4 Va. J.L. & Tech. 1 (1999)

handle is hein.journals/vjolt4 and id is 1 raw text is: 4 Va. J.L. & Tech. 1 (Sping 1999) <http://vjolt.student.virginia.edu>
1522-1687 / 9 1999 Virginia Journal of Law and Technology Association
VIRGINIA JOURNAL of LAW and TECHNOLOGY

UNIVERSITY OF VIRGINIA             SPRING 1999                 4 VA. J.L. & TECH. 1
The Telecommunications Act of 1996 and Competition Policy: An
Economic View in Hindsight
By Alexander C. Larson*} and Douglas R. Muddj**J
I. Introduction
II. The First Major Design Flaw: How the Act Fosters Competition in Local Exchange Service Markets
A. Introduction
B. What Problem Was Congress Trying to Solve?
C. Competition-Enhancing Policies Must Be Adjusted to Subsidized Markets
D. Summary
III. Problems in the Implementation of the Act
A. Implementation of the Avoided Cost Rule
IV. The Second Major Design Flaw: The Magnum of Proof for Entry into Long Distance Markets
A. Local Exchange Entry by Resale Does Not Hasten RBOC Entry into Long Distance Markets
B. The Moral Hazard Problem
V. The Third Major Design Flaw: The Expansive De Facto Definition of Essential Facilities
A. A Parable About a Monopolist Brewery
B. What the Act Required as Access to De Facto Essential Facilities
C. How Should Essential Facilities Be Defined?
D. Summary: How Efficient Pricing of Unbundled Network Elements Could Have Mitigated the
Act's Overly-Broad Definition of Essential Facilities
VI. Conclusion and Policy Recommendations
I. Introduction
1. The Telecommunications Act of 1996 (Act) was expected to open telecommunications markets to
competition, thereby substantially benefiting consumers. In particular, it was expected that the market
for residential basic local exchange service, traditionally supplied only by incumbent local exchange
carriers (ILECs), would become robustly competitive. There was an equally strong expectation that
long distance markets would be opened to the Regional Bell Operating Companies (RBOCs) and large
independent local exchange companies (LECs), with consumers further benefiting from increased
competition in the toll market as well.

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