Reflecting on the 1996 Act
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ARTICLE SUMMARY
The 1996 Telecommunications Act was intended to open communications markets to competition. Legislators did not foresee the role that the Internet and wireless service would play in increasing competition; instead, they emphasized the importance of local telephone networks.
POLICY RELEVANCE
Legislators should not limit markets to one form of entry. Policy should not favor one technology over another.
KEY TAKEAWAYS
- The 1996 Telecommunications Act required the Regional Bell Operating Companies (RBOCs) to open their networks to competition.
- Neither regulators nor telecommunications firms foresaw how the Internet and mobile communications would transform communications market over the next twenty years.
- The Act provided three ways for a competitor to enter local phone service markets: 1) as a facilities-based provider; 2) as a reseller; or, 3) by leasing pieces of the RBOCs’ networks (unbundled network elements, or UNEs).
- As of 1996, there were only 34 million cellphone subscribers, and prices for cell phone service were kept high to subsidize local phone service.
- The RBOCs lobbied to receive high fees to terminate calls, assuming that calls would terminate on their networks, but they failed to predict that competitors would arise to serve Internet Service Providers (ISPs) like America Online, which generated millions of terminating calls and almost no originating calls.
- Twenty years later, less than 55 percent of customers have a landline phone; the 1996 Act’s focus on local telephone service seems anachronistic.
- The main benefit of the Act lay in its preventing regulators from blocking new competitors from entering the market.
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About Gregory L. Rosston
Gregory L. Rosston is Deputy Director and Senior Fellow at the Stanford Institute for Economic Policy Research (SIEPR) and Director of the Public Policy Program at Stanford University. He is also a Professor of Economics by courtesy and teaches courses on competition policy and strategy, intellectual property, personal finance, and writing and rhetoric. His research has focused on industrial organization, antitrust and regulation.
