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Controlling Market Power in Telecommunications: Antitrust Vs

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Controlling Market Power in Telecommunications: Antitrust Vs ARTICLE CONTROLLING MARKET POWER IN TELECOMMUNICATIONS: ANTITRUST VS. SECTOR- SPECIFIC REGULATION An Assessment of the United States, New Zealand and Australian Experiences By Michel Kerft and Damien Geradint ABSTRACT The authors set out a framework for evaluating different approaches to the economic regulation of telecommunications. They then evaluate the United States, New Zealand, and Australian experiences with tele- communications regulation through this framework. The United States uses a sector-specific approach to telecommunications regulation, while New Zealand uses a general antitrust approach. Australia melds these two contrasting approaches together, complementing general antitrust rules with telecommunications-specific rules within the same antitrust legislation. The authors conclude that, on balance, the Australian ap- proach provides many features desirable in the economic regulation of telecommunications. TABLE OF CONTENTS 1. INTRODUCTION ....................................................................................................... 92 1 II. CONCEPTUAL FRAM EW ORK .................................................................................... 922 A. M arket Power and Telecommunications ........................................................ 922 B. Rules .............................................................................................................. 927 1. A ntitrust R ules ........................................................................................ 927 2. Telecommunications-SpecificRules ....................................................... 928 C . Institutions ..................................................................................................... 928 1. Antitrust A uthorities ............................................................................... 929 2. Telecommunications Regulatory Agencies ............................................. 930 © 1999 Michel Kerf and Damien Geradin. t Special Assistant to the Vice-President, Private Sector Development and Infra- structure, The World Bank, Washington D.C. f Associate Professor of Law, University of LiEge Law School and Professor of Law, College of Europe, Bruges, Belgium. Director, Regulation and Competitiveness Project, Yale University. Mr. Geradin gratefully acknowledges the financial assistance of the "PAl," a research program initiated by the Belgian State, Prime Minister's Office, Science Policy Programming. BERKELEY TECHNOLOGY LAW JOURNAL [Vol. 14:919 D. Six Criteria to Evaluate Different Frameworks for the Economic Regulation of Telecommunications ............................................................... 932 III. THE UNITED STATES EXPERIENCE .......................................................................... 935 A. Origins of the Present Regulatory Framework .............................................. 935 B . M ain R ules ..................................................................................................... 939 1. Telecommunications-SpecificRules ....................................................... 939 a) Local Competition Provisions ........................................................... 939 b) BOCs Entry Into the Long-Distance Market .................................... 941 c) End of the Ban on Competition Between Cable Television and Local Telephone Services Providers ................................................. 942 d) Universal Service Obligations .......................................................... 943 2. A ntitrustR ules ........................................................................................ 944 C . M ain Institutions ............................................................................................ 946 1. Federal Communications Commission ................................................... 946 2. State Utility Commissions ....................................................................... 947 3. The Department of Justice, Antitrust Division........................................ 948 4. F ederal Courts ........................................................................................ 950 D. Implementation of the Regulatory Framework .............................................. 950 1. Adoption of the Local Competition Order.............................................. 951 2. Adoption of the Universal Service and Access Charge Reform Orders..952 3. Rejection of BOCs' Section 271 Applications ........................................ 953 4. Mergers Between Operators................................................................... 954 E. Critical Appraisal of the United States's Regulatory Framework .................. 955 1. Promotion of a Competitive Market Structure ....................................... 955 2. Specificity vs. Coherence........................................................................ 958 3. Flexibility vs. Certainty.......................................................................... 959 4. Autonomy, Technical Competence, and Stakeholder Participation....... 960 5. Limitation of Regulatory Costs ............................................................... 962 6. Efficiency of the Allocation of Responsibilities...................................... 962 IV. THE NEW ZEALAND EXPERIENCE ........................................................................... 965 A. Origins of the Present Regulatory Framework .............................................. 965 B. Regulatory Framework: Main Rules .............................................................. 966 C. Regulatory Framework: Main Institutions ..................................................... 968 D. Implementation of the Regulatory Framework .............................................. 970 1. Telecom's Standard InterconnectionOffer ............................................ 970 2. Clear-Telecom Long Distance InterconnectionAgreement ................... 970 3. Cases on the Scope of the Commerce Commission's Competency ..... 971 4. Cellular FrequenciesCases .................................................................... 972 5. BellSouth- Telecom Mobile InterconnectionAgreement ......................... 973 6. Access to the Local Loop Cases.............................................................. 973 7. R ecent Developm ents .............................................................................. 977 E. A Critical Appraisal of the New Zealand Regulatory Framework ................. 978 1. Promotion of a Competitive Market Structure ....................................... 979 2. Specificity vs. Coherence........................................................................ 983 3. Flexibility vs. Certainty.......................................................................... 984 4. Autonomy, Technical Competence, and Stakeholder Participation... 985 5. Limitation of Regulatory Costs ............................................................... 988 6. Efficiency of Allocation of Regulatory Responsibilities.......................... 988 V. THE AUSTRALIAN EXPERIENCE ............................................................................... 989 A. Origins of the Present Regulatory Framework .............................................. 989 1999] MARKET POWER IN TELECOMMUNICATIONS B. Regulatory Framework: M ain Rules .............................................................. 991 C. Regulatory Framework: M ain Institutions ..................................................... 996 D. Implementation of the Regulatory Framework ............................................ 1001 1. Declarations of Services ....................................................................... 1001 2. Controlling Telstra 's Market Power .................................................... 1002 3. Recent D evelopm ents............................................................................ 1003 E. A Critical Appraisal of the Australian Regulatory Framework ................... 1003 1. Promotion of a Competitive Market Structure ..................................... 1003 2. Specificity vs. Coherence ...................................................................... 1005 3. Flexibility vs. Certainty ........................................................................ 1006 4. Autonomy, Technical Competence, and Stakeholder Participation..... 1007 5. Limitation of Regulatory Costs ............................................................. 1009 6. Efficiency of Allocation of Regulatory Responsibilities........................ 1009 V I. COM PARATIVE ANALYSIS ..................................................................................... 1010 A. Promotion of a Competitive Market Structure ............................................. 1010 B . Specificity vs. Coherence ............................................................................ 1013 C . Flexibility vs. C ertainty ............................................................................... 1014 D. Autonomy, Technical Competence, and Stakeholder Participation ............. 1015 E. Limitation of Regulatory Costs .................................................................... 1016 F. Efficiency of the Allocation of Responsibilities .......................................... 1016 V II. C O NCLU SIO N ......................................................................................................... 10 17 I. INTRODUCTION Over the last two decades, and with rapid acceleration in recent years, a large number of countries
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