriers (ILECs), it stipulates (Sec. 10) that:

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  an incumbent ILEC shall provide unbundled access to copper local loops on commercially reasonable rates, terms and conditions; and

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  an incumbent ILEC shall provide physical collocation at the central office of such carrier or, if that is impractical, virtual collocation.

Sec. 11 states that all service providers using the North American Numbering Plan must provide number portability for all consumers, and may not charge excessive early cancellation fees to consumers who wish to change plans. Moving on to the more contentious area of video services (Sec. 13), the bill stipulates that a video service provider may not be required to obtain a State or local video franchise or to build out its video distribution system in any particular manner or to provide leased or common carrier access to its video distribution facilities and equipment to any other video service provider. This is, on the face of it, a victory for the RBOCs, although it was pointed out that Texas lawmakers had already authorized state-wide video services so the new rules might prove to be redundant.

The stomach for a fight over telecommunications issues, either within the White House or in Congress, both of which are preoccupied with matters such as the aftermath of hurricanes, has to take account of the determination of vested interests to stand their ground. But there is, as ever, the complicating factor that the proposed Act is sponsored by the Senate Commerce Committee, and the House of Representatives is drawing up its own version sponsored by the House Committee on Energy and Commerce.

Equally, the FCC is busy (as it sees it) dragging the industry into the twenty-first century. For example, in August the FCC reclassified fixed-wire broadband providers as “information services”. The previous classification of DSL as a “telecommunications service” meant that providers had to open their broadband networks to ISPs on non-discriminatory terms and obey other common carrier rules. Although the FCC was ostensibly following the precedent of the Supreme Court ruling in the Brand X internet case which freed cable companies from network-sharing arrangements demanded by the ISP, the Democrat members of the FCC would only support reclassifying DSL provided, for example, the RBOCs continued to finance the USF. While independent ISPs can try to negotiate access deals, their role has arguably been side-lined, and for the time being broadband access is going to be dominated by only two technologies, DSL and cable.

So, in summary, there is general agreement that in a triple-play world – soon, perhaps to become quadruple-play as wireless capabilities are bolted on – the consumer must be given freedom to choose what he or she wants, in what combination and from whom to buy it. However, the “weak and vulnerable”, whether consumers or providers, must be protected – who exactly, and by how much, is a matter of contention – and regulatory systems must still be capable of identifying and punishing market abuses. So it sounds a lot like a re-run of what happened a decade ago, and we can only hope that whatever eventually emerges from the political in-fighting lasts rather longer than the 1996 Act.

Peter CurwenVisiting Professor of Telecommunications at the Strathclyde Business School, Glasgow, UK. E-mail: pjcurwen@hotmail.com