Posted: 12/1999
Act III: Working It Out
By Kim Sunderland
The Telecommunications Act of 1996 turned 3 years old this year amid a lot of hype over whether the federal agency charged with overseeing its implementation was actually doing its job. As the national law roars up on its fourth birthday in February 2000, telecom industry analysts now say that the Federal Communications Commission (FCC) has its implementation act straightened out.
"1999 will turn out to have been a watershed year for Telecom Act implementation," says John T. Nakahata, partner with the Washington law firm Harris, Wiltshire & Grannis LLP. "The year opened with the [U.S.] Supreme Court's decision upholding the FCC's authority to set nationwide interconnection standards. This put both the tools and the responsibility for Telecom Act implementation squarely back in the FCC's hands."
With the reins back, the FCC has been able to move forward to define the breadth and the limits of incumbent local exchange carriers' (ILECs') interconnection duties, Nakahata says. "1999 could now close with the first approval of a Bell long distance application," he adds.
Despite the actual "birth date" of the Telecom Act, the federal law really is only about 10 months old. The FCC first tried to implement the Act in 1996 with its interconnection order, but a requested stay of that order by GTE Corp., Stamford, Conn., and the ILECs was promptly approved and "we remained in a litigation limbo," says Robert McDowell, vice president and assistant general counsel for the Competitive Telecommunications Association (CompTel). That fog eventually lifted in February when the Supreme Court came out with its unbundled network elements (UNE) remand, which is part of the interconnection order. "The excellent aspect of that ruling was that the Supreme Court galvanized the FCC's authority," McDowell says. There's been no turning back since then on implementation of the Telecom Act.
"I think that the FCC has done a commendable job implementing the Telecom Act in most respects," says Mitchell F. Brecher, partner in the Washington law offices of Greenberg Traurig. "That's not to say that I agree with every decision that it has made."
In fairness to the FCC, the Telecommunications Act of 1996 is a complicated statute with many ambiguous and internally inconsistent provisions, Brecher explains. "Given these circumstances, it seems inevitable that [the federal agency] would make some decisions which have been second-guessed and some decisions which could survive court of appeals review."
His one major criticism of the FCC's regulatory initiatives during the past year is it seems that, in many circumstances, rather than acting to advance the deregulation portion of the purposes of the Telecom Act, the FCC has gone beyond traditional regulation into regulation that borders on micromanagement of the manner in which companies engaged in competitive markets do business. Brecher says examples of such micromanagement regulation include:
- Truth-in-billing regulations;
- The current inquiry into how competing long distance carriers price their services to low-volume long distance customers;
- The FCC's inflexible implementation of the universal service funding requirements; and
- The FCC's strict implementation of the rate integration/rate averaging requirements of the Telecom Act.
Such regulation leads analyst Fred A. Joyce, principal of Joyce Telecom Group LLC, Colorado Springs, Colo., to believe that the FCC is "just holding on and trying to move the Telecom Act forward as is without bowing to the significant pressure to renegotiate, as requested by the big ILECs and their many supporters in Congress." Several congressional members, in fact, have put significant, relentless pressure on the FCC this year in several areas of regulation, including slamming, truth-in-billing, merger application reviews, broadband and even FCC internal restructuring.
Despite these diversions, Scott C. Cleland, managing director of Legg Mason Precursor Group in Washington, advises investors to closely monitor the FCC because the agency "may finally be in a position largely to straighten out its implementation of the much-troubled 1996 Telecom Act." With decisions expected by the end of the year on such issues as a Bell providing long distance in its region, the FCC finally may be able "to lay the necessary groundwork leading to an acceleration of actual competition across the board and a stimulus for more broadband facility deployment," Cleland says.
Cleland says there's been a little-noticed "sea change" in the FCC's implementation of the Telecom Act as the commission "has been quietly and successfully negotiating behind the scenes with the industry to achieve real change in the marketplace." He says this is in stark contrast to the FCC's "command and control edict approach" of the first three years of the Act, which produced legal gridlock and not much competitive progress. FCC Chairman William E. Kennard's strategy to implement the Telecom Act now revolves around encouraging the industry to negotiate workable solutions, and it just may work.
A case in point is the 30 merger conditions agreed to by SBC Communications Inc., San Antonio, and Ameritech Corp., Hoffman Estates, Ill. The now-approved merger is full of negotiated concessions the FCC could never have gotten through straight-up regulation. Cleland expects similar workouts in the proposed merger of Bell Atlantic Corp., New York, and GTE Corp.
Such competitive progress could force Republican lawmakers to rethink their attacks on the FCC. Now that the Telecom Act stands a strong chance of being successfully implemented, sources say, they may have to back off and leave well enough alone.
