CHAPTER 9 The End of Regulation: 1984 to 1996 "If You Want To Play In Our Revolution, You Have To Live By Our Rules" Newt Gingrich 313 The Emergence of the Information Society By the mid 1980s, the RBOCs found themselves dealing directly with the F. C. C., an organization that had, previously, been solely the responsibility of the national A. T. & T. headquarters. The MFJ divestiture required that all the local loops had to be open for interconnection to any long distance provider. The RBOCs were thus required to develop access charges to their local exchanges outside the traditional A. T. & T. accounting and costing procedures, and to submit the proposed charges to the F. C. C. for their approval. Beginning in 1983, the F. C. C. notified all the long distance providers that it was the agency's intention to approve a gradual phase-in of residential access charges, starting with a modest $2.00 per residential line, which would eventually rise to $7.00 per line (F. C. C., "ENFIA", 1983). The F. C. C.'s announcement of local access charges confirmed Congress's worse nightmare, namely that local telephone rates would rise after divestiture. While the approval for local access charges was pending in the F. C. C., A. T. & T. filed, with the F. C. C., a request for a substantial increase in their long distance rates. The request for increases in long distance rates further confirmed Congress's fears that telephone rates would substantially increase after the MFJ divestiture ("Washington Post", 1983: A 27). The other long distance providers objected to both increases, claiming that the local access charges would be biased in favor of A. T. & T. Since A. T. & T. could negotiate greater discounts with the local Bells due to it's large volume of use, the proposed long distance charge increases for A. T. & T. would be offset by a low access charge. The end result of the negotiation between A. T. & T. and the local Bells, it was charged, would be a form of rate subsidy for long distance charges that would only benefit A. T. & T.. The other long distance providers claimed that since they would be unable to negotiate the same levels of local discounts, they would be left with higher local access charges, which would be reflected in higher long distance charges than A. T. & T., or lower profits. In the end, it was claimed, the benefits of true market competition would be denied the average consumer (F. C. C., "Fowler":, 1983). In order to stop the increase in rates, especially in the local exchanges, Congress attempted to pass two bills to deal with the issue. In 1983, Representative Al Gore of Tennessee introduced a Bill targeted at capping residential rates. Congress approved the Gore measure, which capped both residential and rural telephone rates. But the Gore Bill did nothing in terms of addressing the necessity of developing full-costing procedures for setting either local or long distance rates. Rather than resolving the issue of cross- subsidy, the bill further complicated the process of deregulation by artificially blocking the process of rate increases in order to reflect true operating costs rather than the traditional methods of cross subsidy support. Two years later, in 1985, Representative John W. Bryant, Democrat from Texas, introduced a bill in Congress that would have required that the RBOCs charge new long distance carriers lower local access charges than A. T. & T. The F. C. C. oppossed the bill, claiming that it favored one commercial group over another, and, ultimately, would not lead to equal access. Bryant's Bill, eventually, failed. Even before the introduction of the Gore and Bryant Bills, the F. C. C. had decided to try to clarify the distinctions between separate monopoly services versus competitive services. Several years before the MFJ, the F. C. C. had held a Computer Inquiry that examined the conditions under 314 which A. T. & T. could enter the newly emerging data processing line of business. The MFJ, and its subsequent separation of the Bell affiliates, made the older Inquiry rulings irrelevant. Starting in 1982, the F. C. C. began to examine the new telecommunications landscape, and determined that A. T. & T. should be allowed to enter the computer services markets. The reasoning behind the F. C. C.'s ruling was that the MFJ separation was hurting A. T. & T., and its customers, by restricting access to advanced telecommunications services. Since the market was now competitive, according to the F. C. C. reasoning, there were no structural reasons why A. T. & T. should be prohibited from entry into advanced telecommunications services (F. C. C., "Brief", 1982: 29 - 52).. The RBOCs, and the other long distance carriers, objected to the F. C. C. position. The other long distance carriers felt that A. T. & T.'s sheer size gave them an unfair advantage in competition with these new types of services. The RBOCs' objection, on the other hand, was based on the position that the lifting of restrictions on A. T. & T. should only be allowed if the various restrictions on the RBOCs services were also relinquished (Telecommunications Report, 1985: 40). While the F. C. C. did not give a great deal of credence to the other long distance carriers positions, it did support the RBOCs position. The F. C. C. had filed an amicus curiae brief with Judge Greene, arguing that since competition now existed within the long distance market, the restrictions against the RBOCs entry into long distance should be removed. Judge Greene refused to endorse the F. C. C. position, claiming that the RBOCs continued control of local exchanges would result in a return to the old monopoly if they were allowed entry into long distance service. Thus the restrictions against the RBOCs entry into long distance remained in place (Telecommunications Report, 1985: 40). By 1986, Senator Bob Dole, Republican from Kansas, had grown weary of the amateur regulatory process being exercised by both Judge Greene and the Justice Department. With the support of the RBOCs and A. T. & T., Dole introduced a Bill into Congress that sought to incorporate the MFJ provisions into the F. C. C. 's rules (Telecommunications Report, 1986: 1 - 3). To Dole, and Congress's, surprise, the lobbyist for the American Newspaper Publishers Association (ANPA) organized a massive campaign against the Dole Bill. ANPA had achieved its primary goal under Judge Greene's MFJ, namely a prohibition on A. T. & T.'s entry into electronic publishing. The previous F. C. C. position concerning lifting the prohibition on both A. T. & T. and the RBOCs "line-of-business" services, meant, to ANPA, that the prohibition against electronic publishing would probably be rescinded by the F. C. C. if the agency had authority over the MFJ conditions. ANPA was not prepared to face competition in electronic publishing from the telephone companies, and argued, in Congress, that A. T. & T.'s size and national network would give it an unfair advantage. ANPA was successful in killing the Dole Bill (Telecommunications Report, 1986: 2). After 1986, Congress found itself unable to effectively mount an effort to reform the telecommunications industry. The continuing oversight, and rulings, by Judge Greene's court, coupled to the expanding network of commercial interest groups involved in the debate over telecommunications reform, drove the debate into a confusing labyrinth of technical and economic positions based upon different sets of values and legal principles, plus economic models that seemed to have no relationship with each others findings. 315 Trying to locate a common ground for a new regulatory structure, Congress began the long process of gathering information from the wide variety of groups interested in telecommunications reform. Hearings were held, extensive analysis were conducted by O. T. A. and the Commerce Department, and Bills were introduced that often failed to be passed out of committee. Every major and minor group, with any level of interest in the policy area, had an opportunity to present their views. In the end, though, there did not appear to exist a consensus as to what should be done, or what values should undergird a new form of telecommunications policy. Telecommunications appeared to be an area that contained no clear direction for the future. But as a consequence of the failure to develop a new policy, telecommunications development In the United States slowed, and the 580 million dollar trade surplus the United States had in 1981 in the international telecommunications market, turned into a 2.6 billion dollar trade deficit (O. T. A., 1990: 361 - 380). The main area of contention in reaching a new policy continued to revolve around the restructuring proposal enacted under Judge Greene’s MFJ. Greene had opened all long distance service to competition, but maintained local access monopolies under the seven RBOCs. This had resulted in a situation where A. T. & T. found itself in conflict with the entities it formally controlled, the local Bell divisions. In essence, the RBOCs, regulated by the PUCs, controlled all call routing within their local areas. Long distance carriers had to originate and terminate calls through the local telephone lines. At the same time, the RBOCs were prohibited from offering any long distance service, and required to allow their local business and residential customers a choice as to which long distance provider they would use for long distance calls. Thus there was established a symbiotic relationship, similar to the original arrangement established by Hubbard when the company was founded in the 1870s, between local and long distance providers, each dependent on the other for what historically had been seen as a total telephone package (both local and long distance access).