Ten Years under the 1996 Telecommunications Act

By Hundt, Reed E. | Federal Communications Law Journal, June 2006 | Go to article overview

Ten Years under the 1996 Telecommunications Act


Hundt, Reed E., Federal Communications Law Journal


Approximately every two years, on average, Congress makes significant changes in the nation's rule of law governing the communications and media industries. Sometimes the changes express direct commands, but more often than not, the new laws express intent to achieve a general goal through specific regulation.

The Telecommunications Act of 1996 ("1996 Act") contained, for instance, the direct command, in effect, to allow rapid and major consolidation of the radio industry. Even direct commands do not necessarily produce the outcomes sought. A few companies did consolidate the terrestrial radio industry under a few roofs. That consolidation did substantially limit the possibility of a liberal radio network and might have been intended for this purpose by Congress. However, the Federal Communications Commission ("FCC") quite consciously offset the congressional desire to cement a conservative point of view in radio by creating two national satellite radio firms that each would have enough channel capacity to carry diverse viewpoints for purely economic reasons. And so it came to pass that eventually Karmazin took his managerial genius to the very high tower called a satellite, and Stern inevitably followed.

The FCC more directly determines outcomes when the congressional mandate is more directional than specific. In the 1996 Act, Congress intended to allow the Bell companies to escape the Modified Final Judgment by entering the long-distance fixed-line voice market and in return intended to have AT&T and MCI enter the historically lawfully monopolized local fixed-line voice market. These two markets were both very large. Presumably, it was imagined by some in Congress that pursuant to the statute, a high-stakes musical chairs game would result. Presumably, the drafters believed that the competition in each other's adjacent market would lead to an equilibrium by which--to give a hypothetical example--AT&T would have 40% of the long-distance ("LD") market and 30% of the local market, and in any geographical market, the competing Bell would have 30% of the LD market and 40% of the local market.

This was the central focus of the 1996 Act. The result I have outlined was at all times improbable. Technological change and adjacent market entry produced different strategic challenges than the statutory drafters apparently presumed. Intrusive and Jarndycean--and what a Bleak House indeed!--judicial intervention delayed crucial timing for market entry by the interexchange carriers ("IXCs"). Regulatory policy flip flops at the FCC in 2001and 2002 played a big role in the outcome. Strategic blunders by AT&T, corruption at MCI, and wise moves at (then) SBC and Bell Atlantic were more important than any rule of law in determining the outcomes. But at all times, the more likely result was not the tottering seesaw balance imagined by some in Congress but a winner-take-all result in which either the local firms or the long-distance firms emerged after competition as winners, measured by return to shareholders and economic profit.

It has come to pass that all communications companies, not just telephone companies ("telcos") but all, including cable and wireless firms, have returned to shareholders about three times their money from 1995 to the present. That's a terrific result in terms of total return to shareholders. Some, like AT&T and MCI, destroyed value for shareholders in the decade. Competitive local exchange carriers ("CLECs") largely went from zero to a big number and back to nearly zero in a rapid cycle in the middle of the decade. However, the winners in American telecommunications emerged transformed and successful from a decade of change. The big story is that some communications companies successfully went into the adjacent markets of wireless and broadband, while a few failed to negotiate such entry in a timely or effective manner.

The success stories were only partly a function of the FCC's rule of law. …

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