Twombly and the Evolution of Telecom Regulation

• Published date: 01 March 2008
• Date: 01 March 2008
• DOI: 10.1177/0003603X0805300107
• Author: Celeste K. Carruthers
• Subject Matter: Symposium: The Economics of the Roberts Court

THE

ANTITRUST

BULLETIN:

Vol.

53, No. 1/Spring 2008 :

95

TwomblY

and the evolution

of

telecom

regulation

BY CELESTE K.

CARRUTHERS*

I.

INTRODUCTION

The

Telecommunications

Act

of 19961

(the

1996 Act)

required

that

incumbent

local

phone

service

providers-predominantly

the

"Baby

Bells"

created

by

the

breakup

of

AT&T2-l

ease

elements

of

their

upstream

network

infrastructures to

emerging

downstream

competi-

tors. Years later,

the

hoped-for

competition

had

not

materialized

in

local

phone

markets. The

incumbents

were

not

fully

accommodating

the

entrants,

nor

were

they

competing

with

each

other

by

entering

new

regions.

In Twombly v. Bell Atlantic Corp.,' plaintiffs alleged

that

the

incum-

bents'

parallel restraint

was

evidence of collusion, asection 1

Sherman

*

Department

of Economics, University of Florida.

AUTHOR'S NOTE: Iam grateful for the financial supportof the Warrington

College

of

Business.

Roger

Blair,

Mark

Jamison,

Sanford

Berg,

Laura

Daugherty,

and partici-

pants in the2007Southern

Economic

Association's annualmeetings

provided

helpful

commentson an

earlier

draft.

Pub. L. No. 104-104, 110 Stat. 56 (1996).

There

were

other

incumbent

firms aside from the Bells at the

time

of

divestiture, General Telephone &Electronics being the chief exception.

Twombly v. Bell Atlantic Corp., 313 F. Supp. 2d 174

(S.D.NY

2003),

reo'd,425 F.3d 99 (2d Cir. 2005),

reti'd,

127 S. Ct. 1955 (2007).

©2008 by

Federal

LegalPublications, Inc.

96

THE

ANTITRUST

BULLETIN:

Vol. 53, No.

l/Spring

2008

Act violation.' Amotion to dismiss at

the

pleading

stage

was

granted,

which

raised aprocedural question: is a

simple

assertion of conspir-

acy a sufficient "claim

upon

which relief

could

be

granted?"5 The dis-

missal

was

reversed

on

appeal,

but

the

Supreme

Court

ultimately

held

that

"[a]n allegation of parallel

conduct

and

a

bare

assertion of

conspiracy will

not

suffice" for a section 1claim,"

The

Twombly

opinion,

along

with

other

developments

in

the

telecommunications industry, brings

attention

to a reconsolidation of

the

wireline firms

that

were divested from AT&T in 1984. This consol-

idation

stands

in

stark

contrast to

decades

of

deregulation

and

the

competitive

ideal

that

the

1996

Act

was

meant

to

engender.

Since

1996,

however,

the

scope

of

the

communications

industry

has

expanded

to

include

other

network

technologies-among

them,

cable, wireless, fiber optic,

and

satellite-as

viable

substitutes

for

telephony

connection.

The

persistent

regional

monopolization

of

incumbent

wireline firms is less

worrisome

than

it

would

have

been

before

intermodal

competition

transformed

the

telecommunications

industry

into

the

communications industry.

The article is organized as follows: Section II traces the evolution

of telephony regulation in the

United

States,

and

section III describes

the

Twombly case. Section IV uses a

simple

model

of dynamic compe-

tition

in

distinct

markets

to

illustrate

one

explanation

for

why

the

phone

companies

chose

not

to

compete

with

each other. Section V

discusses

the

antitrust

and

economic consequences of Twombly,

and

section VI concludes.

II.

HISTORY

AND

ECONOMICS

OF

TELEPHONY

REGULATION

The roots of

modem

telephony regulation in the

United

States can

be

traced

to

the

early 20th century,

when

American

Telephone

and

Telegraph

(AT&T)

transitioned

from

a

dominant

provider

of tele-

15 U.S.c. §1.

FED.

R. eIV. P. 12(b)(6).

Twombly, 127 S. Ct. at 1966.