REREGULATION OR BETTER DEREGULATION? ECONOMIC EVALUATION OF RECENT FCC COMPETITION ACTIONS

Abstract

In 1999, 2005, and 2007 the Federal Communications Commission (FCC) established approaches for relaxing pricing restrictions for incumbent local exchange carriers (ILECs) if competition in the relevant market is deemed to be sufficient. In the 1999 decision, the FCC established a mechanism by which ILECs could apply for increased pricing flexibility for special access (high-capacity) services in metropolitan statistical areas (MSA) in which bright-line triggers had been satisfied. Such relief was granted in the majority of MSAs. Next, the FCC established a process by which ILECs could obtain forbearance from certain unbundling obligations, and approved requests for forbearance in Omaha, Nebraska and Anchorage, Alaska in 2005 and 2007. The FCC also granted forbearance from price regulation for the highest-capacity services (enterprise services) for the large majority of ILECs. In two recent decisions in 2010 and 2012, the FCC has denied forbearance requests and suspended further grants of special access price flexibility primarily on the grounds that the then-current mechanisms had not performed as anticipated. In their place, the FCC has proposed and implemented processes similar to the Department of Justice and Federal Trade Commission’s Merger Guidelines. This article describes the essential elements of the 2010 and 2012 decisions as well as the bright-line mechanisms previously relied on, outlines a framework for determining whether competition is sufficient in a telecommunications market, and uses this framework to evaluate the FCC’s new directions.