How Do Legislation and Regulations Affect Telecommunications?

Chapter 11

The Management of Telecommunications:Business solutions to Business Problems

Second Edition

Houston H. Carr and Charles A. Snyder

2Chapter 11

Introduction

Part of the management of telecommunications resources relates to the legal environment.Legal means the rules or laws under which we

must operate.Environment means that part outside the

organization over which we have minimum control or no control, but which controls us.

3Chapter 11

Introduction

The telecommunications industry has been dependent on standards and standardization from the very beginning.

4Chapter 11

Regulation through Feedback

Input

Controller

Process

Comparison

Output

Standards

(Measure)

Correctivemodification

5Chapter 11

Monopoly

A monopoly is generally considered a bad practice.

A monopoly can be achieved by superior performance or a proprietary product.

6Chapter 11

Natural monopoly The basic considerations for a natural

monopoly, or public utility, are1. The capital expenditure to create the entity

is large;2. Having redundant facilities, as would to be

the case in competition, would unduly drain the resources of all competition (wasteful duplication); and

3. The service is required by many firms and individuals.

7Chapter 11

Natural monopolies

There are two ways to handle natural monopolies:Nationalize them and have full government

operation orRegulate them as privately owned industries.

8Chapter 11

Deregulation Deregulation returns control of the industry

to the market forces of competition, generally followed by changes in prices.

The intent of deregulating a portion of the telecommunications industry in the U.S. was to provide better, more economical service and new, more flexible products to telecom customers and to open the market to competitive forces.

9Chapter 11

Depreciation Depreciation is an accounting

consideration to account for value under tax laws.

Depreciation severely impacts the ability of owners to replace aging equipment.

10Chapter 11

Tariff A tariff is a list of regulated

telecommunications services and rates to be charged.

A tariff describes the service in detail, gives the rationale for offering it, and lists the price and basis for charging customers.

11Chapter 11

Example of tariffs for

telecommunications services

1. Charge for time (long-distance call, based on time and distance)

2. Flat rate for full-time use (leased line)

3. Monthly minimum (phone bill)

4. Amount of data sent (packet data transmission)

12Chapter 11

Bypass A bypass is a system that goes around

what would be considered normal telecommunications services.

13Chapter 11

Technologies Used in Bypass

Telco facilities Digital termination systems

Fiber optics facilities Teleports

Microwave and satellite Private T1s

Private WANs Cellular telephone

Shared Tenant Services (STS)

Common carrier WANs and VANs

Private Communications systems

Alternate local loop providers (CATV)

14Chapter 11

Levels of Bypass

Leased, hard-wireddata circuit

Facilitiesbypass

Third-partymicrowave circuit

PBX Direct toIXC-POP

Company-owned WAN

Totalbypass

15Chapter 11

Public Service Commissions (PSCs)

Public Service Commissions (PSCs) are the state regulatory agencies that agree to tariffs and assign utility franchises. Also called Public Utility Commission (PUC)

Regulation, Deregulation, and Divestiture

17Chapter 11

The Sherman Act of 1890 The Sherman (Antitrust) Act of 1890 is the

cornerstone of antitrust policy on the U.S. It is the first and most basic antitrust law. It resulted from a variety of social,

economic, and political factors that came together at the end of the 1800s.

18Chapter 11

Primary Tenets of Sherman Antitrust Act

a) Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal...

b) Every person who shall monopolize or attempt to monopolize, or combine or conspire with other person or persons, to monopolize any part of trade or commerce among several States, or with foreign nations, shall be deemed guilty.

19Chapter 11

Graham Act Enacted in 1921 Recognized and legitimized AT&T’s natural

monopoly and the monopolies of independent Telcos in their region

Exempted the telecommunications industry from the provisions of the Sherman Antitrust Act.

Lead to the concept of common carrier being applied to telecommunications industry.

20Chapter 11

Communications Act of 1934 Beginning in 1910, the Interstate

Commerce Commission regulated wire communications.

The Communications Act of 1934 created the Federal Communications Commission.

21Chapter 11

Communications Act of 1934

The Act states:

“...for the purpose of regulating interstate and foreign commerce in communications by wire and radio so as to make available, so far as possible, to all the people of the United States a rapid, efficient nationwide and worldwide wire and radio and communication service with adequate facilities at reasonable charges.”

22Chapter 11

Tariff responsibilities In the United States, tariffs within a state are

handled by state agencies called Public Utility Commissions (PUC), or Public Service Commissions (PSC)

When services described in the tariff cross state boundaries within the United States, the FCC is involved.

In many other countries, one agency does both jobs Postal, Telephone, and Telegraph (PTT)

administration.

23Chapter 11

Universal Services

Universal Services is a vision that everyone in the United States should have equal access to reasonably priced telephone service.

24Chapter 11

AT&T Consent Decree 1956 The AT&T consent decree was an out-of-court

settlement between the U.S. Department of Justice and AT&T.

Limited the activities Bell System companies to the telephone business.

Limited Western Electric to the manufacture of equipment exclusively for Bell System companies.

Kept AT&T and Bell systems out of data-processing activities.

25Chapter 11

Carterfone Decision of 1968 FCC decision allowed Carter Electronics

Corporation to connect its mobile radio system to the Bell network.

FCC concluded that the interconnecting device would not adversely affect the network.

Decision opened the door to the interconnect industry.

26Chapter 11

MCI Decision In the late 1960s, Microwave Communications

Incorporated (later called MCI) petitioned the FCC to be allowed to compete in exclusive full-time intercity telecommunications links to organizations (i.e. the long-distance market)

The result of the MCI decision required phone companies to interconnect MCI and other long-distance carriers to local customers.

Lead to the creation of long-distance carriers such as Sprint® and MCI WorldCom®.

27Chapter 11

Computer Inquiry I (CI-I) In 1971, the FCC stated that the

telecommunications industry would remain regulated, but the data-processing industry would not.

Had a significant impact on AT&T’s willingness to accept the consent decree.

28Chapter 11

Open Skies Policy of 1971 The Open Skies Policy ruled that anyone

could enter into the communications satellite business.

It said that if a person or firm has the money and there exists an opening in the particular part of the sky where they wanted to place a transponder, they could place a satellite in orbit and use or rent its channels.

29Chapter 11

Department of Justice Antitrust Suit U.S. Department of Justice filed an

antitrust suit against AT&T because of the company’s dominance of the local and long-distance telephone networks.

Out of this suit came the Modified Final Judgment and the divestiture and reorganization of AT&T.

30Chapter 11

Computer Inquiry II (CI-II) in 1981 One of most important reviews of the

telecommunications industry.1. Computer companies could transmit data on

an unregulated basis2. The Bell System was allowed to be in the

data-processing (DP) market.3. Customer premise equipment and enhanced

services were deregulated.4. Basic communications services would

remain regulated.

31Chapter 11

Computer Inquiry II (CI-II) in 19815. No cross-subsidization of product lines was permitted6. Enhanced services, that is, where some processing of

the information being transmitted or some value was added, were not regulated.

7. LEC customers had equal access to all long-distance companies (IXCs).

8. The BOCs would deal in basic services, which would be tariffed and regulated, and excluded from the transportation of information and the manufacture of equipment

9. The Modified Final Judgment of 1982 was produced

32Chapter 11

Modified Final Judgment and Divestiture

The breakup of AT&T was effective on January 1, 1984.

AT&T retained long-distance and manufacturing capabilities

They divested the operating companies and was released from the 1956 restriction on entering the consumer computer business.

33Chapter 11

Modified Final Judgment and Divestiture

Divestiture separated 22 Bell Operating Companies (BOCs), known as the Bell System, from AT&T, and grouped them into seven Regional Bell Operating Companies (RBOCs).

This involved the wired telephone system. BOCs and RBOCs have merged twice

since 1984, recreating large areas of influence.

34Chapter 11

Local Access and Transport Areas (LATA)

At the time of divestiture, the United States was divided into about equal geographic or population size.

These areas are called local access and transport areas (LATAs).

Services across LATA boundaries must be carried by Inter-exchange carries (IXCs).

35Chapter 11

Local Exchange Carriers (LECs) The Local Exchange Carrier (LEC) is the

local telephone company (where local competition existed).

The LEC in place at the time of divestiture is referred to the Incumbent LEC (ILEC).

A telephone company entering a local area after the time of divestiture is called a Competitive LEC (CLEC).

36Chapter 11

Telecommunications Act of 1996 The first major telecommunications action

since the Communications Act of 1934. The law made it possible for more

businesses to enter the telecommunications market.

Allows new services to be offered by new providers who were previously denied entrance to specific parts of the industry.

37Chapter 11

Telecommunications Act of 1996 What the Telecommunications Act of 1996

specifically did was Allows Bell Operating Companies to offer long-

distance service Frees long-distance carriers to offer local service Permits cable companies to offer telecommunications

services Lets telecommunications carriers provide video

programming

38Chapter 11

Telecommunications Act of 1996 Makes online service providers restrict indecent

material (has been overturned in court) The Telecommunications Act of 1996 also

allows electric utility companies to provide phone and cable service.

Most electric utilities have extensive telecommunications infrastructure installed to serve utility management and, by using their transmission towers, they have access to valuable right-of-ways.

39Chapter 11

Digital Millennium Copyright Act

The Digital Millennium Copyright Act (DMCA) prohibits the circumvention of copy protection, and the distribution of devices that can be used to

circumvent copyrights. The law was enacted in 1998. The DMCA seeks to update U.S. copyright

law for the digital age.

End of Chapter 11

The Management of Telecommunications:

Houston H. Carr and Charles A. Snyder