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Fortnightly Magazine - February 1 2000


Pricing practices for low-volume, long-distance users has attracted the attention of the FCC, which recently launched a Notice of Inquiry on the issue.[Fn.9] Low-volume users are not alone in feeling the effects of waning competition in the long-distance market. Ironically, a recent Consumer Price Index report identified a 2.2 percent increase in interstate toll charges as one of the largest single category increases in an otherwise low monthly inflation picture.[Fn.10] Practices by carriers with regard to their biggest customers also attracted attention. For example, MCI requires any billing dispute greater than $10,000 be settled by an arbitrator. Customer awareness of, and access to, MCI's arbitration rules, which are contained in its FCC tariff, has been the source of consternation for some customers.[Fn.11]

Evidence indicates that long-distance competition has suffered under the Act. The RBOCs are quick to point out that they are the last hope for revitalizing competition in this market, and Bell Atlantic's limited entry may provide some proof on this point. However, whether RBOC entry will simply result in a shifting of, rather than reduced, market power in long distance is yet to be seen.

The Internet and the Baby Bells

At the time the Act was wafting through Congress, the RBOCs were awaiting a decision from the federal court that oversaw the AT&T breakup on a waiver regarding the line-of-business restriction on information services. The Department of Justice had negotiated the waiver with the RBOCs to allow them to offer interLATA information services such as e-mail, electronic publishing and purchase/reservation services, but the court refused to act on the waiver until the outcome of the legislation was known. Later, when the Act abolished the 1982 consent decree (known as the "Modification of Final Judgment," or MFJ), Congress legislated its own solution regarding the RBOCs and information services. Thus, the waiver promised by the Justice Department was never given the force of law.[Fn.12]

If granted, the waiver would have had tremendous strategic value for the RBOCs, given the explosion of the Internet since 1996. The Telecommunications Act does not specifically prohibit the RBOCs from providing interLATA information services, but it requires them to offer such services through a separate subsidiary. Alarm monitoring and electronic publishing have separate affiliate requirements that sunset on Feb. 8. However, the Act states that for other non-specified information services, the separate subsidiary requirement may be extended by the FCC. If the FCC extends this requirement, the RBOCs might be unwilling to provide these non-specified information services through independent affiliates.

Given that the Internet primarily is driven by the private sector, it seems ironic that the Telecommunications Act, which was supposed to deregulate all telecommunications markets, may continue to impose regulations on the RBOCs that prevent them from fully participating in the Internet revolution. The future of the Internet undoubtedly will be influenced by the limited participation of the RBOCs in the provision of information services - possibly another unintended consequence of the Act.

Bargain-Basement Bandwidth

Demand for broadband access, combined with the unbundling requirements of the Telecommunications Act, spawned a new type of carrier,