The Supreme Court Weighs in on Local Exchange Competition: The Meta-Message

Abstract

The Supreme Court Opinion on local exchange competition in general and on pricing and unbundling in particular was much anticipated and will be much discussed. Because of the very technical nature of the pricing and unbundling rules facing incumbent local exchange carriers there is a considerable risk that students of the Court's Opinion will be mired in the details of that Opinion and miss what we believe is a clear, unequivocal meta-message embedded in the Opinion. Specifically, this decision unequivocally affirms a fundamental shift in regulatory policy reflected in the Telecommunications Act of 1996. That is, the Act dictates that regulators act not merely to disable monopoly but to adopt policies that affirmatively enable competition. The Court's Opinion now confirms this interpretation of the congressional intent behind the legislation. Thus, while it is fair to say that the Court's specific decision with respect to the pricing and unbundling issues represents an important component of a regulatory policy designed to promote competition in local exchange telephony, there is a larger lesson embedded in the Court's reading of the Telecommunications Act. In this paper we first consider in some detail the Opinion and how it reflects an unambiguous endorsement of a competition-enabling framework for the development of local exchange competition. Next, we point out that, despite the Court's unambiguous and clear ruling, a dispassionate scrutiny of economic and regulatory conditions present in local exchange markets - even in the wake of the Court's ruling - reveals a number of extraordinary obstacles to the successful emergence of effective local exchange competition that still remain.