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An Overview of Telecommunications Regulatory Issues and Law

This presentation provides an overview of the telecommunications regulatory framework in the United States, with a focus on the Telecommunications Act of 1996. It highlights regulatory policy issues and their effects on businesses like Enron. The presentation covers topics such as federal and state regulation, wireline services, historical background, regulatory players, and the goals of the Telecommunications Act.

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An Overview of Telecommunications Regulatory Issues and Law

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  1. An Overview of Telecommunications Regulatory Issues and Law Scott D. Bolton Director, Government and Regulatory Affairs Enron Corp.

  2. Presentation Goals • Provide Regulatory Background • Understand TA’96 • Highlight Regulatory Policy Issues • Effects on EBS and other Enron Businesses

  3. OVERVIEW • U.S. Regulatory Framework • Federal regulation • Historical background • The Telecommunications Act of 1996 • FCC implementation & judicial review • State regulation

  4. Wireline Services Historic Dividing Line: Interstate vs. Intrastate Blurring the Boundary Customer premises equipment “CPE” Jointly used network facilities Internet TA 96: increased Federal role U.S. REGULATORY FRAMEWORKFederal -State Division of Authority

  5. U.S. REGULATORY FRAMEWORKThe Regulatory Players • Congress • White House • Executive Branch • Commerce Department (NTIA) • Justice Department • State Department • U.S. Trade Representative

  6. U.S. REGULATORY FRAMEWORKThe Regulatory Players • Federal Communications Commission • Chairman & four commissioners • Five bureaus • Other offices • Functions • Rulemaking • Licensing • Enforcement

  7. U.S. REGULATORY FRAMEWORKThe Regulatory Players • Rulemaking Procedures • Public notice • Comments & replies • Ex parte communications • Orders • Reconsideration • Appeal • Remand

  8. U.S. REGULATORY FRAMEWORKHistorical Background • The Old Order Telephony viewed as a natural monopoly • Bell System bundled local, long-distance & CPE • Government regulation of rates & service terms • Inter-service subsidies used to promote universal service • 1956 Consent Decree barred Bell System from non-telecom markets

  9. U.S. REGULATORY FRAMEWORKHistorical Background • Start of Competition • FCC’s 1956 Hush-A-Phone & 1968 Carterfone decisions allowed consumers to attach competitively provided CPE to the public telephone network • 1980 Computer II Order directed AT&T to “unbundle” & “detariff” CPE • AT&T permitted to provide CPE & “enhanced services” through a structurally separate affiliate • Bell System required to interconnect with “competitive carriers”

  10. U.S. REGULATORY FRAMEWORKHistorical Background • Modification of Final Judgment (1984) • AT&T divested its local exchange operations to seven regional Bell Operating Companies (“BOCs”) • BOCs limited to providing “intra-LATA” telecom services; barred from CPE & “information services” markets • Three Assumptions • The local exchange would remain a natural monopoly • The BOCs would be content to limit their activities to regulated telecom • Decree would be “self-enforcing”

  11. U.S. REGULATORY FRAMEWORKThe Telecommunications Act of 1996 • Principal Goals • ” Update 1934 Communications Act to reflect market & technological changes • Reassert congressional control • Promote competition • Reduce regulation • Preserve the States’ role • Enhance universal service • Combat “indecency”

  12. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • Introduction of Local Competition: The Three-Part Strategy • Eliminate legal barriers • Preempt state-granted telecom monopolies • Eliminate Federal restrictions

  13. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • Promote entry by competitive local exchange carriers (“CLECs”), which can: • construct new facilities • resell service of the incumbent LECs (“ILEC”) • lease unbundled network elements (“UNEs”) from ILECs, where necessary

  14. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • Provide incentives to ILECs to cooperate with new entrants • Eliminate BOC “line of business restrictions” once local markets are open • Deregulate as competition takes root

  15. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • In order to provide in-region, inter-LATA telephone service in any State, a BOC must: • enter into an interconnection agreement with at least one facilities-based competitor • comply with 14 point “competitive checklist” • establish a separate affiliate • obtain FCC approval

  16. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • Cable-Telco Competition • State restrictions on cable telephony voided • Telcos permitted to provide video service as common carrier, cable system, or open video system • LEC-cable cross-ownership limited to 10 percent

  17. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • Universal Service • “Evolving level of telecom services” that FCC determines should be affordable to all Americans • Funding to be “explicit” & “sufficient” • All telecom providers to contribute equitably • Special emphasis on rural areas, high-cost areas, schools, libraries & health care providers

  18. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • Advanced Services • FCC to assess availability of “advanced services” such as broadband used for high-speed Internet access • FCC to eliminate regulatory barriers to deployment

  19. U.S. REGULATORY FRAMEWORKThe Telecommunications Act Communications Decency Act • Restricts sending of “obscene” & “indecent” material over the Internet, TV & cable • Criminalizes use of the Internet to post “indecent” information in a manner “available” to minors • Directs creation of a TV rating system • Requires cable operators to “scramble” sexually explicit programming

  20. U.S. REGULATORY FRAMEWORKThe Telecommunications Act • Deregulation • FCC must forbear from applying statutory or regulatory requirements not necessary to protect consumers & public interest • Forbearance petitions deemed granted if no FCC action within one year • FCC required to conduct biennial review; must eliminate regulations no longer needed

  21. U.S. REGULATORY FRAMEWORKFCC Implementation • Major Proceedings • Competition Trilogy • Local Competition Order • Access Reform Order • Universal Service Order • BOC entry • Advanced services • Forbearance/Deregulation

  22. U.S. REGULATORY FRAMEWORKFCC ImplementationLocal Competition Order • ILECs & CLECs to negotiate interconnection agreements; parties can agree on any terms; disputes arbitrated by State PUCs • Minimum national standards for States to apply in any arbitration • Points of interconnection • Seven network elements to be unbundled • Collocation obligations

  23. U.S. REGULATORY FRAMEWORKFCC Implementation • Pricing • Total element long run incremental cost (“TELRIC”) pricing for interconnection, collocation & UNEs • “Avoided cost” for resale • ILEC also must: • allow CLEC to “pick-and-choose” provisinos in existing interconnection agreements • provide “UNE Platform”

  24. U.S. REGULATORY FRAMEWORKFCC Implementation • Access of rights-of-way • ILECs must provide competing carriers with access to poles, ducts, conduits & rights-of-way • Utilities must grant telecom carriers non-discriminatory access to all poles, ducts, conduits & rights-of-way • May apply capacity, safety, reliability & general engineering standards • Federal requirements (FERC & OSHA) apply • State & local requirements entitled to deference

  25. U.S. REGULATORY FRAMEWORKFCC Implementation • Universal Service Order • Federal support tripled to nearly $5 million per year • Rural & high-cost support: Federal fund to pay 25% of difference between TELRIC & national average price • Support for low-income users increased to $500 million per year • New $400 million per year program for health care providers • New $2.25 billion per year program to provide schools & libraries with telecom, Internet access & “internal connection”

  26. U.S. REGULATORY FRAMEWORKFCC Implementation • Carriers & private telecom providers must take payments to the Universal Service Fund (“USF”) • Payments based on intrastate, interstate & international “end-user telecom revenue” • Payments equal 3 to 5 percent of revenues • Information service providers (“ISPs”) not required to make direct USF payments

  27. U.S. REGULATORY FRAMEWORKFCC Implementation • Access Reform Order • Interexchange carriers (“IXCs”) must pay LECs for local facilities used to orginate & terminate long-distance traffic -- $20 million per year at issue • ISPs not required to pay • FCC goals • Rate structure should reflect cost structure • Rate level should fall to cost

  28. U.S. REGULATORY FRAMEWORKFCC Implementation • Advanced Service Orders • Deployment adequate at this early stage • No current need to order “open access” to cable infrastructure • ILECs need not offer facilities used to provide enhanced services, such as DSLAMs, as unbundled network elements

  29. U.S. REGULATORY FRAMEWORKFCC Implementation • Forbearance/Deregulation • Elimination of tariff filing requirements by IXCs & CLECs (stayed by court) • Elimination of “all carrier” network interface disclosure • Proposed elimination of restrictions on bundling telecom service with CPE & information services

  30. U.S. REGULATORY FRAMEWORKJudicial Review • Every major FCC decision now routinely appealed • FCC has generally won, but has suffered a few significant losses • Appeals process has caused delay & uncertainty

  31. U.S. REGULATORY FRAMEWORKThe States • State Public Utility Commissions (“PUCs”) Regulate Intrastate Telecommunications Services • Issue certificates of public convenience & necessity • Regulate rates of incumbent carriers; some States also regulate new entrants • Enforce intrastate telecommunications service quality standards • Consumer protection

  32. U.S. REGULATORY FRAMEWORKThe States • Local Competition • Arbitrate interconnection disputes, consistent with rules established by the FCC • Augment FCC interconnection rules • Approve or reject interconnection agreements

  33. U.S. REGULATORY FRAMEWORKThe States • BOC Entry Into In-Region, Inter-LATA Market • Approve BOCs’ statements of generally available terms & conditions • Confirm BOC compliance with competitive checklist • Provide recommendations to FCC regarding BOC entry

  34. U.S. REGULATORY FRAMEWORKThe States • Promoting Universal Service • Designate carriers eligible to provide universal service in undeserved areas • May adopt regulations to advance universal service • May require carriers providing instrate service to contribute to the support of universal service • Must adopt rules to prevent carriers from using universal service support payments to cross-subsidize intrastate services

  35. U.S. REGULATORY FRAMEWORKThe States • Authority to regulate public rights-of-way used by telecom providers • States may adopt reasonable & non-discriminatory regulations • Construction schedules • Insurance requirements • Bonding & indemnity requirements • Building codes • Regulations intended to prevent interference with other carriers • Compensation for use of public rights-of-way

  36. U.S. REGULATORY FRAMEWORKThe States • State (and Municipalities) may not adopt franchise regulations that prohibit or impede any entity from providing telecom service • Franchise fees must be competitively neutral • Franchise fee must be reasonably related to the costs of the right-of-way • Franchise authorities may not regulate service providers that do not use public rights-of-way

  37. Regulatory Issues • Broadband Deployment • Government Subsidies • Treatment of New Technologies • Electronic Commerce

  38. Regulatory Issues Broadband Deployment • The Issue --- Infrastructure Deployment Long-term growth of the Internet requires deployment of broadband, packet-switched local data transport networks Regulation or Deregulation? - ILECS promise to deploy “Advanced Services” if FCC eliminates regulatory burdens - CLECS claim those “burdens” are necessary to promote competitive entry into local market

  39. Regulatory Issues Broadband Deployment • Must ILECS allow CLECS to interconnect & lease UNEs at cost-based (TELRIC) prices? • Must ILECS provide data-oriented facilities, such as DLAMS & DSL compatible loops as UNEs? • Must ILECS allow CLECS to collocate equipment on ILEC’s premises? • Must ILECs compensate CLECS for delivering traffic to ISPs?

  40. Regulatory Issues Broadband Deployment • The Issue --- Cable Open Access Cable has the potential to provide consumers faster access to the Internet that the local telecom network - Unlike telecom service, cable operators are generally not required to provide transport services on demand - ISPs are seeking regulations to open access to systems - FCC has chosen to to regulate / some local governments have required opening platform (City of Portland vs. AT&T)

  41. Regulatory Issues Government Subsidies • The Issue --- The impact of Universal Service Fund and E-Rate on emerging Services The FCC has adopted a $2.25 Billion dollar a year program to subsidize schools and libraries access to telecom and Internet services - All providers of telecom services contribute to USF based on “end-user revenue” - Information Services vs. Telecom Services debate

  42. Regulatory Issues Treatment of New Technologies • The Issue --- How to Regulate (non-regulate) emerging services? Historically telephony, cable, broadcasting & information services were viewed as discrete services, convergence is changing regulatory boundaries - Webcasting - IP Telephony

  43. Regulatory Issues Electronic Commerce • The Issues --- When are electronic agreements enforceable? In the event of cross-border disputes, what law applies? How can data security be assured? How should on-line transactions be taxed? - WTO, Bi-Lats, EC Directive - Advisory Commission on Electronic - Commerce - 2000 Presidential Race, 107th Congress

  44. Contacts

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