1. How Do Legislation and Regulations Affect Telecommunications? Chapter 11 The Management of Telecommunications: Business solutions to Business Problems Second Edition Houston H. Carr and Charles A. Snyder

2. 2 Chapter 11 Introduction Part of the management of telecommunications resources relates to the legal environment.  Legal means the rules or laws under which we must operate.  Environment means that part outside the organization over which we have minimum control or no control, but which controls us.

3. 3 Chapter 11 Introduction The telecommunications industry has been dependent on standards and standardization from the very beginning.

4. 4 Chapter 11 Regulation through Feedback

5. 5 Chapter 11 Monopoly A monopoly is generally considered a bad practice. A monopoly can be achieved by superior performance or a proprietary product.

6. 6 Chapter 11 Natural monopoly The basic considerations for a natural monopoly, or public utility, are 1.The capital expenditure to create the entity is large; 2.Having redundant facilities, as would to be the case in competition, would unduly drain the resources of all competition (wasteful duplication); and 3.The service is required by many firms and individuals.

7. 7 Chapter 11 Natural monopolies There are two ways to handle natural monopolies:  Nationalize them and have full government operation or  Regulate them as privately owned industries.

8. 8 Chapter 11 Deregulation Deregulation returns control of the industry to the market forces of competition, generally followed by changes in prices. The intent of deregulating a portion of the telecommunications industry in the U.S. was to provide better, more economical service and new, more flexible products to telecom customers and to open the market to competitive forces.

9. 9 Chapter 11 Depreciation Depreciation is an accounting consideration to account for value under tax laws. Depreciation severely impacts the ability of owners to replace aging equipment.

10. 10 Chapter 11 Tariff A tariff is a list of regulated telecommunications services and rates to be charged. A tariff describes the service in detail, gives the rationale for offering it, and lists the price and basis for charging customers.

11. 11 Chapter 11 Example of tariffs for telecommunications services 1.Charge for time (long-distance call, based on time and distance) 2.Flat rate for full-time use (leased line) 3.Monthly minimum (phone bill) 4.Amount of data sent (packet data transmission)

12. 12 Chapter 11 Bypass A bypass is a system that goes around what would be considered normal telecommunications services.

13. 13 Chapter 11 Technologies Used in Bypass Telco facilitiesDigital termination systems Fiber optics facilitiesTeleports Microwave and satellitePrivate T1s Private WANsCellular telephone Shared Tenant Services (STS) Common carrier WANs and VANs Private Communications systems Alternate local loop providers (CATV)

14. 14 Chapter 11 Levels of Bypass

15. 15 Chapter 11 Public Service Commissions (PSCs) Public Service Commissions (PSCs) are the state regulatory agencies that agree to tariffs and assign utility franchises.  Also called Public Utility Commission (PUC)

16. Regulation, Deregulation, and Divestiture

17. 17 Chapter 11 The Sherman Act of 1890 The Sherman (Antitrust) Act of 1890 is the cornerstone of antitrust policy on the U.S. It is the first and most basic antitrust law. It resulted from a variety of social, economic, and political factors that came together at the end of the 1800s.

18. 18 Chapter 11 Primary Tenets of Sherman Antitrust Act a)Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal... b)Every person who shall monopolize or attempt to monopolize, or combine or conspire with other person or persons, to monopolize any part of trade or commerce among several States, or with foreign nations, shall be deemed guilty.

19. 19 Chapter 11 Graham Act Enacted in 1921 Recognized and legitimized AT&T’s natural monopoly and the monopolies of independent Telcos in their region Exempted the telecommunications industry from the provisions of the Sherman Antitrust Act. Lead to the concept of common carrier being applied to telecommunications industry.

20. 20 Chapter 11 Communications Act of 1934 Beginning in 1910, the Interstate Commerce Commission regulated wire communications. The Communications Act of 1934 created the Federal Communications Commission.

21. 21 Chapter 11 Communications Act of 1934 The Act states: “...for the purpose of regulating interstate and foreign commerce in communications by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient nationwide and worldwide wire and radio and communication service with adequate facilities at reasonable charges.”

22. 22 Chapter 11 Tariff responsibilities In the United States, tariffs within a state are handled by state agencies called  Public Utility Commissions (PUC), or  Public Service Commissions (PSC) When services described in the tariff cross state boundaries within the United States, the FCC is involved. In many other countries, one agency does both jobs  Postal, Telephone, and Telegraph (PTT) administration.

23. 23 Chapter 11 Universal Services Universal Services is a vision that everyone in the United States should have equal access to reasonably priced telephone service.

24. 24 Chapter 11 AT&T Consent Decree 1956 The AT&T consent decree was an out-of-court settlement between the U.S. Department of Justice and AT&T. Limited the activities Bell System companies to the telephone business. Limited Western Electric to the manufacture of equipment exclusively for Bell System companies. Kept AT&T and Bell systems out of data- processing activities.

25. 25 Chapter 11 Carterfone Decision of 1968 FCC decision allowed Carter Electronics Corporation to connect its mobile radio system to the Bell network. FCC concluded that the interconnecting device would not adversely affect the network. Decision opened the door to the interconnect industry.

26. 26 Chapter 11 MCI Decision In the late 1960s, Microwave Communications Incorporated (later called MCI) petitioned the FCC to be allowed to compete in exclusive full- time intercity telecommunications links to organizations (i.e. the long-distance market) The result of the MCI decision required phone companies to interconnect MCI and other long- distance carriers to local customers. Lead to the creation of long-distance carriers such as Sprint ® and MCI WorldCom ®.

27. 27 Chapter 11 Computer Inquiry I (CI-I) In 1971, the FCC stated that the telecommunications industry would remain regulated, but the data-processing industry would not. Had a significant impact on AT&T’s willingness to accept the consent decree.

28. 28 Chapter 11 Open Skies Policy of 1971 The Open Skies Policy ruled that anyone could enter into the communications satellite business. It said that if a person or firm has the money and there exists an opening in the particular part of the sky where they wanted to place a transponder, they could place a satellite in orbit and use or rent its channels.

29. 29 Chapter 11 Department of Justice Antitrust Suit U.S. Department of Justice filed an antitrust suit against AT&T because of the company’s dominance of the local and long-distance telephone networks. Out of this suit came the Modified Final Judgment and the divestiture and reorganization of AT&T.

30. 30 Chapter 11 Computer Inquiry II (CI-II) in 1981 One of most important reviews of the telecommunications industry. 1.Computer companies could transmit data on an unregulated basis 2.The Bell System was allowed to be in the data-processing (DP) market. 3.Customer premise equipment and enhanced services were deregulated. 4.Basic communications services would remain regulated.

31. 31 Chapter 11 Computer Inquiry II (CI-II) in 1981 5.No cross-subsidization of product lines was permitted 6.Enhanced services, that is, where some processing of the information being transmitted or some value was added, were not regulated. 7.LEC customers had equal access to all long-distance companies (IXCs). 8.The BOCs would deal in basic services, which would be tariffed and regulated, and excluded from the transportation of information and the manufacture of equipment 9.The Modified Final Judgment of 1982 was produced

32. 32 Chapter 11 Modified Final Judgment and Divestiture The breakup of AT&T was effective on January 1, 1984. AT&T retained long-distance and manufacturing capabilities They divested the operating companies and was released from the 1956 restriction on entering the consumer computer business.

33. 33 Chapter 11 Modified Final Judgment and Divestiture Divestiture separated 22 Bell Operating Companies (BOCs), known as the Bell System, from AT&T, and grouped them into seven Regional Bell Operating Companies (RBOCs). This involved the wired telephone system. BOCs and RBOCs have merged twice since 1984, recreating large areas of influence.

34. 34 Chapter 11 Local Access and Transport Areas (LATA) At the time of divestiture, the United States was divided into about equal geographic or population size. These areas are called local access and transport areas (LATAs). Services across LATA boundaries must be carried by Inter-exchange carries (IXCs).

35. 35 Chapter 11 Local Exchange Carriers (LECs) The Local Exchange Carrier (LEC) is the local telephone company (where local competition existed). The LEC in place at the time of divestiture is referred to the Incumbent LEC (ILEC). A telephone company entering a local area after the time of divestiture is called a Competitive LEC (CLEC).

36. 36 Chapter 11 Telecommunications Act of 1996 The first major telecommunications action since the Communications Act of 1934. The law made it possible for more businesses to enter the telecommunications market. Allows new services to be offered by new providers who were previously denied entrance to specific parts of the industry.

37. 37 Chapter 11 Telecommunications Act of 1996 What the Telecommunications Act of 1996 specifically did was  Allows Bell Operating Companies to offer long- distance service  Frees long-distance carriers to offer local service  Permits cable companies to offer telecommunications services  Lets telecommunications carriers provide video programming

38. 38 Chapter 11 Telecommunications Act of 1996 Makes online service providers restrict indecent material (has been overturned in court) The Telecommunications Act of 1996 also allows electric utility companies to provide phone and cable service. Most electric utilities have extensive telecommunications infrastructure installed to serve utility management and, by using their transmission towers, they have access to valuable right-of-ways.

39. 39 Chapter 11 Digital Millennium Copyright Act The Digital Millennium Copyright Act (DMCA) prohibits the  circumvention of copy protection, and  the distribution of devices that can be used to circumvent copyrights. The law was enacted in 1998. The DMCA seeks to update U.S. copyright law for the digital age.

40. End of Chapter 11 The Management of Telecommunications: Houston H. Carr and Charles A. Snyder