A Tale of Two Economic Approaches to Evaluate Forbearance Petitions

Abstract

Telecommunications networks are in a state of transition from legacy narrowband networks utilizing predominantly copper loops and circuit switches to advanced broadband networks built with fibre loops and packet switches. Since passage of the Telecommunications Act in 1996, advances in technology and increases in local economic competition have shocked the telephone industry causing telecommunications companies to increasingly seek relief from federal regulations by petitioning the Federal Communications Commission (FCC) to forbear from certain federal regulations. Based on an analysis of forbearance orders from 2004 to 2008, it is the contention of this research that the FCC utilizes different economic frameworks when considering relief from narrowband regulations in contrast to relief from broadband regulations. For instance, the FCC requires demonstration of actual, facilities-based intermodal competition before forbearing from regulations for narrowband services, while the FCC assigns much more weight on facilitating entry into broadband and thus relies on dynamic, Schumpeterian competition. In addition, this research identifies key legal, regulatory, and economic decisions that largely account for these differences in forbearance approach. Overall, the FCC is moving cautiously in granting relief for traditional voice services but boldly in deregulating advanced broadband facilities and services.