The Failure of Competition under the 1996 Telecommunications Act

By Kimmelman, Gene; Cooper, Mark et al. | Federal Communications Law Journal, June 2006 | Go to article overview

The Failure of Competition under the 1996 Telecommunications Act


Kimmelman, Gene, Cooper, Mark, Herrera, Magda, Federal Communications Law Journal


  I.  INTRODUCTION
 II.  BY THE NUMBERS: FEEBLE COMPETITION
III.  THE FUTURE
 IV.  CONCLUSION

I. INTRODUCTION

The Telecommunications Act of 1996 ("1996 Act") replaced the regulatory framework of a monopoly era with a radical deregulatory approach that promised new consumer benefits through competitive market forces. This new competition has never arrived, in large part because politicians, regulators, and antitrust officials have allowed the telephone and cable companies to kill it. As a result, consumers are faced with few choices and high prices for many telecommunications services in today's marketplace.

Supporters of the 1996 Act assumed that deregulation would spur competition--even in markets where competition has never existed or was just unfolding--and prematurely relaxed ownership limitation, while regulators allowed mergers based on theoretical and potential competition that never materialized. (1) This anticompetitive atmosphere has led to consolidation in the form of mergers that most recently eliminated the two largest competitors of the already consolidated Bell giants and possibly permanently undermined the last vestige of good intentions behind the 1996 Act. Instead of the predicted nirvana of a free and open market with numerous options for consumers and flourishing technology, we have concentration and little marketplace choice.

Today, virtually all consumers have at most two choices for a full package of telecommunications services: the local telephone company or the cable company. (2) After more than a decade, the cable and telephone industries remain highly concentrated, and the numbers tell the story. Cable operators still have a seventy-two percent market share of the multichannel video market. (3) Telephone companies have an eighty-five percent share of local telephone subscribers, (4) seventy-five percent of long distance, (5) and more than fifty percent of wireless customers. High-speed Internet appears to be split more evenly between the local cable and telephone companies 60-40, but if one takes into account advanced services, it is closer to 80-20 in favor of cable. (7)

The "cozy duopolies" that have been created have not brought benefits to large segments of the consumer market on price or innovation. (8) In video, consolidation and anticompetitive bundling of programming has led to cable rates increasing almost three times faster than the rate of inflation. (9) Even satellite subscriber growth has failed to check these huge increases. For the first time since the 1984 AT&T break-up, long-distance prices for low-volume phone users have been on the rise. The enormous price reductions for all phone revenue may be coming to an end as long-term contracts, early termination fees, and stagnating prices for low-volume options persist. (10)

Each cable or telecommunications giant has protected its own base of services while staying out of others' service territory. In addition, they have bundled services (e.g., cable with broadband) in order to keep potential competitors, such as satellite service providers, at bay. This has resulted in a lack of service options for consumers. Instead of paying and getting the exact services they want, they must instead purchase packaged services--Digital Subscriber Line ("DSL") tied to local phone service, or cable modem service tied to a cable video package. Getting the benefits of a discounted bundle causes the average household to expend much more for a cluster of services, some of which they may or may not use. This is definitely not the competitive landscape that Congress intended when it passed the 1996 Act.

II. BY THE NUMBERS: FEEBLE COMPETITION

After passage of the 1996 Act, it was assumed that competition would flourish among telecommunications companies. As explained in the Wall Street Journal, "By sweeping away decades of regulation, Washington thought it was paving the way for a free-for-all among the [Bell companies], long-distance carriers, cable operators and other telecommunications providers. …

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