[This article, written by an NTIA staff member, was published by Global Communications Interactive '98]
The United States Telecommunications Act of 1996
This act will significantly affect all players in the telecommunications industry. The first major
legislative change since the original 1934 Act lays out a new regulatory landscape for the Information Age.
By Joseph L. Gattuso.(*)
When President Clinton signed the Telecommunications
Act of 1996 ("the Act" or "the 1996 Act" )(1) into law on
February 8, 1996, it represented the beginning of a new era
in telecommunications regulation in the United States. As
the most extensive and significant change in the basic U.S.
law governing communications since the Communications
Act of 1934 ("the 1934 Act"),(2) the new Act's passage
represented a bipartisan consensus that advances in
technology, as well as the success of regulatory models
based on competition rather than monopoly, called for
major changes in the regulation of telecommunications.
This law reflects a new thinking that service providers
should not be limited by artificial and now antique
regulatory categories, but should be permitted to compete
with each other in a robust marketplace that contains many
diverse participants. Moreover, the Act evidences a
renewed government commitment to making sure that all
citizens have access to advanced communications services
at affordable prices through its "universal service"
provisions, even as competitive markets for
telecommunications services expand.
The law was immediately hailed as a landmark and the
beginning of a new era of innovation, investment, and
inclusion. As President Clinton said when he signed the
This law is truly revolutionary legislation that will bring
the future to our doorstep. . . . This historic legislation in
my way of thinking really embodies what we ought to be
about as a country and what we ought to be about in this
city. It clearly enables the age of possibility in America to
expand to include more Americans. It will create many,
many high-wage jobs. It will provide for more information
and more entertainment to virtually every American home.
It embodies our best values by supporting . . . market
reforms . . . as well as the V-chip. And it brings us together,
and it was passed by people coming together.(3)
Prior to passage of this new Act, U.S. federal and state
laws and a judicially established consent decree allowed
some competition for certain services, most notably among
long distance carriers. Universal service for basic
telephony was a national objective, but one developed and
shaped through federal and state regulations and case law.
The goal of universal service was referred to only in
general terms in the Communications Act of 1934, the
nation's basic telecommunications statute.
The Telecommunications Act of 1996 among other things:
i) opens up competition by local telephone companies, long
distance providers, and cable companies with each other;
and ii) reconfirms the U.S. commitment to universal
service -- in part by helping connect all school classrooms,
libraries, and hospitals to the information superhighway by
the end of this decade. Additional provisions include those
giving families control of the television programming that
comes into their homes through the use of "V-Chip"
technology, and prevent undue concentration in television
and radio ownership so that a diversity of voices and
viewpoints can continue to flourish, through modified
The response in telecommunications markets was seen
immediately after the new Act was signed into law. Four of
the seven Bell regional holding companies announced
proposed mergers: Bell Atlantic acquired NYNEX, and
SBC acquired Pacific Telesis. The passage of time brought
more mergers among the Bell companies and other local
carriers -- Bell Atlantic/GTE and SBC/Ameritech are
among those pending -- and among other leading U.S.
firms, such as AT&T and the video cable giant, TCI. The
merger wave shows no signs of abating.
Some of these transactions are directly attributable to
regulatory changes effected by the 1996 Act. Others are
more likely a reflection of firms attempts to prepare
themselves for the more competitive market environment
that will be spawned by full implementation of the 1996
Act, the increasing convergence of services and markets,
and the continuing globalization of economic markets.
Mergers, however, were only the earliest and most visible
industry developments following passage of the Act. The
larger and more long term effects will come over time as
the many provisions of the Act are implemented. These
effects may defy prediction. For example, some observers
early on expected cable television firms to lead the way to
local competition through upgrades in their networks, but
activity in this area has been spare. To the surprise of
some, wireless firms have moved quickly to develop
"wireless local loop" and other wireless technologies that
compete with traditional wireline telephony in urban as
well as rural markets.
The U.S. Federal Communications Commission (FCC),
working with state governments, was immersed in the
process of promulgating regulations required to implement
the provisions of the Act. The FCC has focused its
attention on a triad of implementation issues -- those
involving interconnection, access, and Universal Service.
Since passage of the Act, the FCC has seen its
interconnection and Universal Service orders challenged
successfully in the U.S. courts, and its access rules upheld.
Ultimately, however, it is not the law and government
agencies that will bring new telecommunications and
information services to the public. That is the job of private
industry. The law will help shape a competitive arena open
to all providers and provide safeguards to ensure the
fairness of that competition.
The Telecommunications Act of 1996 is an extensive
document that affects a large number of
telecommunications sectors. The committee print of the
law runs well over one hundred pages. This short article
will review and summarize the more significant of those
provisions, describing how they change existing law and
the status of their implementation as of the time this article
was written. A complete review of all of the law's
provisions in a short article is not practical and the reader
would be advised to refer to more lengthy analyses.(4)
Scope and Content of the New Law
One common misperception is that the 1996 Act
completely supplanted the foundational law of
communications in the United States, the Communications
Act of 1934. Despite the new Act's length and breadth,
most of 1934 Act remains in full force and effect. For
example, there were essentially no changes to the 1934
Act's "Title I" provisions, which established and still
govern the operations of the FCC, and relatively few
changes to those provisions of "Title III," which govern
broadcasting. The Act did, however, make extensive
revisions to the "Title II" provisions regarding common
carriers and repealed the judicial 1982 AT&T consent
decree (often referred to as the "modification of final
judgment" or "MFJ") that effectuated the breakup of
AT&T's Bell System.(5) Furthermore, it made a host of
other changes to existing law and adds new provisions
regarding, among other things, broadcasting, cable
television, and the Internet.
Promoting Local Exchange Competition
To promote competition for local telephone service, the
Act contains provisions to encourage competitors to
provide local service.(6) No state or local government may
prohibit any entity from providing telecommunications
services.(7) Although prior law imposed a general
interconnection duty on common carriers, the Act now
requires local telephone companies: 1) to interconnect their
network facilities with the networks of competing
telecommunications carriers(8) at "any technically feasible
point and on just, reasonable, and non-discriminatory
terms"; 2) to unbundle their services into their constituent
network elements and make those elements available to
competing telecommunications carriers on just, reasonable,
and non-discriminatory terms, and 3) to provide for resale
of any of their retail services to other telecommunications
carriers at a reasonable discount to consumers.
The act requires that local exchange carriers'
interconnection, unbundling and resale obligations be made
via negotiated agreements with other carriers.
Interconnection agreements negotiated between a local
exchange carrier and other telecommunications carriers
must be approved by a state within the Act's deadlines. If a
state fails to take action, the FCC can assume the
responsibilities of the state. If the parties cannot agree, state
regulatory commissions may arbitrate and resolve disputed
The FCC adopted regulations on 8 August 1996 to
implement these provisions, but the rules concerning the
pricing of interconnection and unbundled network
elements were challenged in court by local telephone
companies and state regulatory commissions. Eventually,
the court reviewing these matters rejected the FCC's
regulations, holding that the 1996 Act authorizes the
governments of the various states through their regulatory
commissions -- and not the FCC -- to determine the prices
for interconnection, unbundled network elements, and
resold services, in cases where the parties cannot agree.
The U.S. Supreme Court will review the lower court
decision in October, 1998. Meanwhile, private parties have
continued to negotiate interconnection agreements (subject
to state commission review). Moreover, many state
commissions have adopted the FCC's pricing rules in
setting rates for interconnection, unbundled network
elements, and resold services.
Unleashing Local Exchange Carriers into New Markets
The 1982 AT&T consent decree was the culmination of an
anti-trust court action pursued by the U.S. Government
against monopolistic practices of the Bell System. The
consent decree, agreed to by the Government and AT&T,
required AT&T to spin-off its affiliated Bell operating
companies, which were put under the ownership and
control of seven regional holding companies. However,
because of concerns over the possibility of discriminatory
practices or improper cross-subsidization between
regulated and unregulated markets, the decree barred the
Bell companies from certain lines of business, most
notably long distance service.(9)
The new Act contains provisions to allow local exchange
carriers into other markets, but subject to regulatory
Long Distance.(10) A Bell company may apply to the FCC
for authorization to provide in-region long distance
services if it has entered into an approved interconnection
agreement and meets the requirements of a "competitive
checklist" and other requirements in the Act. The FCC may
approve the authorization if the company meets these
requirements and the authorization is in the public interest.
The company must provide such service through a separate
affiliate for three years after enactment. The company may
also, upon enactment, provide out-of-region and incidental
long distance services, as well as already authorized long
distance services. Nevertheless, although Bell companies
have requested that FCC authorization to provide long
distance services originating within a state, the FCC has yet
to find that any Bell company has met the requirements
Video Services (Cable Television)(11) The Act gives
telephone companies the option of providing video
programming on a common carrier basis or as a
conventional cable television operator. If it chooses the
former, the telephone company will face less regulation but
will also have to comply with FCC regulations requiring
what the Act refers to as "open video systems." The Act
generally bars, with certain exceptions including most rural
areas, acquisitions by telephone companies of more than a
10 percent interest in cable operators (and vice versa) and
joint ventures between telephone companies and cable
systems serving the same areas.
There has been little development in this area since passage
of the Act in 1996. Despite early optimism, open video
systems have not materialized. Companies such as Time
Warner and Pacific Telesis (now part of SBC) have
discontinued their market trials of open video systems.
The goal of universal service, that is, the availability of
basic communications services to the public at just,
reasonable, and affordable rates, has been a significant
cornerstone of U.S. communications policy at the federal
and state levels for over 50 years.(12) The Act makes this
goal explicit for the first time in the national law and
requires the federal government, through the FCC, to work
with states to make changes to the definition (14)
Because universal service is an objective of the various
state governments as well as the federal government, the
Act directed the FCC to institute a Federal-State Joint
Board to develop recommendations on defining and
funding universal service, and enumerates several
principles (such as nature of access, service quality, and
affordable rates) to guide the deliberations. The Joint
Board issued a wide-ranging "Recommended Decision" in
late 1996, that the FCC in May, 1997 adopted in large part.
The FCC's action reflects new thinking on Universal
Service in the United States. The new Universal Service
includes support for high-cost areas, low income
households, and for the first time, key institutions in
education and health care that otherwise might not be able
to meaningfully participate in the information age.
Of great importance to the Clinton Administration, the Act
seeks to ensure that schools and libraries (and -- to a lesser
extent -- rural health care facilities) become connected to
the national information infrastructure (NII) through
preferential rates for services as defined by the FCC. This
program, popularly called the "E-Rate," is intended to
provide basic communications as well as Internet
connections to classrooms throughout the country. Upon
request, all telecommunications carriers must provide
discounted service to schools (kindergarten through twelfth
grade), libraries, and rural and non-profit health care
facilities, at preferential rates. The Act directs funding of
this program to be by telecommunications providers. The
FCC has capped funding at $2.25 billion.
Recently, the E-rate program was challenged as an
unprecedented extension of the Universal Service concept.
Legislation is being considered in Congress to significantly
modify the current FCC program by replacing it with a
new NTIA grant program which would become subject to
the annual appropriations process. The likely funding
source would be through some portion of the existing 3%
excise tax. Nevertheless, as of the time this article was
written the program is scheduled to begin disbursements by
the Fall of 1998.
The law as it existed prior to passage of the new Act
contained certain restrictions on the ownership of broadcast
stations in order to protect localism and the diversity of
voices reaching people through the media. The new Act
contains provisions that loosen those restrictions. The Act
eliminates a national ownership cap for radio stations that
the FCC had established and modifies local radio
ownership limits.(15) The Act increases the national
audience reach for television station ownership to 35
percent from 25 percent.(16) In addition, the Act requires the
FCC to conduct a rulemaking to determine whether local
television ownership limitations should be modified or
eliminated. Further, the Act eliminates the FCC's network-cable cross ownership rule and the statutory broadcast
station-cable cross ownership restriction, but retains the
FCC's regulatory broadcast-cable and broadcast-newspaper
ownership bans. The Act extends radio and television
license terms to eight years and loosens rules on license
renewal, eliminating the need for comparative hearing in
most cases. The FCC is currently conducting a rulemaking
on these issues.
The Act also affects the licensing of advanced next
generation television service ("ATV"; also referred to,
depending on context as, "digital television (DTV)" or
"high-definition television (HDTV)"). Although the Act
did not mandate the FCC to limit eligibility for ATV
licenses to existing television broadcasters, it strongly
encouraged the FCC to do so. This language essentially
precluded the use of an open auction to select ATV
licensees other than existing broadcasters. The FCC has
now begun to award ATV licenses, with service to begin in
the Fall of 1998. Congressional action in 1997 requires that
broadcasters surrender their existing "analog" licenses by
2002, unless a large portion of the viewing public does not
have digital television by then.
Another provision of the Act gives the ATV licensees the
flexibility to use their spectrum for services other than
ATV broadcasting -- such as non-broadcast services. A
licensee that for any such service receives a fee or other
compensation must in turn pay a fee to the FCC based on
the market value of the spectrum used for these "pay"
Obscenity and Violence
Services provided via the Internet and other computer
networks are generally not subject to broadcast or
telecommunications regulations. The 1996 Act, however,
contained provisions generally known as the
Communications Decency Act, which in part criminalized
the transmission or making available of obscene or
indecent material over the Internet under some
circumstances. It provided certain "good faith" defenses
for on-line services and users. Nevertheless, provisions of
the Communications Decency Act were successfully
challenged in the courts as a violation of the right to
freedom of speech under the First Amendment to the
United States Constitution. The Supreme Court struck
down that portion of the Act that criminalized material
"harmful to minors," which is a test of indecency, although
it let stand the provisions against obscene materials. There
is now more focus on self-regulation and user control
rather than heavy government regulation, as an effective
way to deal with offensive content or content considered
inappropriate for children.
To address violence on television and to give viewers
greater control over the television programming they
receive, the Act required television manufacturers, within
two years of enactment, to include blocking technology
(the "V-chip") in all television sets. The Act encouraged
the broadcast and cable industries to create a voluntary
rating system within one year, which it did. Currently, all
major networks with the exception of one display ratings
for their programming. The ratings system is similar
to that developed and used for many years by the motion
picture industry. When V-chip technology is incorporated
into television receivers, the use of ratings would remain
voluntary, but any rating must be sent electronically. The
V-chip, like the self-regulation of the internet, is a way to
let users decide what information they will receive or not
The Telecommunications Act of 1996 was a historic
change in the basic U.S. law governing communications.
The new law is expected to bring radical changes to the
provision of services to the public, as competition for these
services develops among all telecommunications providers.
At the same time, the law takes steps to ensure that
advanced telecommunications services are available to all
citizens, as part of the policy of universal service. The FCC
and the states, as the regulatory bodies, implement the law.
In the almost three years since the law was passed, some
people have questioned whether the law was a success or a
failure. Critics express disappointment that extensive
competition did not come or come quickly enough, and
that the most visible effects were the many mergers of
industry giants. Others, however, see in the corporate
realignments an entirely new telecommunications industry.
Despite almost three years having gone by, it is still too
early to tell whether mergers and other developments
represent a good or bad trend. The future, perhaps, may not
be as simple as local vs. long distance telephony service, or
telephony vs. cable, but instead be in end-to-end services
through companies with competing technologies.
Ultimately, the services brought to the public will depend
on the providers of those services and their success in the
(*) Deputy Associate Administrator, National Telecommunications and Information Administration (NTIA), U.S. Department of Commerce, Room 4725,
Washington, D.C. 20230 (email: email@example.com; URL: http://www.ntia.doc.gov). NTIA serves as the President's principal adviser on
telecommunications policies. The views expressed herein are those of the author and not necessarily those of NTIA or the United States Government. The
author wishes to express his thanks to colleagues Tim Sloan, Kelly Levy, and Jim McConnaughey, graduate student intern Douglas Everette, and to Luis
Sanz, 1997 Fulbright Scholar visiting NTIA from the Government of Spain, for their contributions, suggestions and insights.
Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56, codified throughout Title 47 of the United
States Code ('47 U.S.C.').
Communications Act of 1934, 48 Stat. 1064, codified throughout 47 U.S.C.
President William J. Clinton, Remarks by the President at the Signing Ceremony for the Telecommunications Act
Conference Report (Feb. 8, 1996) [Transcript available at the White House World Wide Web Site,
For a critique of the act, see, e.g., Thomas G. Krattenmaker, The Telecommunications Act of 1996, 49 Fed.
Comm. Law Journal 1 (1997). A more extensive collection of material regarding the Act and its history can be
found in Leon T. Knauer, Ronald K. Machtley, and Thomas M. Lynch, Eds., Telecommunications Act Handbook: A
Complete Reference for Business, Government Institutes, Inc. (1996).
See, e.g., 47 U.S.C. §153 (3); United States v. Western Electric Co., Inc., 797 F.2d 1082 (D.C. Cir. 1986);
National Telecommunications and Information Administration, U.S. Dep't of Commerce, Spec. Pub. No. 91-26, The
NTIA Infrastructure Report (Oct. 1991); Knauer, Machtley and Lynch, supra note 4, at 18.
See generally, 47 U.S.C. §§251, 252. Certain exceptions from these requirements are allowed for rural local
exchange carriers and those with fewer than two percent of the Nation's subscriber lines.
47 U.S.C. §253. Limited, non-discriminatory exceptions to this rule are allowed for certain State and local
government activities related to public rights-of-way, consumer protection, and other similar issues.
Under the act, the term 'telecommunications carrier' is defined broadly to mean 'any provider of
telecommunications services, except that such term does not include aggregators of telecommunications
services (citation omitted).' 47 U.S.C. §153(44).
See supra note 5.
See 47 U.S.C. §§271, 272.
See 47 U.S.C. §§571 through 573.
Section 1 of the 1934 Act stated a National policy 'to make available, so far as possible, to all the people
of the United States, a rapid, efficient, nationwide, and world-wide . . . communication service with
adequate facilities at reasonable charges.' (47 U.S.C. §151). The process of fulfiling the universal service
obligation has involved the expansion of telephone service into unserved areas and the maintenance of local
rates at affordable levels. Government policies have played an important role in this process both through
direct assistance, such as loan programmes, and regulatory policies that have provided subsidies for certain
services (e.g., residential local exchange), areas of the country (e.g., high cost), and recently,
subscribers (e.g., low income). For a history of universal service policy in the United States, see, e.g.,
The NTIA Infrastructure Report, or Knauer, Machtley and Lynch, both supra note 4.
See 47 U.S.C. 254.
See 47 U.S.C. §255.
See Act, § 202(a), modifying 47 C.F.R. §73.3555, and § 202(b).
See Act, §§ 202 (c) through (i).
See 47 U.S.C. §336.