The Mixed Blessing of a Deregulatory Endpoint for the Public Switched Telephone Network

Receiving authority to dismantle the wireline public switched telephone network (“PSTN”) will deliver a mixture of financial benefits and costs to incumbent carriers. Even if these carriers continue to provide basic telephone services via wireless facilities or the Internet, they will benefit from the likely substantial relaxation of common carriage duties, no longer having to serve as the carrier of last resort and having the opportunity to decide where and what services they will provide going forward. On the other hand, incumbent carriers may have underestimated the substantial financial and marketplace advantages they also will lose in the deregulatory process. Incumbent carriers often obscure or dismiss as insignificant the substantial privileges and benefits accruing from their status as telecommunications service providers. Common carrier responsibilities include duties to interconnect with other carriers, provide service on transparent and nondiscriminatory terms and offer some low margin services. But this legal status also guarantees wireline local exchange carriers access to billions of dollars in annual universal service funding, zero or low cost access to rights of way and radio spectrum, accelerated depreciation and other tax benefits, the ability to vertically integrate throughout the “food chain” of telecommunications services and dominant status in the administration of telephone numbers, standard setting and other policy issues. Incumbents will strive to capture deregulatory benefits while retaining the many benefits previously reserved for common carriers. This paper will identify the potential problems resulting from an FCC decision to grant authority for telecommunications service providers to discontinue PSTN services. The paper also will consider whether in the absence of common carrier duties, carriers providing telephone services, including Voice over the Internet Protocol (“VoIP”), voluntarily will agree to interconnect their networks. The paper will examine Internet peering and other types of network interconnection with an eye toward assessing whether a largely unregulated marketplace can ensure ubiquitous access to PSTN replacement services. The paper concludes that private carrier interconnection models and information service regulatory oversight may not solve all disputes, or foreclose price discrimination for functionally the same type of service. Recent Internet interconnection and television program carriage disputes involving major players such as Comcast, Level 3, Fox and Cablevision, point to the possibility of increasingly contentious negotiations that could result in balkanized telecommunications networks with reversed or reduced progress in achieving universal service goals. The paper also concludes that rural access to VoIP and other voice communications services could end up costing significantly more than what urban residents pay, an efficient, but politically risky outcome