Enhancing competition: are proposed Federal Communications Commission rules that treat local exchange carrier access to multiple tenant environments a taking?

• Author: Gordon, Kathryn

1. INTRODUCTION

   The Telecommunications Act of 1996 (1996 Act) (1) marks a fundamental change in the attitudes of Congress and the Federal Communications Commission ("FCC") toward local telephone exchange carrier policy. (2) While signing the 1996 Act into law, President Clinton said, "[T]oday, with the stroke of a pen, our laws will catch up with our future. We will help to create an open marketplace where competition and innovation can move as quick as light." (3) The 1996 Act codifies a reversal in philosophy from an assumption that local exchange carders ("LECs") are natural monopolists, to a belief that market forces are the best mechanism for prompting innovation and service expansion while maintaining fair rate structures for consumers and resellers. (4) This change has impacted LECs in many ways, including their relationships with the owners of multiple tenant environments ("MTEs"), such as office buildings and apartment complexes. (5)

   Under the 1996 Act, FCC rulemaking increased access of competitive local exchange carriers ("CLECs") to the facilities of incumbent local exchange carriers ("ILECs") by removing competition barriers. (6) Owners of MTEs, however, can also act as barriers to LEC competition. (7) Here, the possible regulatory responses are less clear and more problematic. One answer is to directly regulate MTE owners by requiring that they not enter into exclusive contracts with LECs. There is concern, however, that this response fails to adequately open the market to competition. The FCC proposed directly imposing a nondiscrimination requirement on MTE owners. (8) In fact, the FCC has little or no authority over non-telecommunications providers. Indeed, for many years the FCC left customer premises issues to the marketplace, or state regulatory authority. (9) As an alternative measure, the FCC proposed a more indirect regulatory approach that would forbid LECs from "dealing with MTE owners who maintain a discriminatory policy against competing carriers." (10) However, these additional proposals raise both statutory and constitutional concerns.

   This Note will first review the general purpose behind the 1996 Act. It will then outline the history of LEC access to MTEs under the 1996 Act. Finally, this Note will examine three questions related to proposed FCC rules for nondiscriminatory LEC access to MTEs: The first question is whether the FCC may prevent MTE owners from adhering to discriminatory policies towards LECs through direct regulation without resulting in a taking. The second question is whether the FCC may alternatively prevent MTE owners from adhering to discriminatory policies towards LECs indirectly through regulations preventing LECs from contracting with landlords who are unwilling to act in accordance with the pro-competition spirit of the 1996 Act, or whether this would also result in a regulatory taking. The final question is whether regulation of access to MTEs is required to enhance competition, and if it is counterproductive to the goals underlying the proposed rules.

2. THE HISTORY OF THE TELECOMMUNICATIONS ACT OF 1996 AND LOCAL EXCHANGE CARRIER ACCESS RULES

   1. The Telecommunications Act of 1996

      As a result of the 1996 Act, at the time hailed as the harbinger of a new era of local exchange competition, the FCC began a process of extensive rulemaking in order to implement the wide-ranging provisions of the 1996 Act. (11) This reflects a belief that the change from a highly regulated system to a market-driven system cannot occur without an intermediary period guided by new rules. (12) Whether this belief is accurate or not, it is apparent that the 1996 Act will "fundamentally change[] telecommunications regulation" by supplanting earlier policies that sheltered monopolies with the support of efficient competition. (13)

      The dual (and to a degree conflicting) purposes behind the 1996 Act, as it relates to telephony, were to increase the scope, access, and coverage of a nationwide telephone service (14) and to promote competition in all aspects of telephone services. (15) The first goal, nationwide service, was a codification and expansion of the aim of the Communications Act of 1934 (1934 Act) of "providing telephone service to everyone." (16) The second goal, fostering competition, continued a trend that began in 1954, in the modern era, when Hush-a-Phone Corporation won an action challenging an AT&T tariff prohibiting the attachment of any mechanism not furnished by AT&T to any part of its operating system (17) and persisted with the opening of long-distance service to competition. (18) The 1996 Act finally discarded the long-held belief that LECs were natural monopolies and opened all wire lines to competition. (19) It is this second goal of promoting competition, particularly among LECs, that relates most directly to the subject of this Note.

      Competition is now presumed to be "the best means of promoting rapid deployment of advanced information technologies by the private sector, rather than the government." (20) The 1996 Act enables this increased competition in the communications industry by authorizing the FCC to engage in pro-competitive and, hopefully, deregulatory rulemaking. (21) During this interim, between the pre-1996 Act era and a fully functional competitive market, the industry is moving through informal re-regulation and managed competition in several different ways.

      First, the 1996 Act prohibits indirect and direct unjust preferences or discriminatory practices with regard to communication services. (22) The FCC issued a Special Access Collocation Order mandating LEC-owned essential facilities to allow non-discriminatory access at fair rates. (23) Second, in an expansion of the 1934 Act and the Pole Attachments Act, (24) CLECs were given access to rights-of-way and easements owned or controlled by ILECs and other utilities. (25) This provision was found to be a regulatory taking, but was deemed facially constitutional due to adequate provisions for ensuring just compensation. (26) Third, although the 1996 Act "does not preempt the authority of state and local governments `over decisions regarding the placement, construction, and modification of personal wireless service facilities' within their jurisdictions, it nevertheless imposes substantive and procedural limitations on the power of local authorities to make zoning decisions affecting such matters." (27) States may not enact legislation that would impede the purpose of the 1996 Act. (28)

   2. Ongoing Discriminatory Local Exchange Carrier Access to Multiple Tenant Environments Under the 1996 Act

      As noted infra, the purpose behind section 251 of the 1996 Act is facilitation of LEC competition. (29) To further this purpose, the section contains a listing of ILEC requirements such as interconnection access for CLECs. (30) As CLECs develop competitive facilities-based networks, they too will become subject to the cooperative components of section 251. (31) Initial implementation disputes occurred and led Congress to enact section 252 to provide for mediation or arbitration. (32) In the long run, section 251(b)(4) of the 1996 Act was largely unnoticed by LECs because they had already worked out methods for sharing equipment. However, the statute was read by the FCC to include MTEs and again became a source of controversy. (33)

      Telephone companies, like other utilities, normally gain access to property through right-of-way agreements, easements, and less commonly the power of eminent domain. (34) LEC access to MTEs, in particular, developed in a very different environment, due to the long-held monopoly status of ILECs, such as Bell operating companies and GTE. (35) Several early efforts by the FCC to introduce competition into local markets prior to 1996 failed when courts held that "the Commission's authority at that time did not encompass the power to order such physical collocation." (36) Therefore, MTE owners were unable to choose between competitors when installing phone service. (37) Furthermore, if they wished to attract renters, MTE owners had no choice but to allow the LEC to wire their buildings. MTE owners, accordingly, have generally given phone companies free access, despite the absence of a mandate to do so. Assumed access also led phone companies to bypass the formality of negotiating easements in MTEs. (38) Consequently, most agreements between LECs and MTE owners amounted to little more than written or even verbal licenses. (39) The absence of existing easements giving perpetual access and control to ILECs would become important when local exchanges were opened to competition. (40)

      When competition among LECs was authorized by the 1996 Act, access to MTEs became a valuable commodity and sparked a struggle between ILECs, CLECs, and MTE owners for favorable legislation. (41) LECs began vying for "special statutory or regulatory rights of access" to MTEs. (42) MTE owners began to see the profit potential and started charging LECs access fees. They are interested in maintaining the right to negotiate for the highest possible fees. (43) Because ILECs never acquired easements, wires in MTEs are often the building owner's property. Thus, the 1996 amendment to the Pole Attachment Act, held constitutional in Gulf Power v. United States, is inapplicable in this setting. (44)

   3. Proposed FCC Rulemaking Regarding Nondiscriminatory Access to Multiple Tenant Environments

      In the 1996 Act, Congress required LECs to make their facilities available, at reasonable rates, for interconnection with other LECs sharing the same market to promote the entry of competitive LECs into all local markets. (45) Facilities-based competition is essential to a truly competitive market. (46) In fact, ILECs must show either that facilities-based competition exists or that no requests to interconnect were made before they can offer in-region interLATA services--those that cross designated local service area boundaries...