Promoting Competition under Regulation: Nixon v. Missouri Municipal League

• Date: 01 March 2008
• DOI: 10.1177/0003603X0805300108
• Author: Janice A. Hauge
• Published date: 01 March 2008
• Subject Matter: Symposium: The Economics of the Roberts Court

THE

ANTITRUST

BULLETIN:

Vol.53, No. l/Spring 2008 117

Rmoting

competition under

regulation:

Nixon

v. Missouri Municipal League

BY

JANICE

A.

HAUGE*

I. INTRODUCTION

The passage of the Telecommunications Act of 19961(the Act) ushered in

a

new

era

of

competition

in the telecommunications

industry

in the

United States.

Among

other requirements,

with

the passage of the Act

incumbent local telecommunications providers were required to allow

competitive

entrants

to interconnect

with

the incumbent's customers,

and

to lease the incumbent's lines at rates determined by each state's

regulators.' These measures were designed to open the telecommunica-

*Assistant Professor of Economics, University of North Texas,Denton, TX.

AUTHOR'S NOTE: I thank

Roger

Blair

for insightand suggestions that gave

rise

to this

article

and

Bruce

Seaman

for

comments

and suggestions that

have

improved

thearti-

cle.

All

errors

andomissions aremy own.

Telecommunications Act of 1996, 47

u.s.c.

§253(a) & (d) (1996) ("To

promote

competition

and

reduce regulation in

order

to secure lower prices

and

higher

quality

services for American telecommunications consumers

and

encourage the

rapid

deployment

of

new

telecommunications technologies.").

Incumbents are telephone companies that existed at the breakup of AT&T

in 1984, generally called ILECs (incumbent local exchange carriers), that were

providing local telecommunications services

when

the Act

was

passed. Some

ILECs are descendants of

AT&T,

such as Verizon and BellSouth. Entrants in the

telecommunications industry generally are called competitive local exchange car-

riers, or CLECs. In this article, the

term

"entrant"

refers to a private

entrant

(CLEC)into the local telecommunications industry after passage of the Act.

©2008by

Federal

LegalPublications, Inc.

118

:

THE

ANTITRUST

BULLETIN:

Vol. 53, No.

l/Spring

2008

tions

market

to competition,

thereby

improving

telecommunications

services. Whereas

the

Federal Communications Commission (FCC)

was

responsible for implementation of

the

Congressional statute, state regu-

lators

were

entrusted

with

promoting

competition

within

their states

subject to

the

parameters

established

by

Congress.

While

Congress

clearly intended the Act to increase competition within the telecommu-

nications industry, Congress was

not

clear in specifying

the

type

of com-

petitive

entry

desired. As

expressed

by

aRhode

Island

arbitrator,

"A

lack of clarity creates

an

abundance

of uncertainty

which

gives

birth

to

harmful legal challenges rather

than

beneficial commercial exchanges.:?

True to this statement, alack of clarity in one aspect of the

Act

has

con-

tinued

to raise

concern

and

generate

legal proceedings:

the

entry

of

municipalities providing telecommunications services

within

the com-

petitive environment.

There are a

number

of

instances

of public

(government-owned)

enterprises

competing

with

private

firms. For

example,

the

state-run

United States Postal Service

competes

against

private

carriers

such

as

Federal

Express,

UPS,

and

DHL;

government-owned

lotteries

compete against

private

gambling

businesses,

and

municipal

electric

companies

such

as

the

City

of

Lake

Worth (Florida)

compete

with

private

utilities

such

as

Florida

Power

&

Light.

Competition

is

generally desirable;

however,

competition

among

public

and

private

entities becomes

complicated

when

the

product

or service

provided

is

regulated.

For

the

government

to

compete

in a

market

that

it

also

regulates raises

concerns

about

equitable

competition.

Furthermore,

allowing

government

participation

in

the

marketplace

might

hinder

overall competition;

the

presence of a public

entity

might

dissuade

a

private

firm

from

entering

a

market

if

the

public

enterprise

is

not

constrained

by

the

need

to

maximize

profits, as

the

private

entrant

would

be.

Since

the

Act

was

passed,

a

controversy

has

developed

over

whether

municipalities

should

be

permitted

to offer

telecommuni-

cations services in competition

with

private companies.

Opponents

of

municipal provision assert that

government-owned

providers

have

an

unfair advantage over

private

operators, are subsidized

by

taxpayers,

State of Rhode Island

and

Providence Plantations Pub. Utils. Comrri'n,

Docket No. 3588, at 6 (2004).