The Telecommunications Competition Program

The promotion of competition in telecommunications has been one of the Antitrust Division's most significant accomplishments of the past three decades and will be one of its greatest continuing challenges in years to come.

For most of the twentieth century, the telecommunications industry in the United States was a regulated monopoly. In the late 1960s, the Antitrust Division participated in FCC proceedings and successfully advocated the introduction of competition into long-distance telephone service. In 1974, the Justice Department filed a monopolization case against AT&T, seeking structural relief that would permit the long-distance competition then authorized by the FCC to develop. That case was resolved through the entry of a consent decree in 1982, which involved a breakup of AT&T. The breakup was highly controversial, but subsequent experience proved its wisdom. Competition grew and flourished. By the mid-1990s, the lower prices and rapid innovation generated by competition and deregulation of long-distance telephone service and telecommunications equipment manufacturing in the United States prompted U.S. policy makers to seek to extend competition more broadly throughout the domestic telecommunications industry. This effort culminated in the passage of the Telecommunications Act of 1996, which eliminated legal restrictions on competition in local telephone service and firmly established a fundamental national policy favoring competition and deregulation in all telecommunications markets. The new competitive environment created by the Telecommunications Act presented several competition advocacy challenges for the Antitrust Division, which are reflected in its activities since 1996.

1. Opening Local Telecommunications Markets. The Telecommunications Act of 1996 created opportunities to eliminate the most important remaining monopoly in the telecommunications industry—the monopoly of local telecommunications services controlled by the Bell Operating Companies (BOCs) and other incumbent local exchange carriers. The Antitrust Division has worked to maximize those opportunities by successfully advocating principled and procompetitive interpretation and implementation of the local market opening provisions of the Act.

To that end, the Division filed extensive comments in the FCC's Local Competition rulemaking advocating principles that the FCC adopted when it promulgated its local competition rules. The Division then worked closely with the FCC in defending those rules (and the FCC's rulemaking jurisdiction) in the Eighth Circuit and before the Supreme Court, which largely upheld the FCC's procompetitive rules. The Antitrust Division also assisted in successfully defending actions in which the constitutionality of the 1996 Act's transitional restrictions on the BOCs were challenged. Assistant Attorney General Joel Klein successfully argued in the U.S. Court of Appeals for the Fifth Circuit that the restrictions on the BOCs do not constitute a "bill of attainder" and are not otherwise unconstitutional.

The Antitrust Division has also assisted in monitoring and filing amicus briefs in the numerous district court and court of appeals cases under Section 252 of the Telecommunications Act, reviewing arbitrated interconnection agreements between incumbent local exchange carriers (LECs) and new entrants. These efforts have helped to produce a substantial body of precedent supporting appropriate, procompetitive interpretations of the market-opening requirements of Sections 251 and 252 of the Act.

These litigation victories have been critically important in establishing a solid legal foundation for the market-opening process contemplated by the 1966 Telecommunications Act, but litigation victories will not, by themselves, create competition. Successful competition will also require incumbent LECs and new entrants to implement the technically complex arrangements for interconnection and access to the incumbents' ubiquitous local networks.

The development of these arrangements has been the focus of a substantial portion of the Division's efforts in connection with its review of long-distance service applications by the BOCs under Section 271 of the Act. In late 1996, the Division solicited public input concerning the standard that it should use in reviewing these applications, and concluded that it would support Section 271 applications only if the applicant demonstrated that its local market was "fully and irreversibly open to competition." The FCC adopted an interpretation of the critical threshold requirements of Section 271 that followed the Division's recommendations. The agency's decision was affirmed by the D.C. Circuit Court of Appeals. The Division has explained in detail—in its formal evaluations of Section 271 applications, in speeches, and in its frequent discussions with interested parties—how it will apply that standard in evaluating many specific controversies that can be expected to arise in connection with the market-opening process. The Division has devoted substantial resources to the continuous monitoring of the BOCs' market-opening efforts, through discussions with the BOCs, competing carriers, consumer groups, state commissions, and others. As a result of this process, many of the requirements for a successful 271 application have been met by a number of BOCs, and the Division is hopeful that successful applications, demonstrating fully and irreversibly open markets, will be filed in the near future.

These efforts have led to substantial entry by competitive local exchange carriers (CLECs). Using exclusively their own facilities or a combination of their own facilities with elements of the BOCs' networks, these CLECs are providing local telecommunications services to an increasing number of customers. CLECs had installed more than 800 voice switches by the end of 1999, compared to a total of 139 voice switches in 1996. CLECs tripled the size of their local fiber transmission networks from 1996 to 1999. As of June 1999, CLECs had obtained approximately 685,000 unbundled loops from incumbents (an increase of 180 percent over the previous year) and had collocated in wire centers serving 60 percent of all lines in the country (compared to 32 percent the previous year). CLECs have achieved local market shares approximating 10 percent in some states, a remarkable achievement in markets that were virtually complete monopolies throughout most of the twentieth century.

2. Promoting Competition in the Global Telecommunications Market. The telecommunications industry is a central component of the emerging global economy. As firms in other markets have expanded the geographic scope of their operations, their need for global communications capabilities, both voice and data, have greatly increased. Improved technology and more competitive telecommunications markets throughout the world have also lowered the costs and prices of telecommunications services, further stimulating demand for international communications.

The globalization of the telecommunications industry has created new challenges for the Antitrust Division. The Division's mission in the global arena mirrors its domestic mission. First, we have worked to support the opening of markets for international telecommunications, a process that will also entail the opening of markets in other countries. These international market-opening efforts will benefit American consumers, who purchase a large share of international telecommunications services. It will also benefit American telecommunications firms, whose experience in competitive domestic markets has positioned them for success in the international arena as well. Second, we have worked closely with telecommunications and competition authorities in other countries, particularly with respect to merger enforcement, to ensure the consistent application of sound policies that will protect competition in international markets.

The transition to deregulated, competitive telecommunications markets will continue to create new challenges for the Antitrust Division in the coming years. That transition is far from complete. In many critically important telecommunications markets, incumbent providers still maintain substantial market power. But the experience in moving to competitive equipment and long-distance markets over the past two decades and more recent experience in extending competition to other markets under the Telecommunications Act has demonstrated the great benefits of competitive markets. Thanks in significant part to the Antitrust Division's activities, consumers today have more choices than ever before in choosing among providers for local telecommunications services, wireless services, video services, Internet services, and international telecommunications services. More importantly, the Division's efforts have helped to create a solid foundation for greater competition in the future and the lower prices, improved technology, and broader consumer choices that such competition provides.