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The University of Chicago

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Presentation on theme: "The University of Chicago"— Presentation transcript:

1 The University of Chicago
12/29/2018 Class 5 Network Industries, Spring, Unbundling under the 1996 Telcom Act Randal C. Picker James Parker Hall Distinguished Service Professor of Law The Law School The University of Chicago Copyright © Randal C. Picker. All Rights Reserved.

2 NY Times, Dec 20, 1913 (Kingsbury Commitment)
December 29, 2018

3 December 29, 2018 NY Times, Dec 20, 1913

4 December 29, 2018 NY Times, Dec 20, 1913

5 December 29, 2018 NY Times, Dec 20, 1913

6 December 29, 2018 NY Times, Dec 20, 1913

7 December 29, 2018 NY Times, Dec 20, 1913

8 December 29, 2018 NY Times, Jan 25, 1956

9 December 29, 2018 NY Times, Jan 25, 1956

10 December 29, 2018 NY Times, Aug 4, 1983

11 Unbundling Local and Long Distance
12/29/2018 Unbundling Local and Long Distance Long Distance Success Story Separate local calling from long distance Microwave entry—facilities-based entry—as starting point Creates lots of competition in long distance Mental model for 1996 Act approach December 29, 2018

12 Telco Act Structure 1996 Act Basic Idea Passed February 8, 1996
12/29/2018 Telco Act Structure 1996 Act Passed February 8, 1996 Kills off the Modified Final Judgment Basic Idea Instant competition by reducing state law entry barriers Limited, targeted entry while offering full-slate of services December 29, 2018

13 Telecommunications Act of 1996 (Pub. L
Telecommunications Act of 1996 (Pub. L (110 Stat 56)) (Feb ) December 29, 2018

14 1996 Act’s Local Competition Framework
12/29/2018 1996 Act’s Local Competition Framework Three Key Changes Kills State Entry Barriers Feds preempt state entry barriers (47 USC 253(a)) Quarantine RBOCs Can’t enter long distance unless facilities-based local competitor exists (47 USC 271) December 29, 2018

15 1996 Act’s Local Competition Framework
12/29/2018 1996 Act’s Local Competition Framework Incumbent Local Exchange Carrier Access Rules (47 USC 251(c)) Interconnection Exchange and completion of telephone calls Unbundling More on this Resale Offer telecommunications services for resale at wholesale rates December 29, 2018

16 47 USC 251(c)(1): Negotiation Obligation
December 29, 2018 47 USC 251(c)(1): Negotiation Obligation

17 47 USC 251(c)(2): Interconnection
December 29, 2018 47 USC 251(c)(2): Interconnection

18 47 USC 251(c)(3): Unbundled Access
December 29, 2018 47 USC 251(c)(3): Unbundled Access

19 December 29, 2018 47 USC 251(c)(4): Resale

20 47 USC 251(d)(1&2): Timing of Rules and Access Standards
December 29, 2018

21 47 USC 153(45) [29]: Definition of “Network Element”
December 29, 2018

22 47 USC 252(a)(1): Negotiated Prices w/State PUC Submission
December 29, 2018

23 47 USC 252(b)(1): Mandatory Arbitration before State PUC
December 29, 2018

24 47 USC 252(c): Arbitration Standards
December 29, 2018

25 47 USC 252(d)(1): Pricing Standards for Interconnection and Network Elements
December 29, 2018

26 47 USC 252(d)(3): Wholesale Price Standards
December 29, 2018 47 USC 252(d)(3): Wholesale Price Standards

27 FCC 1st Report and Order (1996)
December 29, 2018 FCC 1st Report and Order (1996)

28 FCC 1st Report and Order (1996), ¶ 282 (definition of “necessary”)
December 29, 2018

29 FCC 1st Report and Order (1996), ¶ 283 (definition of “necessary”)
December 29, 2018

30 FCC 1st Report and Order (1996), ¶ 283 (definition of “necessary”)
December 29, 2018

31 FCC 1st Report and Order (1996), ¶ 285 (definition of “impair”)
December 29, 2018

32 FCC 1st Report and Order (1996), ¶ 285 (definition of “impair”)
December 29, 2018

33 Part 319 Unbundling Requirements
December 29, 2018 Part 319 Unbundling Requirements

34 Defining Unbundled Network Elements
12/29/2018 Defining Unbundled Network Elements Rule 319 The network consists of seven pieces according to Rule 319: local loops; network interface devices; switching capability; interoffice transmission facilities; signaling networks and call-related databases; operator support systems functions; and operator services and directory assistance. December 29, 2018

35 Iowa Utilities, 525 US 366 (1999) Question
Does the FCC’s interpretation of “necessary” and “impair” under Section 251(d)(2) survive Chevron deference? December 29, 2018

36 Necessary: Three Approaches
12/29/2018 Necessary: Three Approaches Essential Facilities as Physical Necessity Impossible physically to build new element Economic Necessity Yes, a new facility could be built, but it could not be sustained economically. Empty core situations December 29, 2018

37 Necessary: Three Approaches
12/29/2018 Necessary: Three Approaches Policy Necessity Yes, it could be sustained economically, but it would take many years, and that would delay local competition substantially December 29, 2018

38 FCC 3rd Report and Order (1999)
December 29, 2018 FCC 3rd Report and Order (1999)

39 FCC 3rd Report and Order (1999)
December 29, 2018 FCC 3rd Report and Order (1999)

40 FCC 3rd Report and Order (1999) (self-provisioning included per Sup Ct)
December 29, 2018

41 FCC 3rd Report and Order (1999) (self-provisioning included per Sup Ct)
December 29, 2018

42 Verizon, 535 US 467 (2002) Question Does the FCC’s interpretation of “cost” under Section 252(d)(1) survive Chevron deference? December 29, 2018

43 12/29/2018 UNE Pricing: 47 USC 252(d)(1) Determinations by a State commission of the just and reasonable rate for the interconnection of facilities and equipment for purposes of subsection (c)(2) of section 251 of this title, and the just and reasonable rate for network elements for purposes of subsection (c)(3) of such section-- December 29, 2018

44 UNE Pricing: 47 USC 252(d)(1) (A) shall be--
12/29/2018 UNE Pricing: 47 USC 252(d)(1) (A) shall be-- (i) based on the cost (determined without reference to a rate-of-return or other ratebased proceeding) of providing the interconnection or network element (whichever is applicable), and (ii) nondiscriminatory, and (B) may include a reasonable profit. December 29, 2018

45 Sec. 252(d)(1) Rewrite I (A) shall be--
12/29/2018 Sec. 252(d)(1) Rewrite I (A) shall be-- (i) based on the historical cost of providing the interconnection or network element (whichever is applicable), and (ii) nondiscriminatory December 29, 2018

46 Sec. 252(d)(1) Rewrite II (A) shall be--
12/29/2018 Sec. 252(d)(1) Rewrite II (A) shall be-- (i) based on the replacement cost of providing the interconnection or network element (whichever is applicable), and (ii) nondiscriminatory December 29, 2018

47 FCC 1st Report and Order (1996), ¶ 618 (pricing framework)
December 29, 2018

48 FCC 1st Report and Order (1996), ¶ 620 (buy vs
FCC 1st Report and Order (1996), ¶ 620 (buy vs. build and forward-looking costs) December 29, 2018

49 FCC 1st Report and Order (1996) (pricing regulations)
December 29, 2018 FCC 1st Report and Order (1996) (pricing regulations)

50 FCC 1st Report and Order (1996) (pricing regulations)
December 29, 2018 FCC 1st Report and Order (1996) (pricing regulations)

51 FCC 1st Report and Order (1996) (pricing regulations)
December 29, 2018 FCC 1st Report and Order (1996) (pricing regulations)

52 FCC 1st Report and Order (1996) (pricing regulations)
December 29, 2018 FCC 1st Report and Order (1996) (pricing regulations)

53 FCC 1st Report and Order (1996) (pricing regulations)
December 29, 2018 FCC 1st Report and Order (1996) (pricing regulations)

54 Buy v. Build Hypo Facts Question
12/29/2018 Buy v. Build Hypo Facts Cost $1000 to build facility yesterday Costs $500 to build same facility today Will cost $100 to build same facility tomorrow, if we build the facility today. Question What price should an entrant face to use the existing facility? December 29, 2018

55 Buy v. Build Hypo Framework
12/29/2018 Buy v. Build Hypo Framework This is learning by doing in the possible presence of spillovers. (See Tirole, The Theory of Industrial Organization, (1988).) December 29, 2018

56 2nd Set Overturned in USTA I, 290 F3d 415 (DC Cir 2002)
Says the Court re the FCC’s 2nd Set of Rules “As to almost every element, the Commission chose to adopt a uniform national rule, mandating the element's unbundling in every geographic market and customer class, without regard to the state of competitive impairment in any particular market.” December 29, 2018

57 Overturned in USTA I, 290 F3d 415 (DC Cir 2002)
Says the Court “As a result, UNEs will be available to CLECs in many markets where there is no reasonable basis for thinking that competition is suffering from any impairment of a sort that might have the object of Congress's concern.” Issued on May 24, 2002 (Verizon out on May 13, 2002) December 29, 2018

58 December 29, 2018 FCC Report and Order (2003)

59 FCC Report and Order (2003), ¶ 1
December 29, 2018 FCC Report and Order (2003), ¶ 1

60 FCC Report and Order (2003), ¶ 2, 3
December 29, 2018 FCC Report and Order (2003), ¶ 2, 3

61 December 29, 2018 FCC Report and Order (2003

62 Overturned in USTA II, 359 F3d 554 (DC Cir 2004)
Says the Court “We therefore vacate, as an unlawful subdelegation of the Commission’s § 251(d)(2) responsibilities, those portions of the Order that delegate to state commissions the authority to determine whether CLECs are impaired without December 29, 2018

63 Overturned in USTA II, 359 F3d 554 (DC Cir 2004)
Says the Court “access to network elements, and in particular we vacate the Commission’s scheme for subdelegating mass market switching determinations.” December 29, 2018

64 December 29, 2018 FCC Order on Remand (2005)

65 December 29, 2018 FCC Order on Remand (2005)

66 Blessed in Covad, 450 F3d 528 (DC Cir 2006)
Says the Court “The Federal Communications Commission has thrice attempted—unsuccessfully—to implement the “unbundling” provisions of the Telecommunications Act of This case involves a series of petitions for review of the FCC’s fourth attempt.” December 29, 2018

67 Blessed in Covad, 450 F3d 528 (DC Cir 2006)
Says the Court “Because we conclude the Commission’s fourth try is a charm, we deny all of the petitions for review.” Act Passed: Feb 8, 1996 4th Set of Rules Accepted: June 16, 2006 December 29, 2018

68 Phone Facts Landlines Wireless http://www.fcc.gov/wcb/iatd/comp.html
12/29/2018 Phone Facts Landlines Wireless Spectrum Chart December 29, 2018

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