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Wireline Regulation I

TC 310 May 19, 2008. Wireline Regulation I. Wireline Infrastructure. CPE Loops Circuit Switches Transport lines. Dividing Infrastructure. Dual Jurisdiction FCC States Technological Distinction? Loops as Transport Private Branch Exchanges (PBXs) ‏ MSU example.

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Wireline Regulation I

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  1. TC 310 May 19, 2008 Wireline Regulation I

  2. Wireline Infrastructure • CPE • Loops • Circuit Switches • Transport lines

  3. Dividing Infrastructure • Dual Jurisdiction • FCC • States • Technological Distinction? • Loops as Transport • Private Branch Exchanges (PBXs)‏ • MSU example

  4. Regulating a Natural Monopoly • Methods • Dual Jurisdiction Dance • 75-25 split of shared facilities • State and subscriber line charge on local bill • Switched vs. Special Access charges • Finishing or handing off calls • 10% rule • Filed Rate Doctrine

  5. Universal Service • Appealing to Regulators • Public Choice Theory • Three primary cross-subsidizations • Geographic • Type • Distance • Only works in monopoly situation • Arbitrage: where are vulnerabilities?

  6. Antitrust Principles • Essential Facilities Doctrine • Control • Duplicable • Denial • Providability • Tying Arrangements • Control of one market • Other market could be dominated • Makes sense to treat distinctly

  7. Antitrust II • Predatory Pricing • When legitimate, when not • Transfer Pricing/Self Dealing • In two markets, one regulated one not • Abuse of Regulation • Primary jurisdiction • Filed Rate Doctrine • State Action (Sherman is Federal)‏ • Domination is natural

  8. Breaking Up Bell • Bell justified in Kingsbury commitment • Second antitrust action by government • CPE is at stake • Government wants equipment market competitive • 1956 “Final Judgment” Consent Decree • Bell grants nonexclusive licenses for Bell patents • Fee based hand over for technical equipment • Bell system limited to common carrier communications.

  9. Long Distance Competition • Long distance vulnerable due to arbitrage • Bell Labs refines microwave transmission • MCI offers point-to-point voice/data transmissions over microwaves • MCI interconnects one end to Bell LEC • Long distance for local rates! • MCI interconnects on both ends • True LD competition

  10. AT&T Responds • Predatory Pricing • Burden of Interconnection • Capacity limits • Discrimination on access (multi-dialing)‏ • Distance subsidy lost, universal service suffers • FCC quagmired in litigation • DoJ steps in, time to bust Bell

  11. 1984 Modified Final Judgment • Bell argues filed rate doctrine and state action • Judge Greene oversees case • AT&T divests local service entirely • 7 Local Access and Transport Areas (LATAs) created • BOCs required to interconnect to all LD carriers • BOCs retain monopolies of area, barred from anything but local service • AT&T freed from 1956 Final Judgment

  12. Winners • DoJ • Breaks up Bell, also drops parallel suit against IBM • Long Distance customers • Prices plummet, quality increases • AT&T • Enter new markets • Keeps Bell Labs • FCC • Less regulatory mess; movement towards competition

  13. Losers • State Regulators • Limitation of their jurisdiction, not getting anything from AT&T • Implicit subsidies weakened • Local Customers • BOCs raise prices, closer to at cost • FCC • New policies for interconnections, subsidies. More entities to regulate

  14. Why Important • Problems with divestiture lead directly to 1996 Act • Regulators weary of monopolies, high competition mind-set dominates public discourse • Expansion of jurisdiction justified • Repeating history? Conglomeration and Convergence

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