The Telecommunications Act of 1996 and its Impact

New York University, Center for Law and Business, Working Paper No. 99-003

NYU Working Paper No. EC-98-08

54 Pages Posted: 28 Apr 1998

See all articles by Nicholas Economides

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

Date Written: September 1998

Abstract

This paper analyzes the effects on the implementation of the Telecommunications Act of 1996 ("Act") on US telecommunications markets and is based on my forthcoming book with the same title. The Act is a milestone in the history of telecommunications in the United States. Coming 12 years after the breakup of AT&T, the Act attempts to move all telecommunications markets toward competition. The Act envisions competition in all telecommunications markets, both in the markets for the various elements that comprise the telecommunications network, as well as for the final services the network creates. Building on the experience of the long distance market, which was transformed from a monopoly to an effectively competitive market over the last 12 years, the Act attempts to promote competition in the hitherto monopolized local exchange markets. The Act recognizes the telecommunications network as a network of interconnected networks. Telecommunications providers are required to interconnect with entrants at any feasible point the entrant wishes. Most importantly, the Act requires that incumbent local exchange carriers ("ILECs") (i) lease parts of their network (unbundled network elements) to competitors "at cost"; (ii) provide at a wholesale discount to competitors any service the ILEC provides; and (iii) charge reciprocal rates in termination of calls to their network and to networks of local competitors. Moreover, the Act requires that ILECs that came out of the Bell System meet a number of requirements, including a public interest test, before they may enter into the long distance market. Thus, the Act provides some safeguards against the export of ILEC monopoly power to other parts of the network. Numerous legal challenges to the Act and its implementation have been raised by the ILECs resulting in very slow implementation of the Act, and, in many cases, in no substantial implementation of the provisions of the Act. Thus, more than two years after the passage of the Act, there is very little entry and competition in local exchange markets. In response to the apparent failure of the implementation Act, there has been a wave of mergers in the US telecommunications industry.

JEL Classification: L1, D4

Suggested Citation

Economides, Nicholas, The Telecommunications Act of 1996 and its Impact (September 1998). New York University, Center for Law and Business, Working Paper No. 99-003; NYU Working Paper No. EC-98-08. Available at SSRN: https://ssrn.com/abstract=81289 or http://dx.doi.org/10.2139/ssrn.81289

Nicholas Economides (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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