Telecom Act of 1996 Was Bad for Regional Bell Operating Companies

On January 3rd, 1996, the Senate and the House of Representatives enacted the Telecommunications Act of 1996. The stated purpose of the Act was, “To promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies” (“FILE s652.enr”).

It was the most significant and extensive change in telecommunications law since the Communications Act of 1934 (Glassman; “The United States Telecommunications”). Despite these noble intentions has failed to produce these stated benefits and has been bad for the regional Bell operating companies.

Telecommunication Act of 1996 Overview:

Over the past decade, one thing has become certain, the consumer benefits promised by the Telecommunications Act have simply not been delivered, due to failure of increased competition.

The lack of competition within the industry wasn’t due to the Federal Communications Commission (FCC)’s overly regulatory stance, but rather the huge companies that dominate the telephone industry, which have preferred to respond with mergers and acquisitions, rather than open themselves up to competition (“Lessons from 1996”).

The consent decree of 1982 broke up the monopoly held by American Telephone and Telegraph Co. (at&T), that had been allowed by regulation for a century. In its wake, seven Regional Bell Operating Companies were formed, providing local service, designating at&T as a national long-distance provider. Competition from companies like MCI and Sprint drove down long-distance prices from more than a dollar a minute, to just a few pennies.

The Telecommunications Act had hoped to see this same sort of competition on the local level, offering the incentive of allowing the Regional Bells to compete in the long distance market, if they’d interconnect their facilities with competitors, as well as provide for resale their services to competitors (Glassman). but, rather than provide new opportunities for the Regional Bells, it forced them into alliances that merged them back more into their pre-1982 state.

The Telecommunications Act: The Loss of Regional Bell Identity:

The Telecommunications Act sought to increase competition. Clinton’s Congress envisioned a telecommunications industry where the barriers to entry had been lowered enough that lots of small entrepreneurial companies were able to spring up and increase competition, forcing the larger companies to run more effectively and efficiently, which would translate to lower prices for consumers, better services, and foster increased technological development as companies looked to differentiate themselves from the others. Instead the opposite has happened.

Competition in local telephone markets has failed to materialize because the local telephone monopolies have refused to open their networks to new entrants who must rely on parts of the monopoly network to provide local service. The major telephone companies have not sought to provide local telephone service outside of their home territories.(1) the Bell operating companies, instead of competing with each other for local customers, bought each other, creating a small number of dominant national firms with regional monopolies that are even more immune to competitive entry (“Lessons from 1996”).

Regional Bell companies, unable to remain competitive as their brethren merged, were forced to do the same.

These effects were seen almost immediately when the Act was signed into law. Announcement of proposed mergers were made immediately by four of the seven Bell regional holding companies. NYNEX was acquired by Bell Atlantic. Pacific Telesis was acquired by SBC (“The United States Telecommunications”). One after the other mergers were announced, further reducing competition, rather than spurring it on. And the regional Bell companies, that were once powerfully profitable, completely lost their individual identities.

Conclusion:

Although the Telecommunications Act eliminated cross-industry barriers that prevented cable, long distance, and regional phone companies from entering each other’s markets, the regional Bell companies were not positively impacted (Kall). Today, consumers can receive Internet service through their cable TV provider or their telephone service provider. Packages including cable TV, phone and Internet are available from a couple of companies. However, the regional Bells aren’t able to enjoy these new market opportunities as they’ve been transformed into national conglomerates, with the series of mergers and acquisitions that followed the Telecommunications Act.

References

FILE s652.enr. 3 Jan 1996. FCC. November 3, 20007 http://www.fcc.gov/Reports/tcom1996.pdf.

Glassman, J. 5 Feb 2001. The Telecom Act, Five Years Later: Deregulation or Remonopolization? Reason Magazine. November 3, 2007 http://www.reason.com/news/show/36043.html.

Kall, M. 19 Feb 1996. The Telecommunications Act: The Good, Bad, and Unknown. TidBITS.com. November 3, 2007 http://db.tidbits.com/article/1130.

Lessons from 1996 Telecommunications Act:

Deregulation Before Meaningful Competition Spells Consumer Disaster. Feb 2001. Consumers Union. November 3, 2007 http://www.consumersunion.org/telecom/lessondc201.htm.

The United States Telecommunications Act of 1996. 1998. National Telecommunications & Information Administration. November 3, 2007 http://www.ntia.doc.gov/opadhome/overview.htm.