Analysis of The Telecommunications Act of 1996

By Fritz Messere, Assoicate Professor of Communication Studies at SUNY Oswego.
Faculty Fellow of the Annenberg Washington Program

Page Three - Cable Television and Telephone Services

Cable Television

Dramatic changes in rate structures and oversight contained within The Telecommunications Act of 1996are meant to provide new opportunities and flexibility as well as new competition for cable service providers. Under the provisions of the Act, uniform rate structure requirements will no longer apply to cable operators where there is effective competition from other service providers including the telephone company, multichannel video, direct broadcast satellites and wireless cable systems. However, for the new effective competition standards to apply, comparable video programming services would have to be available to the franchise community. For smaller cable companies, programming tier rates and basic tier rates would be deregulated in franchise areas where there are fewer than 50,000 subscribers. Additionally, states and local franchise authorities are barred from setting technical standards, or placing specific requirements on customer premise equipment and transmission equipment. Sale or transfer of licenses are expedited under the Act. Franchise authorities are required to act upon requests for approval to sell or transfer cable systems within 120 days. Failure to comply with the 120 window will provide an 'automatic' approval of the sale unless interested parties agree to an extension.

Common carriers and other operators that utilize radio communications to provide video programming will not be regulated under cable rules if the services are provided under a common carriage scheme. Common carriers who choose programming for their video services will be regulated as cable operators unless the services are provided under the 'open video systems' provision of the Telecommunications Act. Open video systems operators can apply to the Commission for certification under section 653 of the Act which will provide the operator with reduce regulatory burdens. Local Exchange Carriers (LECs) can provide can provide video services under the open video provisions. Further, LECs are not required to make space on their open video systems available on a non-discriminatory basis. Joint ventures and partnerships between local exchange carriers and cable operators are generally barred unless the services qualify under provisions for rural exemptions, or LECs are purchasing a smaller cable system in a market with more than one cable provider, or the systems are not in the top 25 markets.

In an attempt to spur competition between cable operators and local exchange carriers, Congress provided incentives for cable operators to compete with local telecommunications companies. Under the Act, cable systems operators are not required to obtain additional franchise approval for offering telecommunications services.

Telephone Services

The Telecommunications Act of 1996 contains sweeping provisions that will restructure the telephone industry in the United States. As noted, LECs can offer video programming services themselves or carry other video programming services under the 'open video systems' provisions of the Act. In addition to allowing telephone companies to offer video services, important structural barriers erected under the Modified Final Judgment (MFJ) have been swept away. The Act allows the seven regional Bell operating companies to offer long-distance telephone service for the first time since the 1984 breakup of AT&T. At the same time, long distance companies and cable operators are allowed to provide local exchange service in direct competition with the regional Bell operating companies, but the Act prohibits cross subsidies from non competitive services to competitive services. Representative Thomas Bliley, (R-Virginia), stated, " we have broken up two of the biggest government monopolies left: the monopolies in local telephone service and in cable television." While investors and legislators hailed a new era of competition in the telephone industry, it now becomes the task of the FCC to work out details of the Act with state public utilities commissions (PUCs) to ensure a smooth transition of services. The Act preempts all previous state rules that restrict or limit competition in telephone services for both local and long distance services.

The Act requires regional telephone companies (regional Bell operating companies) to undertake a series of reforms designed to open competition in their service areas. Companies must implement these reforms in order to 'qualify' for providing long distance service outside their regional areas. LECs are also required to interconnect new telecommunications service providers and to 'unbundle' their networks to provide for exchange access, information access, and interconnection to their systems. In order to provide customers continuity of service, LECs must provide number 'portability' by allowing customers to keep their telephone numbers when switching from one service provider to another. The FCC has the task of assessing whether RBOCs and LECs have met the necessary requirements in order to offer long distance services while state public utilities commissions (PUCs) are charged with implementing local telephone competition.

Section 254 of the Act defines the nature of 'universal service' as 'an evolving level of telecommunications services' that take into account telecommunications service advancements. The FCC and a working group of PUC officials are charged with designing policies to promote universal service, especially among rural, high cost and low-income telecommunications users. Also included in the Act is a provision that directs the FCC to create discounted telecommunications services for schools and libraries.

Regional telephone companies are now free to manufacture telephone equipment once the FCC qualifies and approves their applications for long distance services. The Act prohibits Bellcore, the research arm of the RBOCs from manufacturing as long as it is owned by one or more regional operating companies.

Return to Introduction - Page One
Impact on Radio and Television Broadcasting - Page Two
Internet and On-line Computer Services - Page Four
Sources and Suggested Reading - Page Five

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ęby Fritz Messere 1996.