The Baby and the Bathwater: Utility Competition, But at What Price?

Fortnightly Magazine - November 15 1999
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What the Supreme Court thinks about handicapping the incumbent to level the field for new players.

Regulators today sit on the horns of a dilemma: How far to level the field in the name of competition?

If regulators fear market power in the incumbent utility, and so impose restrictions on its activities and assets, they may impair its effectiveness and thus distort the very competition they attempt to foster.

One example - restricting utility affiliates in using the parent company's name and logo - was the focus of a recent work in this publication.[Fn.1] That article showed how restrictions raise a constitutional question regarding freedom of speech, as defined by decisions of the U.S. Supreme Court. Here, we trek further down that road, examining the Court's Jan. 25 opinion in AT&T Corp. v. Iowa Utilities Board.[Fn.2] In light of that case, and the response of the Federal Communications Commission, we review the legal and policy considerations that should guide regulators as they devise restrictions or impose requirements on incumbent utilities to level the field to encourage competition.

Do regulators have the authority to handicap incumbents? The boundaries of such administrative authority are only now being considered. Before continuing, let's look at some past examples.

Consider the AT&T consent decree issued in 1982, which split the telephone industry vertically and prohibited incumbent Bell operating companies (BOCs) from entering long-distance markets. That order was born of the need to fashion remedies for alleged antitrust violations.[Fn.3]

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