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Telecommunications Act of 1996

On February 8, 1996 President Clinton signed into effect a law which passed both houses of Congress by overwhelming majorities and which will dramatically re-draw the landscape of telecommunications. The Telecommunications Act of 1996 (The Act) effectively supersedes the 1982 MFJ, removing line-of business restrictions and promising to allow full and open competition in virtually every aspect of communications—from radio broadcasting to CATV to local exchange and long distance. Ownership restrictions in large part will be lifted, allowing the carriers to invest, relate, merge, and acquire. Over time, some undoubtedly will retire. Rates will be deregulated, tariffs may be eliminated, and the regulator will take a back seat.

Lines of Business

The Act effectively removes the line-of-business restrictions imposed by national regulations since the early part of this century and strengthened by the MFJ. The RBOCs will be able to enter the long distance business, AT&T can compete as a LEC, they all can operate CATV businesses within and without their home states, they can manufacture products, and on, and on. In some cases, restrictions apply, at least until certain tests are satisfied.

Mergers and Acquisitions

The Act also lifts restrictions on ownership. In other words, LECs, IXCs. CATV, satellite, radio, TV, and wireless companies are free to merge, acquire and otherwise invest in each other without much in the way of restriction. Outside the world of telecommunications, strictly speaking, there has been a flurry of such activity for years as companies position themselves for the world of convergence (Chapter 15). Disney purchased Capital Cities/ABC and Time Warner bid for Turner Broadcasting. US West invested in Time Warner and has plans to acquire Continental Cablevision. AT&T invested in DirecTV, PacTel acquired Western Wireless, AT&T became an Internet Service Provider, and so on.

Since The Act passed, the emphasis has shifted, with SBC (Southwestern Bell) having acquired Pacific Telesis, and Bell Atlantic having bid for NYNEX. While both deals hinge on approvals from stockholders and regulators, they signal a dramatic increase in the pace of the race. Both deals are discussed in more detail later in this chapter.

Media ownership restrictions were eased as well. A company still is restricted in a single local market from owning two TV stations, or a newspaper and TV station, or a newspaper and CATV operation, or a CATV operation and broadcast TV station. However, the act does increase the stations which can be owned to a number which does not exceed 35% of the total national market.

Rules and Implementation

The FCC, despite a 10% budget cut, has a truly overwhelming task ahead. In the short term, there are 80 to 90 implementation rules that must be defined within the first six months. In the longer term (within 18 months of enactment) these rules must be revisited, tweaked, and fully implemented. In order to speed the process, the FCC rapidly released paper and electronic (WWW) Notices of Proposed Rulemaking (NPRMs). Respondents are severely limited to the length of their responses on the first round, and the second round of responses are even more limited, despite the fact that the NPRMs are quite lengthy. Additionally, response times are very short.

Included in the issues of significance are the Universal Service Fund, rules under which the LECs will be allowed to offer long distance service in their home states, interconnection between incumbent and competing carriers, and rights of way.

Universal Service

This remains an issue without a complete answer. The current Universal Service Fund (USF) involves about $17 billion a year to be paid directly to the LECs by IXCs and end users. The USF is designed to support the provisioning of life-line service to those who can’t afford the cost of basic telephone service. It also is intended to subsidize the cost of providing service to high-cost areas, defined as areas where the cost of providing service is at least 115% of the national average—in large part, it is a national cost averaging scheme designed for the benefit of society, in general [16-7] and [16-8].

In all likelihood, the USF will be spread over not only end users and IXCs, but also over providers of CATV, cellular and PCS services, as well as others who compete to provide voice and data services. Especially given the recent development of voice over the Internet, the Internet Service Providers (ISPs) and backbone providers likely will be asked to ante-up, as well. In fact, Internet access may well be defined as a basic service subject to support from the USF. The Act contains provisions for data service to every region in support of education, healthcare, and libraries.


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