Introduction
The telecommunications sector in the United States is subject to a relatively complex set of laws enforced by different government agencies in comparison to other countries. The operations of telecommunication companies are typically subject to sector-specific regulations and economy-wide laws. Historically, there has been tension between the antitrust policy on the one hand and telecommunication regulation on the other. For a long time, the antitrust has been founded on grounds that competition is in the telecommunications markets is desirable, and its enforcement practices are typically meant to protect competition (Buigues, 2004). On the other hand, the American telecommunications regulation has had a different history. For the better part of the last century, both the Federal and State regulators have had limited involvement in the telephone markets on grounds of promoting universal service. In the recent past, however, policy-makers have given increased special attention to competition especially after the enactment of the Telecommunications Act of 1996. The US government has stepped up its antitrust initiatives in its role of policing monopolistic and anticompetitive practices such large U.S. telecommunications companies as AT&T Inc. and Verizon Communications Inc. The rationale for enforcing antitrust policy was to deal the historic monopolistic nature of the telecommunications market so as to allow other players to enter the market and provide the consumer with competitive prices (Jacobson, 2007).
Antitrust in US Telecommunications Industry
The US telecommunications industry has grown significantly over the decades, providing a range of services business establishment and consumers through rapidly evolving technologies spanning a wide range of communications media e.g. voice, image, data. For several decades, the United States has adopted antitrust rules aimed at promoting competition and controlling market power across its telecommunications industry. The Telecommunications Act of 1996 provided the first significant overhaul of the Communications Act of 1934, which had regulated the US telecommunications sector for more than sixty years (Buigues, 2004). The 1934 Act was enacted during the great depression in order to protect American consumers the powerful AT&T that had gained virtual monopoly on virtually all segment of the US telecommunications industry following an aggressive policy of consolidation.
The Federal Communications Commission (FCC) was established with a mission of regulating interstate telephone service. It was tasked with controlling entry, regulating prices and making other regulatory decisions considered to be in the public’s interest (Braman, 2009). For a long time, AT&T enjoyed monopoly status that enabled it to leverage power over manufacture and distributions of telecommunications equipment along with provision of all long-distance services. This would force the Department of Justice to bring an antitrust suit against the AT&T in 1913 on allegations that it was awarding competitors interconnection to its large local exchange network on discriminatory terms (Jacobson, 2007). This resulted in the Kingsbury Commitment, in which AT&T agreed to halt its acquisition of independent competitors. However, the DOJ continued to approve majority of AT&T’s special requests to acquire local companies despite the provision on grounds that the acquisitions would benefit consumer through consolidation of non-interconnecting carriers, consequently doing away with the need to subscribe to multiple carriers.
In 1918, the Postmaster General was given emergency powers over the telecommunication sector by both Congress and the President, resulting in further consolidations. In 1921, Congress suspended the non-acquisition provisions provided by the Kingsbury Commitment and instead granted the Interstate Commerce Commission (ICC) powers to exempt all telephone company mergers and acquisitions from the antitrust regulations altogether (Jacobson, 2007). The resulting law, the Willis-Graham Act, was particularly targeted at doing away the inefficient fragmentation of the US phone system due to lack of local interconnection. The ICC also replaced the Justice Department as the national arbiter of the telecommunication market structure.
The Communications Act of 1934 retain the main elements of the Willis-Graham Act in the sense that the new created FCC had the authority of exempting local telephone company mergers from any antitrust scrutiny. In this regard, the FCC had the power to supersede the DOJ and the FTC, the main agencies tasked with reviewing mergers of such kind (Buigues, 2004). In particular, gave the Interstate Commerce Commission the powers to exempt telephone company mergers “from any Act of Congress making the proposed transaction unlawful.” The Commission retained these powers for over 50 years until Section 601 (b) of the Telecommunication Act of 1996 repealed ‘221(a), revoking FCC’s historic authority as the sole reviewer of all telecommunications mergers. The new law forbid FCC from modifying or superseding the implementation of any of the antitrust regulation (Braman, 2009).
This resulted in a diminished sector-specific nature of the competition policy in the US telecommunications by affording jurisdiction relating to telecom mergers to antitrust agencies. However, if fell short of eliminating the FCC altogether. In fact, the taking away of powers to exempt telecommunication mergers from general antitrust law did not translate that the FCC could play no role in review of the translations or hold the power to block them. Through the Clayton Antitrust Act, the FCC has concurrent authority with the Justice Department to take action on transactions between common carriers dealing in wire or radio communications (Jacobson, 2007).
However, the FCC has never evoked this authority because it has drawn powers to review such transactions in ‘‘214(a) and 310(d) of the 1934 Communications Act itself. At Section 214(a) the Commission is required to certify that an acquisition of lines by a given common carrier will be in the public interest, convenience as well as necessity (Braman, 2009). At the same time, ‘310(d) forbids transfer of a spectrum license before the Commission has ascertained that the particular transfer will indeed fulfill the same standard of public interest. In this regard, the FCC wields the authority or constitutional requirement to take part in at least a number of transfer of licenses involved in a proposed acquisition or merger.
The FCC regards the public interest standard it bases on as being flexible as it entails the broad objectives of the Communications Act. In reviewing common carrier mergers, the FCC often focuses on competition aspects and the Commission goals pertaining to equitable build-out of newer services. As for transactions entailing broadcast licenses, the FCC typically focuses on aspects pertaining to program diversity. According to FCC’s own interpretation of its public interest standard, the Commission is not obliged to demonstrate that a transaction has the likelihood of reducing competition so as to challenge that transaction. Instead, the FCC could make a decision that a merger could probably impact on the Act’s goals, and on those grounds, block or condition or approve the transaction notwithstanding its competitive effects (Jacobson, 2007).
It must be noted that significant markets structure changes and competition in the US telecommunications sector did not occur immediately after the resolution of the 1974 AT&T antitrust case brought by the Ford Administration. Instead, they happened during the 1990s as the wireless technologies became full-fletched competitors to the fixed-wire platform and a totally new service that was high-speed internet access. These are developments that were experience following the replacement of the 1982 AT&T decree with the 1966 Telecom Act. In this regard, it thus evident that impact of the government initiative only begun to be felt more than a decade after the AT&T resolution. In fact, the effect of AT&T decree was limited as relates to stirring the post-1995 changes (Buigues, 2004).
State intervention in the economy is often justified and necessary so as to correct market failure and ensure continued provision of needed public goods and services. In the current rapidly changing technological environment, however, it seems both unnecessary and unworkable to for the government agencies to try using antitrust policy in mandating local telephone network sharing to promoted competition in conventional services (Braman, 2009). This is especially the case because telecommunications networks are evolving at rapid pace in order to match up the growing need for high-speed internet connections. Greater, though, it is because of the lack of monopoly bottleneck as relates to the delivery of the new services as telephone companies are competing with cable television companies, fixed wireless services (e.g. WiFi), and mobile wireless carriers in delivering the new services.
In addition, even if there existed a single broadband network, policy-makers would find it particularly difficult to define the sharing of that network among competitors given that the policy-makers would anticipate what it may look like after a year or two as well as the type of services that would be offered (Braman, 2009). In his 1984 article titled “The Limits of Antitrust,” Frank Easterbrook warned that regulators should take much caution when filing suits against companies merely on grounds that those are pursuing business practices which damage competitors, especially where they cannot precisely predict how such suits may ultimately turn out in the rapidly changing markets such as telecommunications (Jacobson, 2007). This is especially because markets are usually better at re-establish competition as compared to antitrust authorities or courts of law.
Conclusion
Generally, the US antitrust regulations have both gone a long way in aiding the competitive evolution of its telecommunications industry but also severely impaired it in other respects. In The AT&T case, the US government achieved significant victory in the sense of transforming the telecommunication industry from one with a highly concentrated market structure to a more competitive one in a period of about 15 year. The government was successful in reaching a draconian structural remedy in the form of a breakup of AT&T. on the other hand, the eventual market evolution realized through new entrants and increased deployment of newer technologies was as a result of rapid technological change as opposed to the Section 2 Sherman Act cases. This is because there was no way for the US antitrust authorities to precisely predict how the telecommunications or computer industries would change fifteen years after they filed their suit. In addition, they could not fashion decrees designed to improve on the outcomes eventually attained in the marketplace in this high-tech industry. This brings to a conclusion that the antitrust regulation pursued by the US government agencies have partly succeeded in encouraging competitiveness in the telecommunications industry by the laws are not absolutely effective tool in fighting the issue of monopoly power in the industry.
Bibliography:
Braman, Sandra. 2009. Change of state: information, policy, and power. Cambridge, Mass: MIT Press.
Buigues, Pierre-André. 2004. The economics of antitrust and regulation in telecommunications: perspectives for the new European framework. Northampton, Mass: Edward Elgar.
Jacobson, Jonathan M. 2007. Antitrust law developments (sixth). Chicago, Ill: Section of Antitrust Law, ABA.
