Byrnes, William J.

English

The Catholic University of America Columbus School of Law

A NEW TELECOMMUNICATIONS PARADIGM: AREVIEW OF FEDERAL TELECOMMUNICATIONS LAWBY MICHAEL W. KELLOGG, JOHN THORNE ANDPETER W. HUBERWilliam J. Byrnes*Publication of Federal Telecommunications Law'promises to fill a gap in the materials available topractitioners and students of communications law-asingle, comprehensive volume bringing together in-formation concerning disputes that have ragedthroughout the industry in recent years. This collab-orative effort by three attorneys deeply involved inrepresenting Bell Operating Companies in the pro-ceedings on the Modified Final Judgment in theGovernment antitrust proceeding against the BellSystem is scholarly, well-written, and well-edited.The fact that the book is not as comprehensive asits title might suggest should scarcely be surprisingin view of the obvious difficulties of being truly com-prehensive. The book focuses upon antitrust mattersand those aspects of FCC regulation that interactwith antitrust. There is virtually no discussion of Ti-tle III of the Communications Act of 1934 ("Com-munications Act") 2 and a great deal of common car-rier law is simply ignored.The authors express very definite points of viewon many widely controverted questions. While muchof their treatment of such issues will doubtless pro-voke disagreement by others, the book is enhancedby abundant footnote references that the professionalaudience to whom the volume is directed can be ex-pected to review before reaching their own conclu-sions. What the book does more fundamentally,however, is to articulate and apply a "new paradigmof unfettered competition" with reference to whichspecific disputes are judged.- A paradigm is a funda-mental model or pattern, ultimately not provable but* Senior partner, Haley, Bader & Potts, Arlington, Virginia.MICHAEL W. KELLOGG, JOHN THORNE & PETER W.HUBER. FEDERAL TELECOMMUNICATIONS LAW (1992).2 The book has virtually nothing to say, for example, withrespect to broadcasting, other than to credit Bell with developingmuch of the technology upon which broadcasting is based andrecapitulating the successful Bell defense to the antitrust claimnevertheless intellectually attractive, with referenceto which concrete conclusions are drawn in a widerange of contexts. The process by which paradigmslast for a relatively long period of time and are thensupplanted in a relatively short period is described inthe classic work by Thomas Kuhn, The Structure ofScientific Revolutions.4Federal Telecommunications Law begins by para-phrasing what it identifies as the "old regulatoryparadigm." It characterizes the old paradigm asfounded on the three pillars of a protected franchise,quarantine of the monopolist, and cradle-to-graveregulation. The old paradigm of a highly integratedand tightly controlled national telephone system wasa powerful force created by Theodore Vail, the truefather of the Bell System. Vail conceived and fre-quently wrote about a unified system with all theparts controlled by a single entity that would provideuniversal service free of competition and would as-sume a paternalistic approach toward the public. Inreturn for its monopoly status, it would be subject todetailed regulation. While Vail's thirst for powerparalleled that of the robber barons of the late nine-teenth century, the public service ethic he also es-poused distinguished his paradigm, making it moreattractive and durable.The authors make the fundamental mistake ofequating the old paradigm with the basic require-ments of the law that existed prior to the introduc-tion of competition in the 1970s. The Communica-tions Act did not embrace monopoly.5 The book'sauthors extrapolate from a handful of precedents in-made against it by Delta Communications Corp. with respect toprogram transmission rates.3 KELLOGG, THORNE & HUBER, supra note 1, at 3.4 THOMAS KUHN, THE STRUCTURE OF SCIENTIFIC REVO-LUTIONS (2d ed. 1970).5 Its common carrier provisions were developed initiallyunder the Interstate Commerce Act of 1887 and applied origi-COMMLAW CONSPECTUShospitable to competitive entry to the erroneous con-clusion that pre-1970 law mandated monopoly. Infact, it did not. These precedents were distinguishedor otherwise overcome in the intense regulatory liti-gation that took place through the 1970s and re-sulted in the introduction of competition into theworld previously controlled by the Bell System. Thefundamental decisions allowing competition weremade under the Communications Act rather thanunder the antitrust laws. The major antitrust deci-sions followed in the wake of the pro-competitiveregulatory decisions and addressed, not the questionsof whether competition was appropriate, but ratherwhether Bell's efforts to stop competitive inroads re-quired further remedy. The insistence by the authorsthat these earlier precedents were the definitive ex-pression of the Communications Act long after thecourts rejected such claims reflects a residue of oldBell positions which were used first unsuccessfully tostop competition and then later to avoid antitrust lia-bility on the ground that-like Flip Wilson's"devil"-the Communications Act "made" AT&Tengage in anticompetitive actions.The book is weaker in interpreting the events ofthe 1970s than those of the 1980s. The authors havegreat difficulty facing the fact that the Bell Systemwas guilty of serious violations of law during thatperiod. After failing to explain the numerous andspecific allegations of antitrust misconduct so pains-takingly documented on the record, the authors dis-ingenuously try to obscure the fundamental fact thatBell entered into the 1982 consent decree because itrecognized the overwhelming probability that it wasabout to lose, and lose big. The authors instead insistlimply that Judge Greene's decision denying Bell'smotion to dismiss the suit did not reach the ultimatemerits and failed to come to grips with the implica-tions of the prior verdicts against Bell in the MCIand Litton private antitrust suits.The authors speculate that dramatically differentdevelopments might have taken place had JudgeRitchie, rather than Judge Greene, been assigned theGovernment case. A far more interesting speculationis how differently the industry might have developedif John deButts had not replaced AT&T ChairmanH. I. Romnes in February 1972 and proceeded, ineffect, to declare war on competition. His efforts ul-timately resulted in bringing about that which hemost despised. When, for instance, he nearly drovenally only to railroads, many of which were subject to considera-ble competition. When its provisions were applied to telecommu-nications beginning in 1910 and culminating in the 1934the "specialized" carriers from the private line busi-ness by such steps as cross-subsidizing rates forAT&T's private line services out of monopoly tele-phone service, and withholding and obstructing in-terconnections, he unwittingly caused them to redi-rect their efforts to a higher risk assault uponAT&T's basic long-distance switched telephone mo-nopoly. In a highly ironic, but quite real sense,deButts can be viewed as the unwilling godfather ofthe competitive telephone industry.There was nothing inevitable about Bell's an-ticompetitive conduct. Most corporations adjust toadverse governmental decisions without resorting tosuch conduct. Romnes was apparently adjusting tothe 1971 Specialized Carrier decision. His policy ofbenign neglect toward the new competitors might ul-timately have proven more effective than the all outaggression of his successor. Entry into long distancecommunications, despite AT&T's overwhelmingmarket share, was made possible during the periodwhen microwave relay was the most efficient longdistance technology. This is when the barriers to en-try were the most vulnerable. When much higher ca-pacity optical fiber became the most efficient me-dium, the barriers to new entry rose once again. Byrepeatedly raising the ante for survival of the newcompetitors and cutting off their lines of retreat,deButts forced them to attack the larger market andgrow to a size at which they could thrive even afteroptical fiber would require greater amounts of trafficfor efficient operation.DeButts was moved, in large measure, by the oldVail paradigm. And despite the limited supportfound in the actual legal requirements of the Com-munications Act, the popularization of that para-digm was a powerful weapon in fighting competi-tion. Although younger readers today may find ithard to believe, most people twenty years ago hadreally been led to believe that terrible things mighthappen to telephone service if entities other than thetelephone company were allowed to insert themselvesinto "the system." Defeating this popularly acceptedparadigm was, in many respects, more difficult thandisposing of the legal precedents it relied upon.Since a paradigm is basically a subjective thing, itis not possible to pinpoint where one becomes bro-ken. There are, however, several points that standout in retrospect. Perhaps the first noteworthy breakin the paradigm occurred in Philadelphia duringincorporation into a separate Communications Act, they wereapplied not only to the powerful AT&T monopoly but also tocompetitive international and domestic telegraph industries.[Vol. IBOOK REVIEWcross-examination in MCI's suit demanding local in-terconnections from the Bell System. Bell had madethe claim that such interconnection would damagethe technical integrity of the telephone system. Ques-tions regarding the ability to cope with alleged tech-nical problems led to inquiry as to whether the hir-ing by MCI of former Bell System employees couldenable it to avoid damage. Finally, the witness wasasked whether interconnection could be safely madeif MCI were to hire him to supervise the operationof its system. There was a highly pregnant pause asthe witness underwent considerable personal tensionbefore adhering to the company line and declaringthat it would be impossible within the organizationalstructure.6 During that pause, it was clear to mostobservers that Judge Clarence C. Newcomer andothers in the court room recognized that the allegedtechnical difficulties were the sort of things thatcould be worked out by parties at all inclined to doSO.The most critical event in the demise of the ancienregime, as the authors recognize, was the Execunetlitigation' in which the courts upheld MCI's right tofurnish basic long distance telephone service and ob-tain the connections to the local exchanges needed tomake it work. Most of the record in the case dealtwith such issues as the taxonomic inquiry as towhether the Execunet service, as then configured,was more akin to AT&T switched private line or toits basic telephone service-all of which would be-come irrelevant in the future. MCI's fundamentalclaim was that it was entitled to provide any type ofservice its facilities were capable of providing. ToBell's claim that it alone was entitled to provide ba-sic telephone service, MCI responded that no publicbody had ever given Bell a monopoly over telephone6 MCI Communications Corporation v. AT&T, (U.S.D.C.E.D. Pa.) Civil Action No. 73-2499, Transcript of Hearing onRequest for Preliminary Injunction, November 16, 1973, Testi-mony of Richard Hough, pp. 328-41; Decision at 369 F. Supp.1004 (1974), vacated on primary jurisdiction grounds, 496 F.2d214 (3d Cir. 1974).' MCI Telecommunications Corporation v. FCC, 561 F.2d365 (D.C. Cir.), cert. denied, 434 U.S. 1040 (1978), mandateenforced, 580 F.2d 590 (D.C. Cir. 1978), cert. denied, 439 U.S.980 (1978).8 Curiously, while the authors recognize the "profound im-plications" of the Execunet decisions, they nevertheless reflectthe shock with which their clients initially greeted the decisionsby referring to them as "dubious as a matter of law" and"poorly reasoned." KELLOGG, THORNE & HUBER, supra note 1,at 608-09. While such epithets are no doubt pleasing to the el-ders among their clients, they are not supported by reasonedanalysis and may suggest that the conversion to new principles issomewhat less than complete.service. Bell was unable to respond to MCI's chal-lenge by citing any authority for its claim of a dejure interstate monopoly. The result of the case wasat first a very big surprise to people in the industry,who had been so thoroughly brainwashed in the Bellparadigm that they had failed to examine its basicassumptions.8 In effect, someone had gotten thenerve to cry out that the Emperor's new clothes sim-ply did not exist. And just as in the old story, whenthis was finally pointed out, there followed a generalrecognition of the fact that should have been appar-ent all along.Even before the Supreme Court had denied thesecond set of petitions for certiorari in the Execunetlitigation, another event occurred, which althoughrelatively unimportant in its own right, shed light onshifting subjective attitudes toward the old paradigm.It occurred in an oral argument in July 1978 beforethe Commission on whether the costs of Bell's insti-tutional advertising should be recovered in chargesimposed upon customers. Counsel for MCI held upa two-block plastic puzzle that was capable of beingfitted together as a pyramid and had been distributedat shopping malls in the Washington area as onestep in the major advertising campaign Bell was thenconducting. The puzzle claimed to illustrate thepoint of the campaign that "The System is the Solu-tion." In demonstrating how the plastic puzzle wasbeing used to sell the proposition that the Bell Sys-tem should not be tampered with,9 counsel for MCIintroduced into the otherwise solemn event a degreeof gentle mockery at the advertising claim that wentfar beyond the technical question of rate regulationnominally at issue. While AT&T's very able coun-sel'" was shrewd enough to ignore the undertone andexplained instead that the puzzles had been distrib-' A small card distributed with the puzzle explained:The parallel to the Bell System is obvious. WesternElectric, Bell Labs, Long Lines, AT&T, and the operat-ing companies form a unified structure that has demon-strated its strength and function. It has provided an ex-traordinary record of planned innovation, and genuinereliability in an age of unreliability. Like the pyramid inthis envelope it is deceptively simple and the temptation toalter its simplicity is undeniable.As you struggle with this puzzle think of the difficultroad back should the Bell System ever be broken up.Time, energy, and resources would be wasted in a fruit-less effort to improve that pyramid of telecommunications- the Bell System. It Works.Comments of MCI Telecommunications Corporation, Micro-wave Communications, Inc. and N-Triple-C Inc. of July 7,1978 in FCC Docket No. 19129.10 Several years later, as AT&T's General Counsel, he wasto approve the compromise embodied in the Modified Final19931COMMLAW CONSPECTUSuted by employees on their own time as a reflectionof their enthusiasm for the Bell System, many in theaudience had reached the point where it was possibleto laugh at the paradigm in public.The old paradigm is now interred. But there is adeep-seated psychological need for a new paradigmwhen an old one passes away. Federal Telecommu-nications Law seeks to satisfy that need. It builds onthe vividly demonstrated success resulting from theintroduction of competition into the communicationsindustry. It reverses the Vail paradigm a complete180 degrees and says, in effect, competition is so per-fect a solution to all problems that no other publicvalues should be allowed to intrude." The authorsof the book apparently came to the communicationsworld after the Modified Final Judgment and don'tcarry the baggage that is borne by the more seniorpeople in their Bell clients who once subscribed tothe old Vail paradigm. The authors therefore do notfeel any need to apologize for changing so pro-foundly their fundamental views. This may also il-lustrate Kuhn's observation that the developers ofnew paradigms are generally either very young orvery new to the field.' 2The interest of the Bell Operating Companies inpromoting the new paradigm lies in their desire tohave a conceptual platform for ridding themselves ofthe restrictions that were agreed upon in the 1982antitrust consent decree, as well as various structuralrequirements imposed by the FCC. It may be easierJudgment that marked the end of the old paradigm." The authors concede only that: "The regulation that re-mains will be imposed, if at all, at the interfaces of competition,at any remaining bottlenecks such as they are, where competi-tion alone cannot provide appropriate discipline." KELLOGG,THORNE & HUBER, supra note 1, at 75.to rely on a simple paradigm to make such a caserather than address the much more complex detailsrequired for decisions that take adequate account ofa variety of public interest values.The Communications Act is, at its core, a statuterooted in the concept of equity rather than merelyeconomic efficiency. The common carrier scheme ofregulation was based quite explicitly on the conclu-sion that competition "is no safeguard against dis-crimination.' 1 3 Regulation was not merely a quidpro quo for freedom from competition. The new par-adigm, and the book that reflects it, are creatures ofthe 1980s rather than of the periods over which thestatute was crafted. In the 1990s, amidst the debrisof a shattered savings and loan industry and a seri-ously weakened airline industry, it is far less palat-able to assume that competition is a panacea justify-ing the complete jettisoning of every regulatoryprotection for consumers.There is no doubt that the emergence of competi-tion is the dominant theme to describe what hastranspired in the telecommunications industry overthe last twenty-five years. That, however, does notjustify the use of the prescriptive paradigm developedin this book as the touchstone for policy decisions onquestions that take center stage in the 1990s. Exces-sive reliance on a simple-minded paradigm did theindustry a great deal of damage in the past. Thatprocess should not be allowed to repeat itself now.12 KUHN, supra note 4, at 90.'3 This was first stated in the 1886 Cullom Report, whichsets forth the fundamental basis for the initiation of commoncarrier regulation. S. REP. No. 46, 49th Cong., 1st Sess, re-printed in B. Schwartz, The Economic Regulation of Businessand Industry 72 (1973).[Vol. I

A New Telecommunications Paradigm: A Review of Federal Telecommunications Law by Michael W. Kellogg, John Thorne and Peter W. Huber

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A New Telecommunications Paradigm: A Review of Federal Telecommunications Law by Michael W. Kellogg, John Thorne and Peter W. Huber

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