Time for a New Telecom Act, Part 1

capitalNothing is ever certain in the regulatory world, but it looks like there is a good chance that we will see a new telecom act this year. There are certainly parts of the old Telecommunications Act of 1996 that need to be refreshed and there are a lot of new topics like broadband, OTT and the IoT that need to be addressed by Congress. Today’s blog is going to review the old telecom act and tomorrow I will address the changes that I hope are included in any new act.

It’s hard to believe but the Telecommunications Act of 1996 was enacted 21 years ago. From a technological perspective that was almost the dark ages. 1996 was the year that AOL launched its unlimited dial-up product for $19.95 per month (before then subscribers paid by the minute). This drew millions of people to the Internet and convinced them to pay a monthly fee for access. DSL and cable modems were still in the lab and dial-up access ruled the world.

The main thrust of the 1996 Act was to create more competition with telephone service. Ma Bell had been broken up in 1984 which had resulted in long distance competition. Long distance rates dropped steadily over the years after divestiture. Congress decided that it was time to also create competition for dial tone. They recognized that the roadblock to competition was that the big telcos owned the vast majority of the copper lines going to homes and businesses and that nobody was likely to build a second telecom network.

So the Act implemented new rules to promote competition. Some of the changed mandated by the new Act were:

  • Creating a new regulatory category for telephone competitors that was labeled CLEC (Competitive Local Exchange Carrier).
  • Requiring the big telcos to ‘unbundle’ their copper network. This meant that they had to provide access to their copper plant to CLECs. To accomplish this the FCC mandated that CLECs had the right to interconnect to the big telco networks and to collocate in their central offices when necessary.
  • Mandating that the big telcos offer up telecom services for resale. They basically had to sell bulk services to competitors who could then sell them to customers.
  • Requiring that anybody that wanted to build new network be given access to poles and conduits and be allowed to connect to telco network at any reasonable place of their choosing.

The Act was immediately successful and unleashed a flurry of competitive activity. Giant new CLECs were formed that collocated in telco offices gained access to copper loops. The most popular product was the unbundled T1 that allowed new competitors to sell data and telephone services to businesses over one connection. There were also giant companies formed to tackle resale. I recall that one of my clients in those days, Talk America, got over one million residential customers by reselling local phone service along with cheap long distance. Many consultants were formed to help the new competitive companies including my company, CCG Consulting.

The Act also brought about many other changes, some of the most significant being:

  • The regional Bell companies were allowed to get into the long distance business and compete against AT&T.
  • The Act granted the FCC the right of preemption to allow it to override conflicting state rules.
  • The Act created intercarrier compensation for paying for the exchange of traffic between telcos and CLECs.
  • The Act also shook up the Universal Service Fund and made compensation more directly cost-based.
  • The Act also tackled a number of other regulatory issues such as preempting telecom services from franchise fees, establishing rules to define obscene programming, and enabling the over-the-air transmission of digital TV signals.

In many ways the 1996 Act was a big success. Prices for telecom services plummeted in subsequent years. But over time the effective lobbying of the large telcos reversed some of the aspects of the Act, like resale and the unbundling of dark fiber. The Act also did not foresee the explosion of cellphones and of landline broadband and those industries have never gotten the same level of regulatory scrutiny that applies to telephone service. There are still CLECs today making a living by providing DSL over telephone copper. But the increasing needs for faster broadband speeds is starting to make that technology irrelevant and it’s definitely time to consider a new Act to deal with today’s issues.

One thought on “Time for a New Telecom Act, Part 1

  1. A couple of thoughts on the Telecom Act of 1996…

    — There was a book that we bought for one of the courses at George Washington Univ. (Graduate Telecom Prog., 1998) that was written analyzing the Communications Act of 1934. The author came to speak to us in 1996 about the now brand new Act, and author lamented that Congress had just turned his book into “… a boat anchor”;

    — A couple of years later, one of my prof. colleagues nicknamed the new Telecom Act the “Lawyer Full-Employment Act”… For years its passing, there were a plethora law suits…

    Like

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