Hundt Says Telecom Act's Key Principle Is 'Mandatory Sharing' of Incumbent Networks
The central purpose of the 1996 Telecom Act was “mandatory sharing” of monopoly phone networks, said Reed Hundt, who was FCC chairman when the act took effect. Such sharing was needed to help new entrants address upfront costs and the “network effects” of ubiquitous Bell systems serving existing customers, he said Tuesday night, calling the concept still relevant to telco and cable broadband providers. "Mandatory sharing was the mandate of the act,” he said in a speech opening an FCBA CLE on the act, one of many such events (see 1602110030, 1602080062 and 1602090048) for the law that turned 20 last week. The FCC didn’t get everything right in its initial implementation, “but we didn’t get it all wrong,” said Hundt.
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Hundt paid tribute to late Supreme Court Justice Antonin Scalia for recognizing and seeing through the act’s ambiguities and internal contradictions (see 1602160070). Hundt noted then-Sen. John Breaux, D-La., wished him “good luck” implementing an act with many conflicting mandates. Scalia nevertheless understood the act’s overarching purpose was to encourage competition in all markets, including those controlled by local Bell monopolies, Hundt said.
Hundt’s citation of the act's preamble sparked a response from former Commissioner Harold Furchtgott-Roth, now a fellow at the Hudson Institute. The preamble says: “To promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies.” Hundt said promoting competition was the primary objective while reducing regulation was secondary.
“I wrote the preamble,” said Furchtgott-Roth, who was then a House Commerce Committee staffer. He said he was the “mad dog” of the conference committee that reconciled the House and Senate versions. When conferees sought a preamble, he said he drafted it in about 20 minutes. It was “precious” to hear Hundt opine on the preamble’s real meaning, laughed Furchtgott-Roth, who noted there were probably many others who claimed authorship of the much-cited preamble. He credited Hundt, as he had at another anniversary event, with providing strong leadership in implementing the act, even though he didn’t like much of what Hundt did.
Hundt lauded Scalia for giving the FCC deference and ruling in favor of most of its initial local phone competition rules in the majority opinion of AT&T v. Iowa Utilities Board. Unfortunately, Scalia didn’t uphold the commission on its standard for giving local phone competitors access to incumbent “unbundled network elements” at wholesale discounts, said Hundt: “He kept the litigation door open and lots of people came through it.” The incumbent telcos eventually convinced the U.S. Court of Appeals for the D.C. Circuit to prod a subsequent FCC to pull back the unbundling rules, which facilitated the Bell takeovers of the two largest long-distance carriers, AT&T and MCI Worldcom, Hundt said.
Mandatory sharing remains important in the broadband debate, even if it doesn't involve unbundling, because content and edge providers need access to the customers of telco and cable ISPs, Hundt said.
Hundt said the FCC should generally adhere to its statutory interpretations, particularly when they gain court deference, because otherwise the whims of shifting political leadership would undermine regulatory predictability. To the extent policies need to evolve, he said regulators are in a better position than judges to address the constant technological change. But Furchtgott-Roth said judicial deference invited regulators to reverse course when leadership changes: “You could have a new chairman who goes in a very different direction.”
The FCC unbundling regime failed for three primary reasons, said Phoenix Center President Larry Spiwak, an ex-staffer at the agency. He said the economics of the “last mile” weren't well understood; local incumbents saw the regime as hostile to their interests and fought it in many ways; and policymakers didn’t adequately “account for the future,” including the rise of cable VoIP.
Harris Wiltshire attorney Chris Wright, a former FCC general counsel, said litigation prevented the agency’s local competition framework from being fully implemented for many years, and then choked off key rules. He noted SBC (now AT&T) even convinced a federal judge to throw out Section 271’s Bell local market-opening requirements as an unconstitutional bill of attainder, before that decision was overturned on appeal. One change that he said could have made a difference would have been for the statute to require regional Bells to enter each other’s local markets as a condition for gaining long-distance entry. “That would have changed the incentives,” he said.
Kellogg Huber commercial-litigation lawyer John Thorne said the act was a big improvement over the court-supervised regime that followed the 1984 breakup of the old AT&T/Bell local and long-distance phone monopoly. The Bells had to get “permission slips” from U.S. District Judge Harold Greene for even minor actions, said Thorne, who worked for Bell Atlantic then. “It was so frustrating,” he said.
Covington & Burling communications lawyer Gerry Waldron said he drafted many telecom bills as a House aide “that went nowhere” after the 1984 breakup. But he said the legislative efforts gained momentum with enactment of a cable act in 1992 and spectrum provisions in a 1993 budget act, and House passage of a telecom act in 1994. When Republicans took over Congress in 1995, they largely took the previous bill and “flipped it” from “60-40 one way” to “60-40 the other way,” he said. Commerce committee members "passed big telecom bills and they did it on a bipartisan basis.”
Former FCC staffers Jim Casserly and Anna Gomez said implementation efforts were “intense.” Casserly, a Willkie Farr cable attorney, said “it was insanely intense.” It was common to work 16- to 17-hour days, he said. But commissioners and FCC staff had a sense of mission, “rose to this challenge" and "put the greater good” above personal policy preferences, he said. “There was no shortage of people telling us what to think,” so the commission’s job was to sort out arguments and make timely decisions under the act, he said: The FCC "didn’t have the luxury of dithering.”
Casserly said the factors that led to the act “are not present now.” He said major industry sectors all had major asks of Congress in 1996 and lawmakers were able to deliver. “In a sense, they were able to give goodies to everyone,” he said. Waldron partially agreed, saying industry parties in 1996 were seeking changes “to get into lines of business” while parties now seek more modest “puts and takes.”
If Congress could do one thing now, Casserly said it should extend FCC regulatory forbearance authority to Titles III (on radiocommunications) and VI (on cable) of the Communications Act. Thorne urged lawmakers to build on two Telecom Act principles that have worked, by broadening federal pre-emption of state restrictions to Internet application providers and ensuring interconnection.