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

Fortnightly Magazine - November 15 1999

the list will get shorter, not longer, in the future.

Attorneys Anne S. Babineau and Matthew M. Weissman of the law firm Wilentz, Goldman & Spitzer, headquartered in Woodbridge, N.J., represent clients in the telecommunications and energy fields. William E. Taylor heads the Cambridge, Mass., office of National Economic Research Associates Inc. (NERA), where he is director of the telecommunications practice. NERA provides expert economic analysis on many telecommunications and energy issues nationwide and throughout the world.

What Kind of Ladder is Necessary to Change a Light Bulb?

It depends on how you define "necessary."

The 1996 Telecom Act invited the FCC to open up telephone network elements of incumbent carriers for use by new competitors where access was "necessary" for competition. The FCC said at first that an element was "necessary" even if it could be obtained from a source other than the incumbent.

A majority of the Supreme Court disagreed, but Justice Souter sided with the agency. As Souter explained:

"If I want to replace a light bulb, I would be within an ordinary and fair meaning of the word 'necessary' to say that a stepladder is 'necessary' ¼ even though I could stand instead on a chair, a milk can, or eight volumes of Gibbon. I could just as easily say that the want of a ladder would 'impair' my ability to install the bulb under the same circumstances."

Not to be outdone, Justice Scalia answered back:

"[Souter's analogy is] [t]rue enough (and nicely put), but the proper analogy here, it seems to us, is not the absence of a ladder, but the presence of a ladder tall enough to enable one to do the job, but not without stretching one's arm to its full extension. A ladder one-half inch taller is not, 'within an ordinary and fair meaning of the word,' ¼ 'necessary,' nor does its absence 'impair' one's ability to do the job."

For regulators today, the challenge will lie in knowing the difference between the situation where the new entrant is compelled to stand a milk can on a chair, as compared with the times when the new entrant just prefers to use the incumbent's shiny new aluminum ladder. - A.S.B., W.E.T., M.M.W.

1 Ogletree Jr., Charles J., Karen Miller and Ronald C. Jessamy, "Utility Affiliates: Why Restrict Use of Names and Logos?" Public Utilities Fortnightly, July 15, 1999, p. 34. The authors urged caution by regulators: "[E]ven as states open the way for competitors, certain vocal constituencies would handicap utilities and their affiliates, denying them equal footing. New entrants seek to eliminate or constrain competitive advantages they would ascribe to utility affiliates. In fact, some state public utility commissions (PUCs) have embraced this idea of competitive handicapping. ¼ [T]hose advocating this sort of competitive handicapping seek to achieve through PUC rules what the U.S. Supreme Court consistently has declined to permit under the antitrust law: protecting competitors rather than protecting competition." Id. at 34-35 (emphasis added).

2 525 U.S. 366, 119 S. Ct. 721, 142 L.Ed.2d 835 (1999).

3 United States v. American Tel. &