58 Federal Communications Law Journal 477-510 (2006). Thomas W. Hazlett, Professor of Law & Economics, George Mason University School of Law.
The 1996 Telecommunications Act (“1996 Act”), passed with bipartisan support, aimed to overturn the existing regime of regulated monopoly. Competition would be introduced, and regulation would fade away. Rival networks would then provide the consumer protection long delegated to state and federal agencies. Elements of this strategy were cleanly implemented and have proven effective. These include two important policies to assist new network formation. The first was a federal preemption of state-issued franchise monopolies in local telecommunications. Most states had permitted but one operator, per area, to offer local phone service. In addition to other advantages, this measure instantly allowed 11,000 locally franchised cable TV operators to compete in a head-to-head rivalry with local exchange carriers (“LECs”). A second competitive strategy was an interconnection mandate, meaning that new networks would be able to exchange traffic with existing networks, thus facilitating entry. These rules enabled the emergence of hundreds of competitive local exchange carriers (“CLECs”) in the aftermath of the 1996 Act. The third strategy, however, has proven more problematic and will be the focus of this Essay. Full text available on SSRN: http://ssrn.com/abstract=707633.