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Leo A. Wrobel
Corporate network managers grapple with many choices in new network services and getting rates as low as possible. A company cannot create a new communications network without understanding regulation and the new levels of competition ushered in by the Telecommunications Reform Act. This chapter discusses what communications managers need to know about the structure of regulation bodies, who sets service rates, and how to negotiate with commissioners and carriers.
The current regulatory environment in the U.S. has built itself over the years piece by piece. By attempting to drive this process in the future, the public can foster innovation and bring the information superhighway to life. This chapter looks back at the past of the regulatory environment and ahead to what lies in store.
Most people know that Alexander Graham Bell invented the telephone. But Mr. Bells invention may never have succeeded without the work of another man, Theodore Vail, who formalized the concept of the Bell System that controlled the telephone marketplace for three quarters of a century.
The turn of the century brought with it competition in the telephone business. The good news was that customers had a choice of telephone providers, and the bad news was that if customers did not subscribe to the same network, they could not talk to each other. A customer using the red network phone could not talk to someone on the blue network.
Under the Theodore Vail concept, one company would own all the telephone services and control the telephone call from one end to another. Vail had the concept of a vertical monopoly, in which the phone company would actually own the customers phones, the telephone lines in their homes, and the long-distance lines.
In the early 1950s, a rubber coupling was invented that fit over a telephone handset so that other people in the area could not hear what the person using the telephone was hearing. The telephone company sued the company that made the couplings. Because the phone company had tariffs in place that commanded the force of law, anyone using one of these hush-a-phones could legally have their phone service terminated. The manufacturer fought AT&T at the Federal Communications Commission (FCC) and won the right to have its equipment connected to the phone system in 1956. In some ways regulatory activism was necessary, even then.
Three years later the FCC took an even bolder step in deciding that telephone companies were common carriers and that they had an obligation to serve all segments of the population. Some companies required special lines or special services or wanted to have private lines dedicated to their specific use. (Because these lines were not available to the public, they were in fact called private lines.) The commission decided that it would be permissible for companies other than the monopoly phone companies to provide these private lines to corporations.
In 1968 another milestone was reached in the Carterphone decision. The Carterphone was an acoustically coupled device designed to connect a phone to a two-way radio. Even though the device was passive (i.e., did not electronically connect to the phone network), AT&T sued. The owner of the Carterphone company was an ambitious entrepreneur with an aggressive legal team. They convinced the commission that the Carterphone was not a threat to the market and that AT&T was trying to preclude competition. The commission ruled that the Carterphone could be connected to the network, as well as other devices that were privately beneficial and not harmful to the public network.
Over the years, the FCC has allowed more inroads into what had been the exclusive telephone monopoly. In long distance, the commission allowed MCI Communications Corp. to tariff a service that allowed connection to the switched network on one end of a private line, allowing the caller to circumvent AT&Ts long-distance network. To AT&T, this was an illegal intrusion into its market by cream skimmers. To MCI, the actions AT&T took to preserve its monopoly on switched service was more evidence of an attempt to control the marketplace in violation of antitrust laws.
AT&T protested, the FCC agreed with AT&T, MCI appealed, and the Court of Appeals in 1977 ruled that MCIs actions were lawful. AT&T was compelled to connect MCI (and other competitors) to the switched marketplace.
In 1984, after a 10-year antitrust suit, Judge Harold Greene of the D.C. Federal District Court approved an agreement between the U.S. Department of Justice and AT&T that split the Bell System into AT&T and seven Baby Bells NYNEX, Bell Atlantic, Bell South, Ameritech, Southwestern Bell, U.S. West, and Pacific Bell. This agreement molded todays calling environment, with competitive long-distance services and far greater consumer choice. Today the availability and cost of services is far superior to what was available ten years ago, before these profound changes.
Today, equally profound changes are taking place. The Telecommunications Reform Act of 1996 promises to be just as far reaching as the AT&T divestiture was 10 years ago.
AT&T, for example, is already carrying Primestar satellite direct television under its name. Many of the Bell operating companies (i.e., the Baby Bells) are delivering cable TV services in both their areas and in other companies service areas.
The near future may hold the Internet channel from cable TV providers. Motorola, for example, is rolling out hundreds of thousands of cable modems designed to allow users to surf the Internet at 10M bps, which is more than 150 times faster than an ISDN line, and more than 300 times faster than the fastest modem technology available today. Cable companies and competitive local exchange carriers are also making heavy investments in switching technology to go after the local telephone company monopoly.
Users who want single providers can get one for local, long-distance, private line, and Internet services from competitive local exchange carriers. Billions are being spent building out local networks, usually with vastly superior technology. The availability of this leading-edge technology at truly competitive prices will be unsurpassed as a milestone in development of the nations telecommunications infrastructure.
More ventures, such as the recent announcement of British Telecoms acquisition of MCI, can be expected as position jockeying continues between the giant telecommunications companies worldwide. These events only scratch the surface at the highest levels when attempting to explain the major paradigm changes taking place right now. Smart technologists are honing their skills to take advantage of these remarkable opportunities before their competition does.
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