Telecommunications Act of 1996 - Policy Considerations of New Environment

Policy Considerations of New Environment

The regulatory framework created by the 1996 Act was intended to foster “intramodal” competition within distinct markets, i.e. among companies that used the same underlying technology to provide service. For example, competition was envisioned between the incumbent local and long distance wireline carriers plus new competitive local exchange carriers, all of which used circuit-switched networks to offer voice services.

It did not envision the intermodal competition that has subsequently developed, such as wireless service competing with both local and long distance wireline service, VoIP competing with wireline and wireless telephony, IP video competing with cable television. Providers from separate regulatory regimes have been brought into competition with one another as a result of subsequent deployment of digital broadband technologies in telephone and cable networks. Voice and video services can now be provided using Internet protocol and thus might be classified as unregulated information services, but these services compete directly with regulated traditional voice and video services. Moreover, these digital technologies do not recognize national borders, much less state boundaries.

Given the focus on intramodal competition and the lack of intermodal competition, there was little concern about statutory or regulatory language that set different regulatory burdens for different technology modes. As a result, the current statutory and regulatory framework may be inconsistent with, or unresponsive to, current market conditions in several ways:

• Service providers that are in direct competition with one another sometimes may be subject to different regulatory rules because they use different technologies. Some examples are:

• For certain long distance calls, if the caller uses a wireless telephone number, the caller’s wireless carrier is subject to a cost-based “reciprocal compensation” intercarrier compensation charge for the termination of that call. But if the caller made an identical call, from the same location to the same called party, using a wireline telephone (and hence a wireline long distance carrier), that carrier would be subject to above cost “access charges” for the completion of the call.

• When a long distance call is made to a called party’s wireline telephone, that party’s wireline local exchange carrier can charge the calling party’s long distance carrier an above-cost access charge for terminating the call; but if an identical long distance call were made to ths same called party, from and to the same physical location, but to the called party’s wireless telephone, the called party’s wireless carrier is not allowed to charge the calling party’s long distance carrier any access charge for terminating the call. Indeed, the average intercarrier compensation rate ranges from 0.1 cents per minute for traffic bound to an information service provider (“ISP”) to 5.1 cents per minute for intrastate traffic bound to a subscriber of a small (rural) incumbent local exchange carrier; individual rates can be as low as zero and as high as 35.9 cents per minute — even though in each case basically the same transport and switching functions are provided. (See CRS Report RL32889, Intercarrier Compensation: One Component of Telecom Reform, at pp. 2-5.)

• the Federal Universal Service Fund is funded through an assessment on interstate telecommunications service revenues that exceeds 10% (the exact assessment rate varies from quarter to quarter); information services, even if they compete directly with the interstate telecommunications services, are not assessed.

• Economic regulations intended to protect against monopoly power may not be fully taking into account intermodal competition.
• The framework may not effectively address interconnection, access, and social policy issues for an IP architecture in which multiple applications ride on top of the physical (transmission) network layer.

Generally speaking, the number of broadband networks is limited by cost constraint—huge, sunk, up-front, fixed costs—which do not apply to applications providers. In this new environment, there will be three broad categories of competition:

1. intermodal competition among a small number of broadband network providers that offer a suite of voice, data, video, and other services primarily for the mass market;

2. intramodal competition among a small number of wireline broadband providers that serve multi-locational business customers who tend to be located in business districts; and

3. competition between these few broadband network providers and a multitude of independent applications service providers. (In addition, there will continue to be niche providers that offer consumers users competitive options for specific services.)

These three areas of competition will all be affected by a common factor: will there be entry by a third broadband network to compete with the broadband networks of the local telephone company and the local cable operator?

There are four general approaches to the regulation of broadband network providers vis-a-vis independent applications providers (At present, the FCC follows the last two approaches):

1. structural regulation, such as open access;
2. ex ante non-discrimination rules;
3. ex post adjudication of abuses of market power, as they arise, on a case-by-case basis;
4. and reliance on antitrust law and non-mandatory principles as the basis for self-regulation.

There is consensus that the current universal service and intercarrier compensation mechanisms need to be modified to accommodate the new market conditions. For example, the current universal service funding mechanism is assessed only on telecommunications services, and carriers can receive universal service funding only in support of telecommunications services. Thus, if services that had been classified as telecommunications services are re-classified as information services, as recently occurred for high-speed digital subscriber line (“DSL”) services, then the universal service assessment base will decline and carriers that depend on universal service funding may see a decline in support. It therefore may be timely to consider whether the scope of universal service should be expanded to include universal access to a broadband network at affordable rates, not just to basic telephone service.