This afternoon, announcing that the “fourth try is a charm,” the D.C. Circuit upheld the Federal Communication Commission’s unbundling rules. If that statement doesn’t strike you as wondrous, it means that you are not a telecommunications person—lucky you—but also means that you are not sufficiently curious. (“You mean the FCC issued three sets of complicated rules over a decade, the courts rejected all of those, and now finally, on the fourth try, the D.C. Circuit blessed the rules?”)
Yes, exactly. A quick review. In February, 1996, Congress enacted a new telecommunications law, known to all as the Telecommunications Act of 1996. That statute required the FCC to issue the required rules in six months. Now, June, 2006—only ten years late—we finally have rules that have made it through the courts, assuming of course that the Supreme Court doesn’t jump in (which it did twice before).
How did we get into this mess?
The 1996 act is complicated but one core piece was a new law designed to jump-start competition in local telephone service. That too had a number of features but the especially tricky part was the requirement that the FCC issue rules to “unbundle” the local telcom network.
The FCC was to define pieces of the network and set prices for those pieces. New entrants into the local phone business—CLECs or competitive local exchange carriers as they are known—were to be able to mix and match. Rent pieces of the network from the incumbent provider—typically one of the local Bell regional operating companies—match those with a few of your own, and voila, instant competition.
There is a lot that one can say about this vision—Doug Lichtman and I published a paper in the Supreme Court Review on this a few years ago (online version here)—but for now, we should limit ourselves to the question of the limits of what law can do.
Independent of your views on the merits of trying to create local competition into telecommunications—an issue that seems increasingly dated with consumers dropping landlines for wireless and with the entry of cable into phone service—we should regard a process that took a decade to establish the basic rules of engagement as a huge failure. Most of the blame falls to Congress for passing a vague statute—the key terms are “necessary” and “impair”—and giving the FCC very little time to implement it, though to spread the blame, in the intervening decade, the FCC has had quite a bit of time to think this through.
The are powerful limits on the extent to which we can do legal engineering of the sort attempted in the 1996 Act. If we can’t create administrable rules in a reasonable time frame, we shouldn’t try at all. Sometimes the bite is just too big to swallow. The cost of bad engineering is that real decisions regarding large investments turn on these rules.
[Disclosure: The Law School has received grants from Verizon in the past, and, I believe, continues to do so.]