Richard E. Wiley*
The Telecommunications Reform Act of 1996 represents the first
comprehensive overhaul of our nation's communications laws in more
than 60 years. The Act is expected to transform our communications
landscape by eliminating regulatory barriers and encouraging competition
in nearly every sector. It is also likely to have a profound effect
on the Federal Communications Commission ("FCC"). The
legislation's deregulatory measures, as well as the heavy administrative
workload required to implement them, already have the agency significantly
rethinking and revamping a number of its existing procedures.
The original Communications Act, passed in 1934, was enacted at
a time when communications technologies were quite distinct and
addressed different consumer needs. Accordingly, both the statute
and its implementing regulatory scheme were designed to compartmentalize
the various sectors of the telecommunications industry. But as technology
evolved, the potential for competition became more apparent. In
the last several decades, the FCC has tried to ease or eliminate
anachronistic restrictions, but the confines of the agency's statutory
authority have been a limiting factor in this regard.
Elimination of Barriers to Competition
The new Act begins to address the realities of today's converging
marketplace by eliminating barriers that inhibit or preclude the
entry of new competitors into various industry sectors. Most notably,
the statute removes restrictions contained in the 1982 AT&T
Consent Decree that have prevented the local Bell Operating Companies
("BOCs") from providing long distance telephone service
and from engaging in certain other prohibited lines of business
such as manufacturing and electronic publishing. That decree envisioned
a competitive long distance telephone market (and, indeed there
are over 500 interexchange carriers or "IXCs" today --
most notably, AT&T, MCI and Sprint) and a monopoly local telephone
industry, with the BOCs largely foreclosed from entering other businesses
dependent on that monopoly.
With the passage of the new Act, the BOCs can provide long distance
telephone service outside of their regions almost immediately, either
directly or via joint ventures with other carriers. Thus, they may
pose a significant competitive threat to the IXCs. Conversely, the
major long distance carriers are in a position to attack the BOCs'
core local markets almost without regulatory strictures. The ultimate
goal of both sets of carriers is clear: to provide integrated long
distance and local telephone offerings to the public, and especially
to large business customers. This "one-stop shopping"
service generally has not been available since the break-up of AT&T
in 1982.
The BOCs, however, face significant hurdles in entering the interexchange
telephone market within their own regions. Because of continuing
government concerns that they would use their positions in the local
telephone exchange to disadvantage competitors (the same thinking
inherent in the BOC line-of-business restrictions contained in the
1982 AT&T Consent Decree), the legislation requires as a prerequisite
to BOC in-region long distance entry that their own local markets
first be opened to competition. The Act attempts to ensure this
policy through two means: conditioning entry on a BOC's implementation
of a so-called "competitive checklist" (designed to ensure
that other service providers can obtain nondiscriminatory access
and interconnection to the BOCs' local facilities) and preempting
state restrictions that prohibit other entities from providing local
telephone service. All this is likely to hold up BOC in-region entry
into long distance for a year or more. And meanwhile, the major
IXCs will be attempting to establish strong toe-holds in the integrated
phone service business.
Video Service Competition
The Act also eliminates the ban on telephone company provision
of video service, authorizing a telephone company to provide service
as a traditional cable operator or through an "open video system"
(in which two-thirds of channel capacity must be available to other
programmers on a common carrier-like basis). However, in order to
ensure the competitive benefits of two wires to the home -- telephone
and cable -- the legislation generally prohibits a telephone company
from acquiring a cable operation (or vice-versa) in the same market.
Given the huge expense involved in upgrading both the telephone
and cable plants to carry advanced video offerings of the future
(e.g., home shopping and banking, interactive games and educational
programs, high definition television, etc.), it remains to be seen
whether the government's two-wire strategy will prove to be economically
realistic in the long run. However, our policymakers are all too
aware of their inability in the past to regulate effectively powerful
monopoly providers like AT&T and the BOCs. Thus, infrastructure
competition is again the key policy imperative.
In order to further promote vigorous rivalry in the video marketplace,
the Act also provides for the elimination of cable rate regulation
(except for basic broadcast service) three years after enactment,
or sooner upon the development of competition. This action effectively
reverses much of the heavily regulatory 1992 Cable Act and its equally
extensive FCC implementation. However, among the limitations that
will remain are the important "program access" requirements
which have made cable's popular offerings -- like CNN, HBO, and
MTV -- available to its multichannel competitors: Direct Broadcast
Service ("DBS") operators (like Hughes' Direct TV and
Hubbard's USSB) and so-called "wireless cable." As a result,
cable is facing real competition today, even before the potential
entry of the telephone companies into the video business.
One other video provider -- the venerable over-the-air broadcasting
service -- is also a beneficiary of the deregulatory provisions
of the new statute. And this, in my view, seems appropriate given
broadcasting's status as a "free" (advertising-supported)
one-channel service competing increasingly against largely subscription-supported,
multi-channel video operations (like cable and DBS). The Act substantially
liberalizes restrictions on the number of broadcast stations that
any one entity can own by eliminating all national radio limits
and relaxing the national audience cap in TV ownership. That cap
had limited television station owners from reaching more than 25%
of the national TV audience. The new law raises the cap to 35% --
a distinct advantage for the major networks and other large station
groups.
The legislation also eases restrictions on radio ownership within
the same local area (allowing a single licensee to acquire as many
as eight stations in large markets). However, to the disappointment
of major television companies, Congress largely left the local TV
ownership regulations in place pending further FCC determinations.
Moreover, the agency's rules prohibiting cross-ownership in any
market of newspaper and broadcasting properties, cable and television
operations and, to some extent, even radio and television stations
remain in effect for now. Nevertheless, the Act at least removes
most of the statutory impediments to eliminating these latter restrictions,
and also directs the Commission to review all of its remaining broadcast
ownership rules on a regular basis.
Spectrum Flexibility
Additionally, the new statute affords TV operators flexibility
to use the spectrum assigned to them for certain non-broadcasting
services. However, this flexibility would be available only if the
FCC decides to grant broadcasters a second channel to facilitate
their transition to advanced digital television (including high
definition TV which involves a quantum leap forward in picture quality
and sound). In the weeks immediately prior to the Act's passage,
Senator Dole and others on Capitol Hill raised concerns about the
fiscal wisdom of giving (or loaning) television licensees additional
frequencies that otherwise might be subjected to auctioning. To
facilitate enactment of the legislation, the Commission agreed not
to assign such spectrum until Congress resolved whether and how
it should be made available. Meanwhile, the FCC is deciding whether
to establish a new digital broadcasting standard for the country,
based on the recommendations of its industry Advisory Committee
on Advanced Television Service (a committee that, throughout its
eight year life span, I was privileged to chair). The existing N.T.S.C.
Standard, to which all TV receivers must be manufactured, was set
back in 1941.
Content Regulation
Despite its generally deregulatory tone, the legislation contains
several provisions that would permit government regulation of content.
For example, the Act requires most new TV sets to be equipped with
a so-called "V-chip" that can be programmed by parents
to block violent or sexually explicit programming. The legislation
requires the television industry to establish a system for rating
such programming, although the FCC is permitted to intercede if
it is dissatisfied with the industry's efforts. In addition, the
Act would prohibit any person from sending patently offensive communications
to a minor via a computer or from making such communications generally
available on the Internet. Serious First Amendment concerns have
been raised about both of these provisions. Indeed, a broad range
of civil liberties groups led by the ACLU already have sought (and
received) an injunction against the Internet measures. Anticipating
such challenges, the legislation provides for expedited judicial
review of some of these content-based provisions.
Effects on Consumers
Through the Act's provisions to open up telecommunications markets
and stimulate competition, its drafters hope that the public ultimately
will enjoy the benefits of lower rates and more service choices.
However, in the short term, what the consumers may face is primarily
confusion. Many new carriers (some resulting from industry mergers
and strategic alliances that seem certain to occur) will be attempting
to provide them with service. Thus, many new rate and discount packages
will be offered to subscribers -- probably over the telephone during
the dinner hour and, undoubtedly, through myriad radio and television
advertisements.
Despite these annoyances (as some may see them), the opportunity
will be available soon for "one-stop shopping" -- that
is, service from an integrated long distance and local telephone
carrier. It remains to be seen whether the public prefers a single
telephone bill from a single company but my own guess is that the
answer will be in the affirmative. Additionally, as discussed, subscribers
also are certain to have numerous video choices, both in terms of
service providers and program packages. The proverbial "500
channel" universe would seem to be on the near-term horizon
of cable, DBS and, soon, telephone operations. In all, at least
for business and residential consumers who are willing to spend
the time and effort to understand all of the options available,
the telecommunications future should be both diverse and attractive.
FCC Implementation
The sweeping regulatory changes embodied by the new law will require
extensive revisions to the FCC's rules and regulations. The Commission
itself has estimated that implementation will necessitate more than
80 different proceedings, covering some 40 separate issues. Given
its limited resources, there has been considerable speculation as
to how the agency will accomplish these tasks in the expedited time
frame required by the legislation, while still meeting its existing
responsibilities.
The Act provides some guidance to the FCC in this regard. It specifically
eliminates Commission oversight in certain areas by deleting various
licensee requirements. The legislation also generally directs the
agency to forbear from regulating telecommunications carriers or
services where such regulation is no longer necessary to protect
the public interest. Additionally, it authorizes the FCC to privatize
certain functions, such as the certification and testing of radio
and computer equipment and field inspections of radio facilities.
The FCC itself has already taken steps to reduce remaining oversight
functions and to conserve limited resources. Within days of the
legislation's enactment, the Commission initiated an inquiry as
to how best to simplify agency processes and improve its delivery
of services. FCC officials also have met with industry representatives
to discuss strategies for expediting the rulemaking process and
other requirements. A number of proposals to streamline the Commission's
administrative procedures have been considered e.g., submission
of draft orders (similar to the practice of U.S. District Courts);
significantly shorter pleading periods; a policy against extensions
of time; the filing of summarized arguments; expansion of the scope
of interpretative rules (not subject to Administrative Procedure
Act ("APA") notice and comment requirements); and a much
tougher stance on frivolous filings.
Conclusion
The 1996 Act is unquestionably a watershed event. It will contribute
greatly to shaping the future of telecommunications in this country,
clearly one of the most dynamic sectors of our society and economy.
Only time can tell whether this massive legislation will succeed
as well as its 1934 predecessor did for so long. But given the rapid
pace of advancing communications technology, a law whose twin objectives
are increased competition and lessened government regulation would
appear to be the right solution at the right time.
* Dick Wiley practices in Washington, D.C. with Wiley, Rein &
Fielding. He is a former Chairman of the FCC.
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