Network regulation: The many faces of access

Journal of Competition Law and Economics

Volumn 1, Issue 4, 2005, Pages 635-678

  Spulber, Daniel F ^a   Yoo, Christopher S ^b  

^a NORTHWESTERN UNIVERSITY   (United States)

^b VANDERBILT UNIVERSITY LAW SCHOOL   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 31844436631     PISSN: 17446414     EISSN: None     Source Type: Journal    
DOI: 10.1093/joclec/nhi024     Document Type: Review

References (102)

1. See Daniel F. Spulber & Christopher S. Yoo, Access to Networks: Economic and Constitutional Connections, 88 Cornell L. Rev. 885, 960-70, 981-87, 1003-18 (2003) (tracing the development of access requirements for local telephony, networks of utility poles, and broadband networks).
2. See generally Joseph D. Kearney & Thomas W. Merrill, The Grand Transformation of Regulated Industries Law, 98 Colum. L. Rev. 1323, 1340-46 (1998) (calling the emergence of access regulation part of the "grand transformation" of regulated industries law).
3. See, e.g., Nat'l Cable & Telecomm. Ass'n v. Brand X Internet Servs., 125 S. Ct. 2688 (2005) (upholding classification of cable modem systems as "information services");
4. Nat'l Cable & Telecomm. Ass'n v. Gulf Power Co., 534 U.S. 327 (2002) (upholding ruling that cable modem equipment constituted an "attachment by a cable television system" eligible for access under the Pole Attachments Act);
5. WorldCom, Inc. v. FCC, 288 F.3d 429 (D.C. Cir. 2002) (rejecting classification of ISP-bound traffic as "information access" that falls outside usual intercarrier compensation rules);
6. Bell Atl. Tel. Cos. v. FCC, 206 F.3d 1 (D.C. Cir. 2000) (rejecting decision that ISP-bound traffic was nonlocal for jurisdictional purposes, but local for purposes of access charges for reciprocal compensation);
7. Southwestern Bell Tel. Co. v. FCC, 153 F.3d 523 (8th Cir. 1998) (upholding exemption of ISP-bound calls from long distance access charges because they are local).
8. See U.S.-Canada Power System Outage Task Force, Final Report on the August 14, 2003 Blackout in the United States and Canada: Causes and Recommnedations (2003), available at www.nrcan.gc.ca/media/docs/final/ BlackoutFinal.pdf.
9. See Daniel F. Spulber & Christopher S. Yoo, On the Regulation of Networks as Complex Systems: A Graph Theory Approach, 99 NW. U.L. Rev. 1689, 1697-1709 (2005).
10. See R.H. Coase, The Theory of the Firm, 4 Economica 386 (1937).
11. For an introduction to graph theory, see Spulber & Yoo, supra note 4, at 1693-1707.
12. On the historical roots of the common law duty to serve, see J. Gregory Sidak & Daniel F. Spulber, Deregulatory Takings and the Regulatory Contract 119-25 (1997);
13. Jim Rossi, The Common Law "Duty to Serve" and Protection of Consumers in an Age of Competitive Retail Public Utility Restructuring, 51 Vand. L. Rev. 1233, 1242-60 (1998).
14. See 47 U.S.C. §201(a).
15. See Peter W. Huber et al., Federal Telecommunications Law §3.11.2, at 281-85 (2d ed. 1999);
16. Scott M. Schoenwald, Regulating Competition in the Interexchange Telecommunications Market: The Dominant/Nondominant Carrier Approach and the Evolution of Forbearance, 49 Fed. Comm. L.J. 367 (1997).
17. For a classic justification for basing rates on historical cost, see Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Commission, 262 U.S. 276, 292-94 (1923) (Brandeis, J., concurring in the judgment).
18. Information about Qwest's wholesale offerings is drawn directly from www.qwest.com/wholesale/.
19. See 47 U.S.C. §251(b)(1).
20. See id. §251(c)(4).
21. See id. §252(d)(3).
22. Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 F.C.C.R. 15499, 15956 ¶911 (1996).
23. Huber et al., supra note 9, § 1.3.1, 1.3.4, 5.1.1-.2, at 13-16, 22-23, 406-09.
24. 47 U.S.C. §251(a)(1).
25. Id. §251(b)(5).
26. Id. §252(d)(2)(i).
27. 47 C.F.R. §51.705(a)(1).
28. 47 U.S.C. §251(c)(2).
29. Id. §252(d)(2)(B)(i).
30. Developing a Unified Intercarrier Compensation Regime, Notice of Proposed Rulemaking, 16 F.C.C.R. 9610, 9634-37 ¶ 69-77 (2001).
31. Timothy Bresnahan et al., Technical Progress and Co-invention on Computing and in the Uses of Computers, 1996 Brookings Papers on Econ. Activity: Microeconomics 1, 7
32. see also Timothy Bresnahan & Shane Greenstein, Technological Competition and the Structure of the Computer Industry, 47 J. Indus. Econ. 1 (1999);
33. Shane Greenstein, Industrial Economics and Strategy: Computing Platforms, 18 IEEE Micro 43 (1998).
34. See Proposals for New or Revised Classes of Interstate and Foreign Message Toll Telephone Service (MTS) and Wide Area Telephone Service (WATS), First Report and Order, 56 F.C.C.2d 593 (1975),
35. aff'd sub nom. N.C. Utils. Comm'n v. FCC, 552 F.2d 1036 (4th Cir. 1977). These standards were later repealed.
36. See 2000 Biennial Regulatory Review of Part 68 of the Commission's Rules and Regulations, Report and Order, 15 F.C.C.R. 25944 (2000).
37. United States v. AT&T, 552 F. Supp. 131, 196, 223-34 (D.D.C. 1982), aff'd mem. sub nom.
38. Maryland v. United States, 460 U.S. 1001 (1983). This so-called "equal access" mandate was later extended to non-Bell local telephone companies as well.
39. See Huber et al., supra note 9, §9.4.4.1-.2, at 766-75.
40. Amendment of Sections 64.702 of Commission's Rules and Regulations (Third Computer Inquiry), Report and Order, 104 F.C.C.2d 958, 1039 ¶ 157 (1986)
41. ("Computer III Phase I Order"), on reconsideration, 2 F.C.C.R. 3035 (1987)
42. ("Computer III Phase I Reconsideration"), vacated and remanded sub nom. California v. FCC, 905 F.2d 1217 (9th Cir. 1990).
43. 47 U.S.C. §256(b)(2).
44. See Christopher S. Yoo, Beyond Network Neutrality, 19 Harv. J.L. & Tech. 1 (2005) (reviewing this debate).
45. The emergence intermodal competition from wireless has rendered this premise questionable. In addition to providing direct competition to wireline local loops, the fact that spectrum can be resold converts the up-front investments needed to establish network service from sunk costs into fixed costs, thereby arguably bringing local telephone service within the ambit of the theory of contestable markets. See Christopher S. Yoo, The Death of the Telephone Model of Regulation (unpublished manuscript, on file with the author).
46. See Computer III Phase I Order, 104 F.C.C.2d at 1002-11 ¶ 79-97.
47. This regime is known as "open network architecture" (ONA). While ONA plans were being developed, major local telephone companies were governed by an interim regime known as "comparably efficient interconnection" (CEI). Id. at 1018-65 ¶ 111-218. The regime created by the third Computer Inquiry was eventually overturned on judicial review.
48. See California v. FCC, 39 F.3d 919, 925-30 (9th Cir. 1994);
49. California v. FCC, 905 F.2d 1217, 1230-39 (9th Cir. 1990). The FCC rolled its reconsideration of both CEI and ONA into the broadband proceedings opened in 2002. 3024 ¶8 (2002).
50. Appropriate Framework for Broadband Access to the Internet over Wireline Facilities, Notice of Proposed Rulemaking, 17 F.C.C.R. 3019, 3024 ¶8 (2002).
51. The FCC established an elaborate, cost-based regime for setting CEI rates that, broadly speaking, charged actual cost for facilities outside the carrier's network and average cost for facilities inside the carrier's network. See Computer III Phase I Order, 104 F.C.C.2d at 1046-53}} 171-186. The FCC applied the same pricing regime to ONA.
52. Id. at 1066 ¶218
53. Computer III Phase I Reconsideration, 2 F.C.C.R. at 3052.
54. 47 U.S.C. §251(c)(3).
55. Id. §251(d)(2)(A) & (B) (emphasis added). Implementation of the "necessary" and "impair" provisions has proven quite controversial, with courts frequently rejection the FCC's construction of these requirements.
56. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 388-92 (1999);
57. U.S. Telecom Ass'n v. FCC, 359 F.3d 554, 571-73 (D.C. Cir. 2004);
58. U.S. Telecom Ass'n v. FCC, 290 F.3d 415 (D.C. Cir. 2002);
59. GTE Serv. Corp. v. FCC, 205 F.3d 416, 422-24 (D.C. Cir. 2000). The Supreme Court has declined to decide whether the "necessary" and "impair" requirements effectively codify the "essential facilities doctrine" developed under antitrust law.
60. See Iowa Utils. Bd., 525 U.S. at 388
61. id. at 428 (Breyer, J., concurring in part and dissenting in part).
62. 47 C.F.R. §51.505(a).
63. This type of problem arises when an equilibrium is disturbed by some exogenous force. In chemistry, the Le Chatelier Principle states, "Every change of one of the factors of an equilibrium occasions a rearrangement of the system in such a direction that the factor in question experiences a change in a sense opposite to the original change." H.L. Le Chatelier, 13 Annales des Mines 157 (1888).
64. Newton's third law of motion, which states that "for every action there is an equal and opposite reaction," provides an analogous principle in physics. The Le Chatelier principle is used in physics as well. This principle was recognized by Paul Samuelson in his development of comparative static analysis in economics. Paul A. Samuelson, Foundations of Economic Analysis 38 n. 13, 81 (1947).
65. See Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004)
66. (citing United States v. Colgate & Co., 250 U.S. 300, 307 (1919)).
67. Indeed, the economics of congestion supports the notion that a price increase would be a particularly appropriate response. The standard result is that prices should be set equal to the customer's marginal contribution to congestion. The unexpected increase in demand naturally means that, for a given capacity, congestion would be higher than expected, and thus that the congestion cost associated with adding an additional user would also be higher. See J. Gregory Sidak & Daniel F. Spulber, Cyberjam: The Law and Economics of Internet Congestion of the Telephone Network, 21 Harv. J.L. & Pub. Pol'y 327 (1998);
68. Christopher S. Yoo, Network Neutrality and the Economics of Congestion, 94 Geo. L.J. (forthcoming 2006).
69. Sidak & Spulber, supra note 7, at 125-26.
70. For a discussion of the organization of production in the U.S. Postal Service, see J. Gregory Sidak & Daniel F. Spulber, Protecting Competition from the Postal Monopoly (1996).
71. See Spulber & Yoo, supra note 4, at 1703-05.
72. The discussion that follows is adapted from Yoo, supra note 29.
73. Timothy F. Bresnahan, New Modes of Competition: Implications for the Future Structure of the Computer Industry, in Competition, Innovation and the Microsoft Monopoly: Antitrust in the Digital Marketplace 155, 168 (Jeffrey A. Eisenach & Thomas M. Lenard eds., 1999).
74. See Spulber & Yoo, supra note 4, at 1707-11.
75. See International Telecommunications Union Telecommunications Standardization Sector (ITU-T), Recommendation M.3000 ff. The ITU is an international organization within the United Nations system.
76. International Engineering Consortium, Online Education: Telecommunications Management Network (TMN), available at www.iec.org/ online/tutorials/tmn.
77. International Engineering Consortium, Online Education: Operations Support Systems (OSSs), available at www.iec.org/online/tutorials/oss/.
78. Id.
79. Id.
80. See supra notes 14 and 15 and accompanying text.
81. See Alexander C. Larson, Wholesale Pricing and the Telecommunications Act of 1996: Guidelines for Compliance with the Avoided Cost Rule, 8 U. FLA. J.L. & PUB. POL'Y 243 (1997);
82. Alexander C. Larson & Douglass R. Mudd, The Telecommunications Act of 1996 and Competition Policy: An Economic View in Hindsight, 4 VA. J.L. & TECH. 1 (1999).
83. Gerald R. Faulhaber, Policy-Induced Competition: The Telecommunications Experiments, 15 Info. Econ. & Pol'y 73, 81 (2003).
84. See Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) (recognizing that interconnections disputes are "highly technical" and multifaceted "given the incessant, complex, and costly changing interaction of competitive and incumbent LECs implementing the sharing and interconnection obligations.").
85. Yoo, supra note 29, at 39-42.
86. Bresnahan, supra note 44, at 200-01.
87. 47 U.S.C. §251(c)(3).
88. Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, Report and Order and Order on Remand and Further Notice of Proposed Rulemaking, 18 F.C.C.R. 16978, 17327-33 ¶ 549-580 (2003)
89. ("Triennial Review Order"), vacated in part sub nom. U.S. Telecom Ass'n v. FCC, 359 F.3d 554 (D.C. Cir. 2004), cert. denied, 125 S. Ct. 313, 316, 345 (2004).
90. Jeremy Rifkin, The Age og Access (2000).
91. Triennial Review Order, 18 F.C.C.R. at 16999-7000 ¶22.
92. Id. at 17028-30 ¶75.
93. See id. at 17030 ¶75
94. Michael L. Katz & Carl Shapiro, Technology Adoption in the Presence of Network Externalities, 94 J. Pol. Econ. 822, 825 (1986).
95. See supra notes 27-30 and accompanying text. Under rate regulation the traditional governmental response to market failure regulators explicitly prohibits competitors from entering the market. Although access regulation does not involve any de jure prohibition of market entry, it can forestall the emergence of facility-based competition to existing networks by rescuing users from having to invest alternative capacity.
96. See id.
97. Spulber & Yoo, supra note 1, at 926.
98. Christopher S. Yoo, Vertical Integration and Media Regulation in the New Economy, 19 Yale J. on Reg. 171, 282-85 (2002).
99. See Bresnahan, supra note 44, 152, at 200-03
100. Michael L. Katz & Carl Shapiro, Systems Competition and Network Effects, 8 J. Econ. Persp. 93, 112-13 (1994).
101. See Spulber & Yoo, supra note 1, at 930-31.
102. See id. at 895-902.