1. The Use and Abuse of the Carterfone Principle
James B. Speta
Northwestern University Law School
Santa Clara – Carterfone Conference
October 17, 2008

2. OR

3. Why $2.99 for that Michigan Marching Band ringtone was an OK price

4. What Is The “Carterfone Principle”?
Narrow Carterfone decision
Broader Carterfone meme
Problems:
Disconnect between its current use and the premises of the FCC’s decision
Broader meme requires fuller analysis

5. The Carterfone Principle Today
Carterfone is innovation policy; it drives decentralized innovation.
Carterfone embodies a nondiscrimination rule, preventing carriers from engaging in inevitable discrimination.
Carterfone was a great success, and future successes are likely

6. FCC
Net neutrality policy statement: “To encourage broadband deployment and preserve and promote the open and interconnected nature of the public Internet, consumers are entitled to connect their choice of legal devices that do not harm the network.” [fn Carterfone]
700 MHz C Block Open Access conditions

7. The Original Dispute
The Carterfone

8. The AT&T Philosophy
One Policy, One System, Universal Service

9. The FCC’s Decisions Following on Hush-a-phone
Carterfone is different, because it’s an interconnection device
FCC holds
Unjust and unreasonable tariff preclusion
Originally – but not ultimately – finds a nondiscrimination violation

10. FCC does not address economic arguments (not presented)
“We agree that economics effects upon a carriers’ rate structure might well be a public interest question”
The decision did not order interconnection
“Our decision does not have the asserted effect of delineating any particular interconnections as permissible.”

11. Current Fight over the Principle
Broader meme combines Carterphone, Part 68, Computer III, Execunet, Breakup ...
Generally turns on controlling monopoly incentives to discriminate
Typical response: no monopoly

12. Missed Context
Carterfone decision better thought of as a “scope of regulated network” decision
Arose specifically in a tariff review situation
With specific statutory authority
Consistent with fight over monopoly power/incentives to discriminate

13. But fuller context recalls that regulated monopolies . . .
Had public service obligations, and
Were entitled to revenue protection
Cost of service regulation
Controlled monopoly pricing
But also ensured the generation of revenue sufficient to meet public service obligations and to attract capital

14. 1967 conclusion of AT&T rate proceeding: “the requirements of the public interest in just and reasonable rates [includes] that rate of return which will sustain the financial integrity of respondents' business and enable them to attract capital”

15. Contrary examples Limitations on interconnection
Persistent regulatory price discrimination
Scope of service disputes

16. Conclusions Narrow Carterfone tells us very little
Carterfone meme tells us little more, except about control of monopoly
Regulated industries rate-making context suggests analogic application is suspect
Fuller competition analysis required

17. That fuller analysis will find it hard to extend Carterfone principles
Market is not mature
Market is competitive