Telecommunications Act of 1996 Signed into law, February 8, 1996 “ An Act to promote competition and reduce regulation in order to secure lower prices and higher quality service for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.”

What does the Act do? Adds a new Part II to Title II of the 1934 Act –Development of Competitive Markets Articulates a surprisingly specific plan to maintain and expand universal service –Actually puts the words “universal service” into law for the first time Significantly changes the function of state commissions –Lots of “un-funded mandates”

Section 253 Removal of Barriers to Entry No state or local statute or regulation or other requirement may prohibit the ability of any entity to provide any interstate or intrastate telecommunications service State may impose on a competitively neutral basis requirements necessary to protect and advance universal service State or local governments maintain authority to manage public rights of way, or to require competitively neutral compensation for its use Preemption of any requirements that do not agree with these provisions

The big challenge Getting competition into local service –Resale –Unbundling –Facilities based---the ultimate goal How to make that happen????

Section 251 Interconnection General duty of telecommunications carriers –To interconnect directly or indirectly with facilities and equipment of other telecom carriers –Not to install network features, functions, or capabilities that do not comply with standards and guidelines for interconnectivity or for ADA compatibility

Section 251(LECs) Obligations of all Local Exchange Carriers –Resale: duty not to prohibit or impose unreasonable conditions on resale of its telecom services –Number portability: ability of users to retain telephone number at same location without impairment when switching carriers –Dialing parity: no dialing delays for DA, Operator, etc. –Access to rights of way: access to poles, ducts, conduits –Reciprocal compensation: for transport and termination of telecommunications

Section 251(ILECs) Additional obligations of ILECs –Duty to negotiate in good faith –Interconnection with own network for transmission and routing of telephone exchange service and exchange access at any technically feasible point in the network that is at least equal in quality to that provided to itself at rates that are just and reasonable and nondiscriminatory

Section 251 (ILECs) –Unbundled access: nondiscriminatory access to network elements on an unbundled basis at any technically feasible point at rates, terms, and conditions that are just, reasonable and nondiscriminatory; and in a manner that will allow requesting carriers to combine such elements in order to provide telecom service –Resale: sell at wholesale rates any telecom service that the ILEC provides retail to subscribers who are not telecom carriers; states may prohibit a reseller from buying wholesale rates available to one category of customer and selling to another category (residential versus business customer for example)

Section 251 (ILECs) –Notice of changes: reasonable public notice of network changes –Collocation: duty to provide at just and reasonable rates physical collocation of equipment necessary for interconnection or access to unbundled elements at the premise of the ILEC; may provide virtual collocation if can prove to state commission that physical is not practical

FCC to keep in mind... In determining what UNEs to make available, had to consider whether –Access to proprietary elements is necessary –Failure to provide access would impair the ability of the carrier to provide services it seeks to offer Preservation of state access regulations –So long as they are consistent with requirements of Section 251 and don’t prevent implementation of this section

Rural exemption ILEC obligations shall not apply to a rural telephone company until –Bona fide request for interconnection or unbundled elements is received and the state commission determines the request is not unduly burdensome and won’t harm universal service –State commission has 120 days to decide

Section 252 Negotiation and Arbitration Agreements between ILECs and other carriers can be reached in two ways –Negotiation (can request mediation) –Arbitration by state commission (135 th to 160 th day) after request received by ILEC State commission has 9 months State commission must approve all agreements (negotiated or arbitrated) FCC will act if state commission does not

Section 271 InterLATA Relief for RBOCs RBOCs able to provide out-of-region InterLATA services RBOCs could not provide in-region InterLATA services until met Section 271 requirements RBOCs had to apply for relief on a state-by- state basis

Section 271 Competitive Checklist RBOCs had to meet 14 point checklist before could be approved for interLATA relief –Interconnection –Nondiscriminatory access to UNEs –Nondiscriminatory access to poles, ducts, conduits and rights of way –Local loop transmission from the central office to the customer’s premise unbundled from local switching or other services –Local transport from the trunk side of a wireline switch unbundled from other services

More competitive checklist Local switching unbundled from transport, local loop transmission or other services Nondiscriminatory access to –911 and E911 –Directory assistance to allow the other carrier’s customers to obtain phone numbers –Operator call completion services –White page directory listing

Even more on the checklist –Nondiscriminatory access to databases and associated signaling necessary for call routing and completion –Nondiscriminatory access to such services or information as are necessary to allow the requesting carrier to implement local dialing parity –Reciprocal compensation arrangements –Telecom services available for resale

FCC duties in Section 271 FCC had the final decision making authority but first had to –Confer with the Attorney General Attorney general could use any standard –Confer with state commissions FCC had to make a determination that –RBOC had met all requirements –That RBOC will follow Section 272 requirements

Section 272 Separate Affiliates and Safeguards RBOC to have a separate affiliate for three years to provide –Manufacturing –Origination of in-region services RBOC not to discriminate in favor of its affiliate RBOC to undergo an audit every two years

Enforcement authority (Section 271(d)(6) If FCC determines that a BOC has ceased to meet any of the conditions required, may –Issue an order to correct deficiency –Impose a penalty –Suspend or revoke approval Complaint procedure to be developed by FCC

Section 271 process It took almost 7 years! 9 filings withdrawn 5 filings denied First filing, Ameritech in Michigan, filed on January 2, 1997 Final approval, Qwest in Arizona, on December 3, 2003

How competitive is competitive? Notes that Congress declined to adopt a market share or similar test – FCC didn’t do so either –New York: 1,118,180 competitive lines; 651,793 (35,753) own facilities, 152,055 (137,342) UNE, 314,332 (63,547) resale –Texas: est. of 840, ,000 competitive lines; 302,000 (244,000) UNE, 349,000 (191,000) resale –Kansas: competitors serve 9%-12.6% of total lines –Oklahoma: competitors serve 5.5%-9% of lines –Massachusetts: 513,000 own facilities, 93,000 UNE, 268,000 (30,000) resale –Arkansas: 98,500 CLEC lines (40% residential), with 24,000 UNEs; 34,000 resale –Missouri: 295,000 CLEC lines (20% residential), with 76,000 UNEs; 107,000 resale –Vermont: 21,500 CLEC lines with 15,900 of them resale

Public Interest Analysis Benefits of competition in local exchange and long distance markets Removal of barriers to competitive entry Assurance of future compliance –Performance remedy plan –Provisions of section 271(d)(6), liquidated damages through interconnection agreements, antitrust and other private causes of action

So where is it all now? No standalone long distance industry –SBC bought AT&T long distance and the company is now the new AT&T –Verizon bought MCI and the new company is Verizon No more separate subsidiary requirement –FCC determined that there is enough competition so these new companies cannot exercise market power Focus is now on cross-platform competition