Enhancing Competition: Are Proposed Federal Communications Commission Rules That Treat Local Exchange Carrier Access to Multiple Tenant Environments a Taking?

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The Telecommunications Act of 1996 (1996 Act) (1) marks a fundamental change in the attitudes of Congress and the Federal Communications Commission ("FCC") toward local telephone exchange carrier policy. (2) While signing the 1996 Act into law, President Clinton said, "[T]oday, with the stroke of a pen, our laws will catch up with our future. We will help to create an open marketplace where competition and innovation can move as quick as light." (3) The 1996 Act codifies a reversal in philosophy from an assumption that local exchange carders ("LECs") are natural monopolists, to a belief that market forces are the best mechanism for prompting innovation and service expansion while maintaining fair rate structures for consumers and resellers. (4) This change has impacted LECs in many ways, including their relationships with the owners of multiple tenant environments ("MTEs"), such as office buildings and apartment complexes. (5)

Under the 1996 Act, FCC rulemaking increased access of competitive local exchange carriers ("CLECs") to the facilities of incumbent local exchange carriers ("ILECs") by removing competition barriers. (6) Owners of MTEs, however, can also act as barriers to LEC competition. (7) Here, the possible regulatory responses are less clear and more problematic. One answer is to directly regulate MTE owners by requiring that they not enter into exclusive contracts with LECs. There is concern, however, that this response fails to adequately open the market to competition. The FCC proposed directly imposing a nondiscrimination requirement on MTE owners. (8) In fact, the FCC has little or no authority over non-telecommunications providers. Indeed, for many years the FCC left customer premises issues to the marketplace, or state regulatory authority. (9) As an alternative measure, the FCC proposed a more indirect regulatory approach that would forbid LECs from "dealing with MTE owners who maintain a discriminatory policy against competing carriers." (10) However, these additional proposals raise both statutory and constitutional concerns.

This Note will first review the general purpose behind the 1996 Act. It will then outline the history of LEC access to MTEs under the 1996 Act. Finally, this Note will examine three questions related to proposed FCC rules for nondiscriminatory LEC access to MTEs: The first question is whether the FCC may prevent MTE owners from adhering to discriminatory policies towards LECs through direct regulation without resulting in a taking. The second question is whether the FCC may alternatively prevent MTE owners from adhering to discriminatory policies towards LECs indirectly through regulations preventing LECs from contracting with landlords who are unwilling to act in accordance with the pro-competition spirit of the 1996 Act, or whether this would also result in a regulatory taking. The final question is whether regulation of access to MTEs is required to enhance competition, and if it is counterproductive to the goals underlying the proposed rules.


A. The Telecommunications Act of 1996

As a result of the 1996 Act, at the time hailed as the harbinger of a new era of local exchange competition, the FCC began a process of extensive rulemaking in order to implement the wide-ranging provisions of the 1996 Act. (11) This reflects a belief that the change from a highly regulated system to a market-driven system cannot occur without an intermediary period guided by new rules. (12) Whether this belief is accurate or not, it is apparent that the 1996 Act will "fundamentally change[] telecommunications regulation" by supplanting earlier policies that sheltered monopolies with the support of efficient competition. (13)

The dual (and to a degree conflicting) purposes behind the 1996 Act, as it relates to telephony, were to increase the scope, access, and coverage of a nationwide telephone service (14) and to promote competition in all aspects of telephone services. …


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