†© 1999 Michel Kerf and Damien Geradin.

† Special Assistant to the Vice-President, Private Sector Development and Infrastructure, The World Bank, Washington D.C.

‡‡ Associate Professor of Law, University of Liège Law School and Professor of Law, College of Europe, Bruges, Belgium. Director, Regulation and Competitiveness Project, Yale University. Mr. Geradin gratefully acknowledges the financial assistance of the "PAI," a research program initiated by the Belgian State, Prime Minister's Office, Science Policy Programming.

1. In the area of telecommunications, the fixed costs of establishing a fixed line local network are such that a single enterprise will generally be able to provide services to all users in a given area at lower costs than would two or more enterprises, each with its own network. For a discussion of the concept of natural monopoly, see generally WILLIAM W. SHARKEY, THE THEORY OF NATURAL MONOPOLY (1982).

2. A network externality is said to exist for a service if users of the service benefit when more people use it. Network externalities are present in the area of telecommunications since the value of a network increases, for each user, with the number of network subscribers. See Mark Amstrong, Competition in Telecommunications, 13 OXFORD REV. ECON. POL'Y 64-65, 67 (1997). As a result, for a given total number of subscribers, the value of a single network is much greater than the total value of several smaller unconnected networks. For a good discussion of the concept of network externalities, see Nicholas Economides, The Economics of Networks, 14 INT'L J. INDUS. ORG. 673 (1996) and Michael L. Katz & Carl Shapiro, Network Externalities, Competition, and Compatibility, 75 AM. ECON. REV. 424 (1985). A large list of published articles on network externalities can be found at <http://raven.stern.nyu.edu/networks/bibiof.html>.

3. See Alberto Heimler & Paolo Saba, Role and Enforcement of Competition Policy in Regulated Sectors, 1995 PROC. OF OECD/WORLD BANK CONF. ON COMPETITION & REG. IN NETWORK INDUS. (OECD 1995), 75, 78, available at <http://www.oecd.org/daf/clp/non-member_activities/bdpt102.htm>.

4. On the issue of cream-skimming, see Peter Smith, Subscribing to Monopoly: The Telecom Monopolist's Lexicon-Revisited, PUBLIC POL'Y FOR THE PRIVATE SECTOR, Note No. 53 (Sept. 1995), available at <http://www.worldbank.org/html/fpd/notes/53/53smith.html>.

5. See N. GREGORY MANKIW, PRINCIPLES OF ECONOMICS 308 (1998); RICHARD A. POSNER, ANTITRUST LAW : AN ECONOMIC PERSPECTIVE 8 (1976).

6. See ALFRED E. KAHN, THE ECONOMICS OF REGULATION: PRINCIPLES AND INSTITUTIONS Vol. I, at 3 (1971).

7. See Colin Scott, Institutional Competition and Coordination in the Process of Telecommunications Liberalization in JOSEPH MCCAHERY ET AL., INTERNATIONAL REGULATORY COMPETITION AND COORDINATION: PERSPECTIVES ON ECONOMIC REGULATION IN EUROPE AND THE UNITED STATES 383-84 (1996).

8. See, e.g., AHMED GALAL ET AL., WELFARE CONSEQUENCES OF SELLING PUBLIC ENTERPRISES-AN EMPIRICAL ANALYSIS (1994); IMPLEMENTING REFORMS IN THE TELECOMMUNICATIONS SECTOR-LESSONS FROM EXPERIENCE (Bjorn Wellenius & Peter A. Stern eds., 1994).

9. See James Bond, Telecommunications is Dead, Long Live Networking, PUBLIC POL'Y FOR THE PRIVATE SECTOR, Note No. 119 (July 1997), available at <http://www.worldbank.org/html/fpd/notes/119/119summary.html>.

10. As mentioned above, it is the fixed line local network which presents natural monopoly features because of the high fixed costs of setting up the network and the low marginal cost of adding an extra consumer, which together entail decreasing average costs. Thus, a single firm will have lower unit costs than two or more smaller firms. See supra note .

11. See Benjamin Lipschitz, Regulatory Treatment of Network Convergence: Opportunities and Challenges in the Digital Era, 7 MEDIA & POL'Y L. 14 (1998).

12. Competition between different providers of infrastructure services, such as telecommunications, might, for example, lead to wide price fluctuations which could be seen as disruptive. In activities such as the provision of local loop services, which are characterized by high fixed costs and low marginal costs, prices might be driven down to marginal costs during periods of intense competition between different network operators and might rise above total average costs when a firm is able to exercise some degree of market power.

13. See Helmut Cox, Problèmes du financement des services publics universels dans l'Union Européenne, SERVICES PUBLICS ET POLITIQUE INDUSTRIELLE EN EUROPE - NOUVEAUX DÉFIS ET NOUVELLE MISSIONS D'INTÉRÊT PUBLIC 83 (1996); Werner Neu & Ulrich Stumpf, Evaluating Compensation Requirements by Telecommunications Universal Service Providers: A New Challenge to Regulators, 26 COMM. & STRATEGIES 165 (1997).

14. See generally LAURENCE BANCEL-CHARENSOL, LA DÉRÉGLEMENTATION DES TÉLÉCOMMUNICATIONS DANS LES GRANDS PAYS INDUSTRIELS (1996).

15. A market is perfectly contestable when entry into the market and exit from it, involves no cost (for example because the facilities which need to be deployed to operate in the market can be sold easily or transferred to other markets). In such a case, the incumbent-even if it is in a monopolistic situation-is unable to exercise market power because of the threat of entry by potential competitors. For an exposition of the contestability theory, see generally WILLIAM J. BAUMOL ET AL., CONTESTABLE MARKETS AND THE THEORY OF INDUSTRY STRUCTURE (1982).

16. See W. KIP VISCUSI ET AL., ECONOMICS OF REGULATION AND ANTITRUST 377 (2d ed. 1998).

17. For a discussion of the roles played by antitrust and telecommunications-specific rules in the telecommunications market, see Paul Nihoul, Convergence in European Telecommunications - A Case Study on the Relationship Between Regulation and Competition (Law), 2 INT'L J. COMM. L. & POL'Y 1 (1998/99).

18. For a discussion of antitrust laws in the United States and other industrialized nations, see FREDERIC M. SCHERER, COMPETITION POLICIES FOR AN INTEGRATED WORLD ECONOMY 17-42 (1994). See also G. BRUCE DOERN & STEPHEN WILLIS, COMPARATIVE COMPETITION POLICY: NATIONAL INSTITUTIONS IN A GLOBAL MARKET (1996).

19. See SCHERER, supra note , at 43-88.

20. A list of the national antitrust authorities can be found on the OECD competition policy homepage. See Organization for Economic Co-operation and Development, Links to Other Sites (visited Oct. 13, 1999) <http://www.oecd.org/daf/clp/LINKS.HTM>.

21. A list of the national telecommunications regulatory authorities can be found on the OFTEL website. See Office of Telecommunications, International Links Page (visited Oct. 13, 1999) <http://www.oftel.gov.uk/internat/links.htm>.

22. See infra Part III (United States) and Part IV (New Zealand).

23. This is true of Australia, as discussed infra in Part V.

24. This is, for instance, the case of state utility commissions in the United States which oversee several industries. See infra text accompanying notes -.

25. See Warrick Smith, Viewpoint 128: Utility Regulators-Roles and Responsibilities, PUB. POL'Y FOR THE PRIVATE SECTOR (Oct. 1997), available at <http://www.worldbank.org/html/fpd/notes/notelist.html>.

26. See Warrick Smith, Viewpoint 127: Utility Regulators-The Independence Debate, PUB. POL'Y FOR THE PRIVATE SECTOR (Oct. 1997), available at <http://www.worldbank.org/html/fpd/notes/notelist.html>.

27. See WARRICK SMITH, PRIVATE SECTOR DEVELOPMENT, THE WORLD BANK, REGULATORY INSTITUTIONS FOR UTILITIES AND COMPETITION 3 (1998).

28. See OECD, Relationship Between Regulators and Competition Authorities, (June 1999), available at <http://www.oecd.org//daf/clp/Roundtables/relations.pdf>.

29. See Antony Dnes, Post-Privatization Performance-Regulating Telecommunications in the UK (Oct. 1995), available at <http://www.worldbank.org/html/fpd/notes/60/60dnes.html>.

30. See OECD, supra note .

31. On the theory of regulatory capture, see Georges Stigler, The Theory of Economic Regulation, 2 BELL J. ECON. REG. 3 (1971), and Sam Peltzman, Toward a More General Theory of Regulation, 19 J. LAW & ECON. 211 (1976).

32. Number portability means ensuring that users are able to keep the same telephone number when switching telecommunications operators.

33. Dialing parity means ensuring that users do not have to dial additional numbers when they choose certain telecommunications operators rather than others.

34. See Henry Ergas, Competition Policy in Deregulated Industries, INT'L BUS. LAW, Jul.-Aug. 1995, at 305.

35. See Lipschitz, supra note ; see also OECD, supra note , at 32.

36. Telecommunications Act of 1996, Pub. L. No 104-104, 110 Stat. 56, (codified as amended in scattered sections of 47 U.S.C.). Several books and a great number of articles detail the content of this law. See, e.g., PETER W. HUBER ET AL., THE TELECOMMUNICATIONS ACT OF 1996: SPECIAL REPORT (1996); TELECOMMUNICATIONS ACT HANDBOOK: A COMPLETE REFERENCE FOR BUSINESS (Leon T. Knauer et al. eds., 1996); Thomas G. Krattenmaker, The Telecommunications Act of 1996, 29 CONN. L. REV. 123 (1996); Michael I. Meyerson, Ideas of the Marketplace: A Guide to The 1996 Telecommunications Act, 49 FED. COMM. L. J. 251 (1997).

37. See generally Communications Act of 1934, ch. 652, 48 Stat. 1064 (amended 1996).

38. In the late part of the 19th century and the early part of the 20th century, competition between local exchange operators flourished. Many cities were served by two or more operators, usually a Bell company and one or several independent companies. However, many companies did not interconnect with each other. This gave an advantage to the local Bell companies, which usually had a larger customer base. In addition, AT&T, the company created by the Bell Company to connect local exchanges, used its control over the inter-city network as leverage to gain control over independent companies, by denying them the right to interconnect with that network for long-distance calls. See Jeffrey Blumenfeld & Christy C. Kunin, United States, in TELECOMMUNICATIONS LAW AND PRACTICE (Colin D. Long ed., 1995), at 649, 652. AT&T's consolidation policy based on leveraging market power led the Department of Justice to file a suit against the Bell system to prevent it from acquiring additional independent companies. This suit was settled in 1913 by a written commitment of AT&T Vice-President Nathan Kingsbury (known as the "Kingsbury Commitment") in which AT&T agreed to stop acquiring independent companies, as well as to offer interconnection with its inter city network to the remaining independent local operators. However, AT&T convinced Congress to override part of the Kingsbury commitment by adopting the Willis-Graham Act, which exempted AT&T from the antitrust laws when acquiring additional companies. See Willis-Graham Act of 1921, ch. 20, 42 Stat. 27 (repealed by the Communications Act of 1934, ch. 652, 48 Stat. 1064, 1102).

39. See Communications Act of 1934, ch. 652, 48 Stat. 1064, § 221(a) (amended 1996).

40. Section 1 of the 1934 Act gives the FCC authority over "interstate and foreign commerce by wire and radio." Section 2(b) limits the scope of FCC power by explicitly denying the FCC jurisdiction "with respect to (i) charges, classifications, practices, services, facilities, or regulation for or in connection with intrastate communication service of any carrier." Taken together, these provisions give the FCC authority over all interstate communications but reserve authority over intrastate communications to the states.

41. In 1956, the D.C. Circuit reversed an FCC decision prohibiting customers from attaching a "Hush-a-Phone" to their handset for increased privacy. See Hush-a-Phone Corp., 20 F.C.C. 391 (1955), rev'd, 238 F.2d 266 (D.C. Cir. 1956). A decade later, the FCC ruled that a "Carterfone," a device permitting direct communication between a mobile radio and a landline network, would be permitted because the Bell System had failed to demonstrate "harm to the network." See Use of the Carterfone Device in Message Toll Telephone Service, 13 F.C.C.2d 420, 423 (1968).

42. See In re Applications of Microwave Communications, Inc., 18 F.C.C.2d 953 (1969) (allowing, despite AT&T's protestations, MCI to provide microwave service in St. Louis, Chicago, and nine intermediate locations).

43. See United States v. AT&T Co., 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983). See also Timothy J. Brennan, Regulated Firms in Unregulated Markets: Understanding the Divestiture in US v. AT&T, 32 ANTITRUST BULL. 741 (1987).

44. This decree is known as the Modified Final Judgment because it modifies a previous decree, known as the Final Judgment, which settled an antitrust suit brought by the DOJ in 1949 against AT&T for an alleged conspiracy between AT&T and Western Electric to monopolize the manufacture and distribution of telecommunications equipment. Pursuant to the MFJ, AT&T continued ownership of Western Electric, in return for agreeing to grant nonexclusive licenses for all existing and future patents and to stay out of any business other than the furnishing of common carrier communications services.

45. These included Ameritech, Bell Atlantic, BellSouth, NYNEX, Pacific Telesis, SBC Communications, and US West. In recent years, some of these companies have merged. See infra text accompanying note .

46. See United States v. AT&T, 552 F. Supp. at 186-94; see also Mark C. Rosenblum, The Antitrust Rationale for the MFJ's Line-of-Business Restrictions and a Policy Proposal for Removing Them, 25 SW. U. L. REV. 605 (1996).

47. See United States v. AT&T, 552 F. Supp at 197-200.

48. See Joseph A. Klein, Antitrust Law as a Regulator of the Rapidly Transforming Telecommunications Market, 23 COMM. & STRATEGIES 209, 212 (1998) (arguing that "the MFJ's key premise of divisible local exchange monopoly and competitive markets was being overtaken by technological, regulatory, and market developments").

49. See Daniel F. Spulber, Deregulating Telecommunications, 12 YALE J. ON REG. 25 (1995).

50. See ROBERT E. LITAN & ROGER G. NOLL, UNLEASHING TELECOMMUNICATIONS: THE CASE FOR TRUE COMPETITION 1 (The Brookings Institute Policy Brief No. 39, Nov. 1998) ("despite their state-regulated monopolies, the RBOCs were unhappy with the line-of-business restrictions, and persistently pushed courts, regulators, and elected officials to enter competitive markets").

51. Such as, for instance, the prohibition imposed upon cable television operators and local telephone companies from entering into each other's markets. See 47 U.S.C. § 533(b) (repealed 1996).

52. See An Interview with William E. Kennard, GLOBAL COMPETITION REV., Oct. 1998, at 11 ("The theory of the [1996] Act was that local companies would compete in long distance, long distance companies would compete in the local market, cable television would get into the telephone business, and there would be much more competitive activity on the part of existing players.").

53. Id. at 1.

54. 47 U.S.C. § 253(a) (Supp. II 1997).

55. Section 251 broadly defines "telecommunications carriers" to include incumbents and new local exchange carriers. Id. § 251(a)(1).

56. See id. § 251(b)(1).

57. See id. § 251(b)(2)-(3).

58. See id. § 251(b)(4).

59. "Incumbent local exchange carriers" denote the local carriers in existence when the 1996 Act was adopted.

60. 47 U.S.C. § 251(c)(2)(B) (Supp. II 1997). In practice, this means that incumbents must interconnect with all carriers upon request, at the locations they specify, while other carriers may interconnect with each other indirectly, i.e., by each carrier connecting to the incumbent. See Jeffrey S. Bork, Telephony, in BEYOND THE TELECOMMUNICATIONS ACT 11, 36 (Leon T. Knauer et al. eds. 1998).

61. See 47 U.S.C. § 251(c)(3) (Supp. II 1997). "Unbundled access" means the availability of access to distinct parts of the incumbent's network, at an appropriately lower cost than access to all elements of the network. See id. Thus, a competitor can purchase only those network components and functions that it needs to offer its services.

62. Id. § 251(c)(4)(a).

63. See id. § 251(c)(6).

64. See id. § 252. For a discussion of the practical implementation of this procedure see H.I.M. DE VLAAM ET AL., INVENTORY OF PROCEDURES FOR INTERCONNECTION DISPUTES 70 (1997).

65. The minimum requirements for the agreement are that it includes a "detailed schedule of itemized charges for interconnection and each service or network element included in the agreement." 47 U.S.C. § 252(a)(1) (Supp. II 1997).

66. See id. § 252(a)(2).

67. See id. § 252(b)(1).

68. See id. § 252(e)(5).

69. See id. § 252(e)(6).

70. For a discussion of this provision, see generally Tim Sloan, Creating Better Incentives through Regulation: Section 271 of the Communications Act of 1934 and the Promotion of Local Exchange Competition, 50 FED. COM. L.J. 312 (1998).

71. Because of the lack of a similar danger of unfair competition, BOCs are free to offer long-distance services to those customers not immediately within their local service areas. See 47 U.S.C. § 271(b)(2) (Supp. II 1997).

72. Id. § 271(c)(2)(B). The BOC can also satisfy this requirement by providing a statement of generally-available terms and conditions that complies with the competition checklist and that "has been approved or permitted to take effect by the (relevant) state commission." Id.

73. Id. § 271(d)(3)(C). For a discussion of this relatively obscure standard, see David Turestky, Bell Operating Company Interlata Entry Under Section 271 of the Telecommunications Act 1996: Some Thoughts, Remarks before the Communications Committee NARUC Summer Meeting (July 22, 1996), available at <http://www.usdoj.gov/atr/public speeches/turetsky796.h>.

74. See 47 U.S.C. § 272(a)(1) (Supp. II 1997).

75. See id. § 272(b)(2)-(3).

76. Id. § 272(b)(5).

77. See id. § 533(b) (repealed 1996).

78. See id. § 571(a)(2)-(4).

79. See id. § 253(a).

80. See 47 U.S.C. § 572(a)-(b) (Supp. II 1997).

81. See id. § 572(c).

82. See Eli M. Noam, Will Universal Service and Common Carriage Survive the Telecommunications Act of 1996, 97 COLUM. L. REV. 955, 960 (1997).

83. Because the most profitable services, such as business service, attract the most new entrants, competition decreases the profit margin on services typically used to subsidize universal service. As incumbents are forced to sell their previously profitable services at more competitive prices, their ability to cross-subsidize diminishes.

84. See 47 U.S.C. § 254(a)(1) (Supp. II 1997).

85. Id. § 254(b).

86. Id. § 254(d).

87. Id. § 254(e).

88. See id. § 254(e)(2). For rural areas, the decision whether to designate more than one carrier is left to the discretion of the state utility commission. See id.

89. See id. § 254(e).

90. See id. § 254(k).

91. See id.

92. See Georges J. Alexander, Antitrust and the Telephone Industry after the Telecommunications Act of 1996, 12 SANTA CLARA COMPUTER & HIGH TECH. L.J. 227, 244 (1996) (arguing that the 1996 Act does not provide for antitrust immunity).

93. 15 U.S.C. §§ 1-2 (1994).

94. Id. § 12.

95. For a general discussion of U.S. antitrust law and policy, see generally HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY: THE LAW OF COMPETITON AND ITS PRACTICE (1994).

96. 15 U.S.C. § 1 (1994). Section 1 therefore prevents all forms of collusion between telecommunications operators. Agreements to set prices or divide markets or anti-competitive group boycotts are per se violations of section 1. Antitrust enforcers may also decide to examine under section 1 the numerous joint ventures or strategic alliances that are concluded on an almost daily basis between telecommunications operators. See generally Thomas A. Piraino, A Proposed Antitrust Analysis of Telecommunications Joint Ventures, 1997 WISCONSIN L. REV. 639 (1997). The examination would aim at ensuring that such ventures or alliances bring efficiency gains that exceed their restrictive impact on competition and are therefore in the interests of the consumers. See id.

97. The most important sections of the Clayton Act are section 2, which deals with price discrimination (as amended by the Robinson-Patman Act of 1936); section 3, which deals with tying and exclusive dealing contracts; and section 7, which deals with mergers and joint ventures (as amended by the Celler-Kefauver Act of 1950).

98. One of the central characteristics of these statutes is that they are crafted in very broad terms, thereby giving federal judges a pivotal role in defining the scope of the statutes' prohibitions. See ERNEST GELLHORN & WILLIAM E. KOVACIC, ANTITRUST LAW AND ECONOMICS 31 (1994) (arguing that "[n]o scheme of federal economic regulation grants judges comparable discretion to determine litigation outcomes through their interpretations of legislative commands").

99. On this doctrine see, for example, Phillip E. Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 ANTITRUST 841, 851 (1990), and Allen Kezsbom & Alan Goldman, No Shortcut to Antitrust Analysis: The Twisted Journey of the "Essential Facilities" Doctrine, 1996 COLUM. BUS. L. REV. 1 (1996).

100. In MCI Communications v. AT&T, the Seventh Circuit found that AT&T's refusal to grant MCI access to its local telecommunications network constituted an "act of monopolization." The Seventh Circuit set the essential facilities test as follows: A plaintiff seeking access to a facility must establish: "(1) control of the essential facility by a monopolist; (2) a competitor's inability practicably or reasonably to duplicate the facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility." MCI Communications v. AT&T, 708 F. 2d 1081, 1132 (7th Cir. 1982).

101. See Klein, supra note .

102. 15 U.S.C. § 18 (1994).

103. See generally Blumenfeld & Kunin, supra note .

104. See FCC Budget of $212,977,000 Proposed for Fiscal Year 1999, FEDERAL COMMUNICATIONS COMMISSION NEWS, (Feb. 6, 1998) <http://www.fcc.gov/Bureaus/Miscellaneous/News_Releases/1998/nrmc8011.html>.

105. A list of FCC bureaus and offices, as well as a description of their functions can be found at FCC Bureaus & Offices (visited Nov. 15, 1999) <http://www.fcc.gov./bureaus.hmtl>.

106. See THOMAS G. KRATTENMAKER, TELECOMMUNICATIONS LAW AND POLICY 20 (2d ed. 1998).

107. See FCC Budget, supra note .

108. See 47 U.S.C. § 154(a) and 154(b)(5) (1994).

109. See id. § 154(b)(2)(A)(i)-(iv).

110. See 47 U.S.C § 251(d) (Supp. II 1997).

111. See id. § 251(g).

112. See supra text accompanying note .

113. See supra Part III.B.

114. See supra text accompanying notes -.

115. See generally Mark D. Director, The Annenberg Washington Program, Restructuring and Expanding National Telecommunications Markets: A Primer on Competition, Regulation and Development for East and Central European Regulators (visited Dec. 2, 1999) available at <http://www.annenberg.nwu.edu/pubs/telmar/telmar02.htm>.

116. 5 U.S.C. §§ 551-59 (1994).

117. See id. § 552(a) (1994).

118. See 47 U.S.C. § 402(b) (1994).

119. See KRATTENMAKER, supra note , at 20.

120. These commissioners are often state politicians who are influenced by local political considerations. State utility commissions offer thus less guarantee of independence than the FCC. See John A. K. Huntley, Competition and the Provision of a Universal Telecommunications Service, 17 WORLD COMPETITION 5, 7, 14 (1994).

121. See Blumenfeld & Kunin, supra note .

122. See, e.g., 47 U.S.C. §§ 214, 254 (universal service), § 271 (review of BOCs application to enter the long-distance market) (Supp. II 1997).

123. See id. § 252(a)(1).

124. See id. § 252(a)(2) & (b).

125. See id. § 252(c)(2).

126. See generally Duane McLaughlin, FCC Jurisdiction Over Local Telephone Under the 1996 Act: Fenced Off?, 97 COLUM. L. REV. 2210 (1997).

127. See id. at 2229.

128. See infra text accompanying notes -.

129. For a description of the Division's structure, see ANTITRUST DIVISION MANUAL, CHAPTER I (B) (visited Nov. 29, 1999) available at <http://www.usdoj.gov/atr/foia/divisionmanual/ch1.htm>.

130. Antitrust laws are also implemented by the Federal Trade Commission ("FTC"), a body that was established in 1914 as a result of the passage of the Clayton Antitrust Act and its companion Federal Trade Commission Act. Since the FTC has played a less important role than the DOJ in the area of telecommunications, we will not discuss it in this Part.

131. See PHILLIP AREEDA, ANTITRUST ANALYSIS PROBLEMS, TEXT AND CASES 64 (1981).

132. The Sherman Act sets a maximum fine of $10 million for corporate defendants, and antitrust felonies also can result in corporate fines equal to twice the company's pecuniary gain or twice the pecuniary loss by victims, whichever is the greatest. See 15 U.S.C. § 1 (1994). Individuals may be punished by fines of up to $350,000 and by jail sentences as long as three years. See id.

133. See supra Part III.B.

134. 15 U.S.C. § 18 (1994).

135. See supra text accompanying note .

136. 47 U.S.C. § 271(d)(2)(A) (Supp. II 1997).

137. The State of Competition in the Telecommunications Marketplace Three Years after Enactment of the Telecommunications Act of 1996: Before the Subcomm. on Antitrust, Business Rights, and Competition of the Senate Judiciary Comm., 106th Cong. (Feb. 25, 1999) (statement of Joel I. Klein, Asst. Attn'y Gen., U.S. Dept. of Just.), available at <http://www.usdoj.gov/atr/public/testimony/2264.htm>.

138. See supra text accompanying note .

139. See Director, supra note .

140. See supra text accompanying notes -.

141. See infra text accompanying note .

142. See 47 U.S.C. § 251(d)(1) (Supp. II 1997).

143. See In re Implementation of the Local Competition Provisions in the Telecommunications Act of 1996; Interconnection between Local Exchange Carriers and Commercial Mobile Radio Service Providers, 11 F.C.C.R. 15,499 (1996).

144. Iowa Utils. Bd. v. FCC, 109 F.3d 418, 425 (8th Cir. 1996).

145. See Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997). On this case, see generally Jim Chen, TELRIC in Turmoil, Telecommunications in Transition: A Note on The Iowa Board Litigation, 33 WAKE FOREST L. REV. 51 (1998).

146. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366 (1999).

147. See Seth Schiesel, High Court Says Local Phone Giants Don't Have to Sell Access, N.Y. TIMES, Jan. 26, 1999, at C1.

148. For some recent figures, see The Council of Economic Advisers, Progress Report: Growth and Competition in US Telecommunications 1993-98 (Feb. 8, 1999) <http://www.ntia.doc.gov/ntiahome/press/ceafinalrpt.htm>.

149. See ROBERT W. CRANDALL, ARE WE DEREGULATING TELEPHONE SERVICES? THINK AGAIN (The Brookings Institution Policy Brief No. 13, Mar. 1997). See also J. Gregory Sidak and Daniel F. Spulber, Deregulation and Managed Competition in Network Industries, 15 YALE J. ON REG. 117, 146 (1998).

150. In conformity with the 1996 Act, these orders seek to adapt existing universal service and access charges mechanisms to a competitive marketplace.

151. In re Federal-State Joint Bd. on Universal Serv., 12 F.C.C.R. 8776 (1997). This report only provides for a federal universal service plan. States may also establish their own universal service support mechanisms. See Mark P. Trinchero and Holly Rachel Smith, Federal Preemption of State Universal Service Regulations Under the Telecommunications Act of 1996, 51 FED. COMM. L.J. 303 (1998).

152. See In re Federal-State Joint Bd. on Universal Serv., 12 F.C.C.R. 8776, para. 61.

153. Contributions are to be made by all telecommunications providers. They are to be based on retail, end-user telecommunications revenue. See id. para. 843.

154. See id. para 134.

155. Id. para. 222.

156. See In re Access Charge Reform; Price Cap Performance Review for Local Exchange Carriers; Transport Rate Structure and Pricing End User Common Line Charges, 12 F.C.C.R. 15,982.

157. See id. para. 32.

158. Id. para. 35.

159. So far, five petitions have been filed: one by SBC to provide in-region, interexchange services in Oklahoma, another by Ameritech to market such services in Michigan, two more by BellSouth to commence long-distance operations in Louisiana and State Carolina, and one by Bell Atlantic to provide services in New York. The text of these applications is available on the FCC website: <http://www.fcc.gov/Bureaus/Common_Carrier/in-region_applications>.

160. See James F. Rill, Institutional Responsibilities Affecting Competition in the Telecommunications Industry (1998) (unpublished paper, on file with the authors). It should be noted that the legality of section 271 has been challenged in court by SBC Communications, one of the BOCs. On December 31, 1997, a federal district court in Wichita Falls, Texas, ruled that section 271's restrictions over BOCs' access to the long-distance market were unconstitutional. See SBC Communications, Inc. v. FCC, 981 F. Supp. 996 (N.D. Tex. 1997). Specifically, the court found that these restrictions, insofar as they apply only to certain named operators-the BOCs-constituted a "bill of attainder" prohibited by the U.S. Constitution. This judgment was, however, subsequently overturned by the Court of Appeals for the Fifth Circuit. See SBC Communications v. FCC, 154 F.3d 226 (5th Cir. 1998), cert. denied, 119 S. Ct. 889 (1999).

161. Compare Robert Litan, Remarks in the Panel "Unleashing True Competition in Telecommunications," at the Brookings Institution's National Issues Forum (Nov. 23, 1998), with Roger Noll, Remarks in the Panel "Unleashing True Competition in Telecommunications," at the Brookings Institution's National Issues Forum (Nov. 23, 1998), available at <http://www.brook.edu/comm/transcripts/19981120.htm>.

162. Joseph I. Klein, Statements before the House Committee on the Judiciary Concerning Consolidation in the Telecommunications Industry (June 24, 1998), available at <http://www.usdoj.gov/atr/public/testimony/1806.htm>.

163. They include mergers between: (i) BOCs (e.g., the mergers between Bell Atlantic and NYNEX, SBC and Pacific Telesis, and the proposed merger between SBC and Ameritech); (ii) BOCs and non-BOC local exchange carriers (e.g., the merger between SBC and SNET and the proposed merger between Bell Atlantic and GTE); (iii) long-distance and/or international operators (e.g., the mergers between Worldcom and MCI, AT&T and BT, and the proposed merger between MCI Worldcom and Sprint); (iv) long-distance operators and cable companies (e.g., the merger between AT&T and TCI, and the proposed merger between AT&T and MediaOne); (v) wireless carriers (e.g., the merger between AirTouch and Vodafone); and (vi) a BOC and a long-distance operator (e.g., the proposed merger between US West and Global Crossing). For a list of these mergers, see No Sign of Let-up as Wannabes Follow in Worldcom's Wake, FINANCIAL TIMES, May 17, 1999, at 17.

164. Thereby, the agencies would take the risk of creating a narrow oligopolistic market for local exchange.

165. Thus taking the risk of recreating a vertically integrated telecommunications operator.

166. As pointed out by Roger Noll, the 1996 Act, which forms the basis of the American model, is the "single most regulatory statute about an economic regulatory regime that has ever been passed." Noll, supra note .

167. It is also a major regulatory effort to promote the entry of new competitors in the local exchange market.

168. See supra text accompanying notes -.

169. See supra text accompanying notes -.

170. See, e.g., Elizabeth A. Nowicki, Competition in the Local Telecommunications Market: Legislate or Litigate?, 9 HARV. J.L. & TECH. 353 (1996); John T. Soma et al., The Essential Facilities Doctrine in the Deregulated Telecommunications Industry, 13

BERKELEY TECH. L.J. 566 (1998). Note that a similar criticism has been made with respect to the 1996 Act's provisions mandating that ILECs provide new entrants with unbundled network elements upon request.

171. See id. at 354 ("By requiring local exchange powers to negotiate in good faith with those desiring interconnection, Congress is guaranteeing that the faster and cheaper route for potential local carriers is to free ride on the investment of established carriers.").

172. On the issue of access pricing, see Gene Cally, Mark Amstrong & Chris Doyle, The Economics of Access Pricing, in OECD, OECD CONFERENCE ON COMPETITION AND REGULATION IN NETWORK INFRASTRUCTURE INDUSTRIES 43 (1995), available at <http://www.oecd.org/daf/clp/non-member_activities/BDPT205.htm>.

173. For some illustrations of the debate, see William J. Baumol & Thomas W. Merrill, Does the Constitution Require that We Kill the Competitive Goose? Pricing Local Phone Services to Rivals, 73 N.Y.U. L. REV. 1122 (1998); J. Gregory Sidak & Daniel F. Spulber, Givings, Takings, and the Fallacy of Forward-Looking Costs, 72 N.Y.U. L. REV. 1068 (1997).

174. See Joel I. Klein, The Race for Local Competition: A Long Distance Run, Not a Sprint, address before the American Enterprise Institute, Washington D.C., November 5, 1997, available at <http://www.usdoj.gov/atr/public/speeches/1268.htm>.

175. See supra Part III.B.1.b.

176. See Trevor R. Roycroft, Ma Bell's Legacy-Time for a Second Divestiture, PUB. UTIL. FORTNIGHTLY, June 15, 1998, at 30.

177. See Nicholas Economides, The Telecommunications Act of 1996 and its Impact, Sept. 1998, available at <http://www.stern.nyu.edu/networks/telco96.html>. Commentators have argued that a key factor driving the recent mergers between BOCs was their desire to consolidate their position on the local market. See, e.g., Catherine Curran Butcher, The Road Ahead: The Next Decade, in TELECOMMUNICATIONS ACT HANDBOOK, supra note ; Richard Waters, SURVEY-FT TELECOMMUNICATIONS REVIEW: New Communications Industry Takes Shape, FIN. TIMES, June 9, 1999, at C11 (arguing that few RBOCs were prepared to take the risk of opening their local market to gain access to the long-distance market, and that they chose instead "to extend their 'footprint' through merger, turning themselves into formidable giants"). Another factor may well have been to gain larger size to be competitive globally. These factors are not mutually exclusive.

178. See Catherine Curran Butcher, The Road Ahead: The Next Decade, in TELECOMMUNICATIONS ACT HANDBOOK, supra note , at 361.

179. See ALFRED E. KAHN, LETTING GO: DEREGULATING THE PROCESS OF DEREGULATION, OR TEMPTATION OF THE KLEPTOCRATS AND THE POLITICAL ECONOMY OF REGULATORY DISINGENUOUSNESS 119 (1998).

180. See supra text accompanying note .

181. See supra Part II.B.2.

182. For instance, gas and electric utilities are installing fiber optic lines within their controlled public-rights-of-way (known as "teletric" companies), and then use or lease these fiber lines to provide competitive long-distance, high-speed data, and video services. See Lipschitz, supra note , at 18.

183. See supra text accompanying note -.

184. See 15 U.S.C. § 18; see also U.S. Department of Justice & Federal Trade Commission, Horizontal Merger Guidelines 0.1 (Apr. 8, 1997), available at <http://www.usdoj.gov/atr/public/guidelines/horiz_book/hmg1.html>.

185. See William Kennard's Colosseum, ECONOMIST, May 15, 1999, at 75.

186. See supra text accompanying note .

187. See AT&T Corp. v. Iowa Util. Bd., 119 S. Ct. 721, supra note .

188. See supra text accompanying notes -.

189. This is particularly true considering that constitutional challenges to regulation may be the most effective form of action for those wishing to contest the validity of a regulatory act. See Joseph D. Kearney & Thomas W. Merrill, The Great Transformation of Regulated Industries Law, 98 COLUM. L. REV. 1323, 1373 (1998).

190. For a critique of this criterion, see William H. Read & Ronald Alan Weiner, FCC Reform: Governing Requires a New Standard, 49 FED. COM. L.J. 293 (1998).

191. 47 U.S.C. § 160(b) (Supp. II 1997). For a general discussion of section 160, see Thomas J. Hall, The FCC and the Telecom Act of 1996: Necessary Steps to Achieve Substantial Deregulation, 11 HARV. J.L. & TECH. 797 (1998).

192. The FCC may not forbear from applying the requirements of section 251(c) or 271(a) until it determines that those requirements have been fully implemented. See 47 U.S.C. § 160(d) (Supp. II 1997).

193. See id. § 160(a)-(c).

194. See supra text accompanying notes -.

195. See supra text accompanying notes -.

196. See supra text accompanying note .

197. See supra text accompanying note .

198. See Kearney & Merrill, supra note , at 1394.

199. See Fred H. Cate, The National Information Infrastructure: Policymaking and Policymakers, 6 STAN. L. & POL'Y REV. 43, 50 (1994) (noting that, although "Judge Greene rendered his decision approving the Modified Final Judgment in 1982," he "retained jurisdiction under the consent decree to control the operations of both AT&T and the RBOCs" and "the breadth of that decree and the substantial discretion given judges to interpret antitrust laws, 'probably makes him the single most powerful decision-maker in U.S. communications policy today,'" a veritable "'telecom czar'")

200. See infra text accompanying notes -.

201. See supra text accompanying notes -.

202. For instance, by filing large comments or by systematically challenging FCC decisions.

203. See supra text accompanying note .

204. As pointed out by Thomas Krattenmaker, the Act's local competition provisions "impose so many restrictions, and direct the Commission to write so many rules, that one must fear that the regulatory costs of this open access regime will exceed its payoff in reduced rates or improved service quality." See Krattenmaker, supra note , at 159 (citation omitted).

205. See supra text accompanying notes -.

206. See supra text accompanying notes .

207. See supra text accompanying note .

208. Both are requested to cooperate in some areas and have concurrent jurisdiction in others.

209. See supra text accompanying note .

210. See supra text accompanying note .

211. See, e.g., Rill, supra note .

212. Determining whether a given market is (sufficiently) competitive is indeed one of the core competencies of the Antitrust Division.

213. See Gloria Tristani, Mergers, Consumers, and the FCC, Remarks before the National Association of Regulatory Utility Commissioners (Nov. 8, 1998), available at <http://www.fcc.gov/Speeches/Tristani/spgt813.html>. This view is not necessarily shared by all FCC commissioners. For instance, Commissioner Furchtgott-Roth has expressed the view that "for the FCC to conduct antitrust review is to duplicate the efforts of the Antitrust Division." Harold W. Furchgott-Roth, Remarks before the National Association of Broadcasters (Oct. 15, 1998), available at <http://www.fcc.gov/Speeches/Furchtgott_Roth/sphfr815.html>.

214. See supra text accompanying notes -.

215. See James R. Weiss & Martin L. Stern, Serving Two Masters: The Dual Jurisdiction of the FCC and the Justice Department Over Telecommunications Transactions, 6 COMMLAW CONSPECTUS (1998), at 198 ("In contrast to the FCC, the Justice Department generally acts as an enforcement agency rather than a policy-making body.").

216. That the DOJ has experience in assessing the degree of competitiveness of different markets across the economy was the position taken by the DOJ during the congressional debate over the 1996 Act. See Hearing on Telecommunications Policy Reform Before the Senate Committee On Commerce, Science and Transportation, S. REP. NO. 104-218, at 25 (1995) (statement of Anne K. Bingaman, Assistant Attorney General, Antitrust Division).

217. See U.S. Dep't of Justice, Antitrust Div. Statement Regarding Bell Atlantic/NYNEX Merger (1997).

218. See Federal Communications Comm'n, FCC Approves Bell Atlantic/NYNEX Merger Subject to Market Opening Conditions (1997).

219. Note, however, that some legislation has been proposed in the Senate that would place limits on the time taken by the FCC in reviewing mergers. See Antitrust Merger Review Act, S. 467, 106th Cong. (1999).

220. See Hearings on S. 467 Before the Subcommittee on Antitrust, Bus. Rights And Competition of the Senate Committee On Judiciary, 106th Cong. (1999) (Testimony of Roy Neel, President and CEO, U.S. Tel. Ass'n), available at <http://www.usta.org/neelmergtest.html>.

221. See Weiss & Stern, supra note , at 210.

222. Id.

223. See supra text accompanying note .

224. See David Boles de Boer & Lewis Evans, The Economic Efficiency of Telecommunications in a Deregulated Market: The Case of New Zealand, 72 THE ECONOMIC RECORD, Mar. 1, 1996, at 24.

225. Following Britain's entry into the European Community in 1973 (which limited the access of New Zealand's agricultural products to the British market) and the two oil crisis of 1973-74 and 1979, the New Zealand authorities decided to increase the level of industry protection against international pressure, to launch ambitious public projects aimed at reducing the country's dependence on imported oil, to extend an already generous welfare system, and to combine lax monetary policy with direct controls on prices and wages. See Allan Bollard & Michael Pickford, Utility Regulation in New Zealand, Institute of Economic Affairs 4-7 (unpublished lectures, London, 1996, on file with authors).

226. The underlying rationale for the new policies was very much influenced by new microeconomic thinking derived in part from the work of the Chicago School. See id. at 7-10.

227. For an analysis of the liberalization process in New Zealand telecommunications from 1987 to 1989, see Richard A. Joseph, The Politics of Telecommunications Reform: A Comparative Study of Australia and New Zealand 20-27 (University of Wollongong, Science and Technology Analysis Research Program, Working Paper No. 12, 1993); Patrick G. McCabe, Telecommunications in the Pacific Basin: an Evolutionary Approach, in COMPETITION REGULATION IN THE PACIFIC RIM (Carl J. Green & Douglas E. Rosenthal eds.,1996).

228. On the privatization of Telecom, see Rex J. Ahdar, Battles in New Zealand's Deregulated Telecommunications Industry, 23 AUS. BUS. L. REV. 78 (1995).

229. Such practices include contracts, arrangements, and understandings between operators, such as price fixing arrangements for example, which substantially lessen competition in a market. They also include the use by a company of the dominant position which it possesses in a market for the purpose of restricting competition either in that market or in another one. See Commerce Act, 1986, §§ 27-36 (N.Z.).

230. See id. §§ 47-48.

231. See id. §§ 52-55.

232. Such obligations require Telecom to maintain a local free-calling option for all residential customers, to keep the price of a residential line rental at or below its November 1, 1989 level in real terms, to ensure that the line rental for residential users in rural areas is no higher than the standard residential line rental, and to continue to make ordinary residential telephone service as widely available as at the date of Telecom's privatization. See Colleen Flood, Regulation of Telecommunications in New Zealand-Faith in Competition Law and the Kiwi Share, 3 COMPETITION & CONSUMER L.J. (1995).

233. Telecom must, for example, disclose all interconnection agreements with other parties, including its own subsidiaries. See Ministry of Commerce and Communications, Discussion Paper: Telecommunications Information Disclosure (Nov. 1998), available at <http://www.moc.govt.nz/pbt/telecom/teleinfodisc/index.html>.

234. See RESOURCES AND NETWORKS BRANCH, MINISTRY OF COMMERCE AND COMMUNICATIONS, NEW ZEALAND TELECOM. INFO. PUBLICATION NO. 6, NEW ZEALAND TELECOMMUNICATIONS 1987-1998 § 1.4.5, at 7 (1998).

235. See id. at 6-7.

236. In a letter dated June 8, 1988, Telecom indicated its intention to restructure the company into a holding company, a finance company, and an operating company with distinct subsidiary companies including five separate local telephone companies, a long distance company and a company operating mobile services. Telecom stated that the subsidiary companies would not be permitted to offer preferential treatment to other Telecom companies and would deal with each other and with competitors on a total arms-length basis. Letter from Telecom to the Minister of State Owned Enterprises, (June, 8 1988) (on file with authors). In a second letter of July 6, 1989, Telecom committed, inter alia, to provide interconnection on a fair and reasonable basis, to avoid any discrimination against competitors, and to co-operate fully with the Commerce Commission to assist with the prompt resolution of any complaints. Letter from Telecom to the Minister of Commerce (July 6, 1989) (on file with authors).

237. For example, in a statement made December 9, 1991 regarding its policy toward the development of competition in telecommunications markets, the government indicated that if it proved necessary to bolster competition, it would consider the introduction of other statutory measures or regulations. The government issued further threats of that kind, indicating in particular, that it would consider adopting specific rules if operators were unable to conclude agreements with respect to interconnection or numbering issues. See Ministry of Commerce, Regulation of Access to Vertically-Integrated Natural Monopolies, (Aug. 1995), available at <http://www.moc.govt.nz/pbt/telecom/vertical/dispap6c_03.html>.

238. See ANNUAL PLAN 31, COMMERCE COMMISSION (Mar. 1999), available at <http://www.comcom.govt.nz/about/annual.cfm>.

239. See id. at 9.

240. See Commerce Act, 1986, § 20 (N.Z.).

241. See id. § 13.

242. See Commerce Act, 1986, § 9(4) (N.Z.).

243. Id. § 26(1).

244. See Kerrin M. Vautier & Allan E. Bollard, Competition Policy in New Zealand, in COMPETITION REGULATION IN THE PACIFIC RIM 390, supra note .

245. Section 14 of the Commerce Act requires Commission members to disclose their financial interests in businesses which are the objects of regulatory proceedings before the Commission and to discontinue their participation in such proceedings. See Commerce Act, 1986, § 14 (N.Z.).

246. See id §§ 58, 66-67, 70. For a fuller discussion of the role of the Commerce Commission, see Peter Allport, Natural Monopoly Regulation in New Zealand, (July 24, 1998) (unpublished manuscript from the Institute of Public Affairs Deregulation Conference in Melbourne, on file with authors).

247. See Commerce Act, 1986, §§ 80-87 (N.Z.).

248. See id. §§ 91-97.

249. See id. §§ 77-78.

250. See Ministry of Commerce, supra note , at 6-7; Malcolm Webb & Martyn Taylor, Light-Handed Regulation of Telecommunications in New Zealand: Is Generic Competition Law Sufficient?, 2 INT'L J. OF COMM. L. AND POL'Y 11 (Winter 1998/99).

251. See TELECOM CORP. OF NEW ZEALAND LTD., INTERCONNECTION GUIDEBOOK, (1989).

252. See Milton Mueller, On the Frontier of Deregulation: New Zealand Telecommunications and the Problem of Interconnecting Competing Networks, in OPENING NETWORKS TO COMPETITION-THE REGULATION AND PRICING OF ACCESS 114 (David Gabel & David F. Weiman eds., 1998).

253. Clear Communications Ltd. is a telecommunications consortium made up of Bell Canada, Television New Zealand, MCI, Todd Corporation, and New Zealand Rail Group.

254. See Mueller, supra note , at 115.

255. See id. at 115-16.

256. See Clear Comm. Ltd. v. Telecom Corp. of New Zealand Ltd. [1992] 5 T.C.L.R. 166 (N.Z.).

257. See Ahdar, supra note , at 110-11.

258. See Clear Comm. Ltd. v. Telecom Corp. of New Zealand Ltd. [1992] 5 T.C.L.R. 166 (N.Z.).

259. See id.

260. See COMMERCE COMM'N, TELECOMMUNICATIONS INDUSTRY INQUIRY REPORT, (1992).

261. See Telecom Corp. of New Zealand Ltd. v. Commerce Comm'n [1991] 4 N.Z.B.L.C. 103,057.

262. See id. at 103,067.

263. See Commerce Comm'n v. Telecom Corp. of New Zealand Ltd. [1994] 2 N.Z.L.R. 421, 437 (N.Z.).

264. See Ahdar, supra note , at 86.

265. See Telecom Corp. of New Zealand Ltd./The Crown, Commerce Comm'n Decision No. 254, (Oct. 17, 1990) (N.Z.).

266. See Telecom Corp. of New Zealand Ltd. v. Commerce Comm'n [1991] 3 N.Z.B.L.C. 102, 340 (N.Z.).

267. See Telecom Corp. of New Zealand Ltd. v. Commerce Comm'n [1992] 3 N.Z.L.R. 429 (N.Z.).

268. See Ahdar, supra note , at 89-92.

269. See Telecom Corp. of New Zealand Ltd. v. Commerce Comm'n, [1992] 3 N.Z.L.R. 429, 439 (N.Z.).

270. Examples of their anti-competitive nature are the provisions requiring that BellSouth obtain Telecom's authorization prior to concluding interconnection agreements with third parties. See Mueller, supra note , at 118-19.

271. BellSouth's Managing Director wrote "(the government) believed that monopoly minus regulation would equal competition. In fact, monopoly minus regulation equals regulation by monopoly." Carl Blanchard, Telecommunications Regulation in New Zealand-How Effective is Light-Handed Regulation?, 18 TELECOM. POL'Y 154, 159 (1994).

272. Numerous articles have been devoted to the analysis of these cases. See, e.g., Flood, supra note ; Adhar, supra note ; Mueller, supra note ; William B. Tye and Carlos Lapuerta, The Economics of Pricing Network Interconnection: Theory and Application to the Market for Telecommunications in New Zealand, 13 YALE J. ON REG. 419 (1996); Carl Blanchard, Telecommunications Regulation in New Zealand-The Court of Appeal's Decision in Clear Communications v. Telecom Corporation, 18 TELECOM. POL'Y 725 (1994); Carl Blanchard, Telecommunications Regulation in New Zealand-Light-Handed Regulation and the Privy Council's Judgment, 19 TELECOM. POL'Y 465 (1995); Valentine Korah, Charges for Inter-Connection to a Telecommunications Network, 2 COMPETITION & CONSUMER L.J. 213 (1995); George A. Hay, Reflections on Clear, 3 COMPETITION & CONSUMER L.J. 231 (1995); Warren Pengilley, The Privy Council Speaks on Essential Facilities Access in New Zealand: What are the Australasian Lessons?, 3 COMPETITION & CONSUMER L.J. 28 (1995); Michael Carter and Julian Wright, Bargaining over Interconnection: The Clear-Telecom Dispute, Center for Research in Network Economics and Communications, University of Auckland, Working Paper 13, 1997; Dr. Ross Patterson, Light-Handed Regulation in New Zealand Ten Years On, 6 COMPETITION & CONSUMER L.J. (1998).

273. See Clear Comm. Ltd. v. Telecom Corp. of New Zealand Ltd, [1992] 5 T.C.L.R. 166 (N.Z.).

274. See id. at 188.

275. On the ECPR, see the seminal article of William J. Baumol & J. Gregory Sidak, The Pricing of Inputs Sold To Competitors, 11 YALE J. ON REG. 171, 189 (1994), and Alfred E. Kahn and William E. Taylor, The Pricing of Inputs Sold To Competitors: A Comment, 11 YALE J. ON REG. 225 (1994). See also Mark Armstrong, Chris Doyle & John Vickers, The Access Pricing Problem: A Synthesis, 44 J. OF INDUST. ECON. 131-50 (1996).

276. For example, the costs of completing a call which originates on a competitor's network and ends on the incumbent's network.

277. For example, the profits the incumbent made by providing telephone services to users who were connected to its network and who are now being served by a competitor benefiting from the interconnection.

278. See Clear, 5 T.C.L.R. at 212.

279. See id. at 217. To understand why application of the ECPR would enable more efficient competitors to enter the market, consider the following highly simplified example. Assume that, for each call: (i) the cost for the incumbent of enabling a call (originating on a competitor's network) to terminate on its own network is $2, the cost of enabling a call (ending on its own network or on a competitor's network) to originate on its own network is $3, the cost of providing telecommunications services to callers who are both connected to its network is $5, and the price charged to its subscribers is $10 (thereby yielding a monopoly profit of $5 to the incumbent when the call is between two of its own subscribers). Assume further that granting interconnection to the new entrant turns a call which would-or could-otherwise have taken place between two of the incumbent's subscribers into a call originating on the new entrant's network and terminating on the incumbent's network. The ECPR would require that a new entrant be charged $2 (cost for the incumbent of terminating a call) + $5 (foregone profits) for interconnection = $7. With a final price of $10, the new entrant would find it profitable to enter the telecommunications market only if it can enable a call to originate on its network for a cost lower than $3, i.e., if it is more efficient than the incumbent.

280. See id. at 253. The reasoning of the High Court can be illustrated by going back to the example of note above. Imagine that the cost for Clear of enabling a call to originate on its network is $2. Clear could charge its subscribers $9 ($7 for interconnection + $2 to cover the cost of enabling a call to originate on its network). If Telecom then matches Clear's price of $9 by reducing its profits from $5 to $4, interconnection charges can be re-calculated as $2 (to cover Telecom's costs of enabling a call to terminate on its network) + $4 (foregone profits) = $6 (instead of $7), thus opening the possibility of a further round of price reductions.

281. See Clear, 5 T.C.L.R. at 255.

282. See id. at 220.

283. See Clear Comm. Ltd. v. Telecom Corp. of New Zealand Ltd. [1993] 4 N.Z.B.L.C. 103,340 (N.Z.).

284. Id. at 103,343.

285. See id. at 103,360-61.

286. See id. at 103,343.

287. See id. at 103,363-64.

288. See id. at 103,364.

289. See Telecom Corp. of New Zealand Ltd. v. Clear Comm. Ltd. [1994] 4 T.C.L.R. 138 (N.Z.).

290. See id. at 159.

291. See id. at 160.

292. See id. at 160-61.

293. See Webb & Taylor, supra note , at 3.

294. See OECD, supra note , at 214.

295. See OFFICE OF THE MINISTERS OF COMMERCE AND COMMUNICATIONS, REGULATION OF ACCESS TO NATURAL MONOPOLIES-OFFICIALS' REPORT, (1996).

296. See government signals future directions for regulation of telecommunications, electricity and gas, Press Release, June 26, 1996 (on file with authors).

297. See Webb & Taylor, supra note , at 14.

298. MINISTRY OF COMMERCE AND COMMUNICATIONS, PENALTIES, REMEDIES AND COURT PROCESSES UNDER THE COMMERCE ACT 1986: A DISCUSSION DOCUMENT (1998).

299. See Commerce Commission, Commission Welcomes Further Strengthening of Commerce Act (visited Oct. 1, 1999) available at <http://www.comcom.govt.nz/publications/display_mr.cfm?mr_id=492>.

300. See TUANZ, Penalties, Remedies & Court Processes-Ministry of Commerce Discussion Document (Mar. 18, 1998) (unpublished manuscript submitted to Ministry of Commerce Discussion Document regarding the 1986 Commerce Act, on file with authors).

301. See MINISTRY OF COMMERCE AND COMMUNICATIONS, supra note , at 31.

302. See id. at 51.

303. See Ross Patterson, Light-Handed Regulation in New Zealand Ten Years On: Stimulus to Competition or Monopolist's Charter 27 (Apr. 7-8, 1998) (unpublished manuscript distributed at the TUANZ Competition Symposium, Wellington, New Zealand, on file with authors).

304. See Webb & Taylor, supra note , at 11.

305. See Dr. Alan Bollard & Rae Ellingham, Regulation in New Zealand Telecommunications: The Regulatory Body's Perspective 8 (unpublished manuscript from the AIC Conference, Competition, Customer Care and Retention in New Zealand Telecommunications, Stamford Plaza, Auckland, Oct. 28, 1997, on file with authors).

306. See RESOURCES & NETWORK BRANCH, supra note , at 10.

307. The five companies which signed the agreement are Newcall Communications Ltd., Teamtalk Ltd., Telecom New Zealand Ltd., Telstra New Zealand Ltd., and Vodafone New Zealand Ltd. Other companies will be able to become signatories under the same terms and conditions. See Commerce Commission, Media Release 1999/64, available at <http://www.comcom.govt.nz/publications/display_mr.cfm?mr_id=544>.

308. See, e.g., Patterson, supra note ; Webb & Taylor, supra note .

309. See supra text accompanying note .

310. See supra text accompanying notes -.

311. See supra text accompanying note .

312. See supra text accompanying note .

313. See supra text accompanying note .

314. See, e.g., discussion supra Part IV.D.6.

315. This was the case in the Clear-Telecom long distance interconnection agreement, where an agreement over interconnection charges was reached between Clear and Telecom in 1990, but subsequently modified in 1993 after new disputes were settled before a retired Court of Appeal judge. See Mueller, supra note at 114-16; Clear Comm. Ltd. v. Telecom Corp. of New Zealand Ltd., interim award, at 76, 107 (Mar. 26, 1994).

316. For example, the BellSouth-Telecom mobile interconnection agreement, which required that BellSouth pay higher-than-standard charges for long-distance services and that BellSouth pay for ANI services. See Blanchard, supra note , at 159; Mueller, supra note , at 118-19.

317. NEW ZEALAND COMMERCE COMM'N, supra note , at 83.

318. For example, the interconnection agreement between Telecom and its mobile subsidiary originally was a public document. However, since the amalgamation of Telecom's various businesses, it is no longer publicly disclosed. See Patterson, supra note , at 27.

319. This is evidenced by Telecom's attempt to impose a dial access code on Clear's subscribers and to treat Clear as just another one of Telecom's large customers. See supra text accompanying notes -.

320. See Darryl Biggar, Legislative Principles Governing Access to Vertically Integrated Natural Monopolies in New Zealand 20 (Apr. 7-8, 1998) (unpublished manuscript distributed at the TUANZ Competition Symposium, Wellington, New Zealand).

321. The High Court expressly stated that it was not a regulatory agency and that it could not pursue investigations as to whether Telecom earned monopoly rents, possessed excess capacity, or was inefficient. See Clear Comm. Ltd v. Telecom Corp. of New Zealand Ltd. [1992] 5 T.C.L.R. 166, 217 (N.Z.).

322. See Biggar, supra note , at 9.

323. See supra text accompanying notes -.

324. See supra text accompanying note .

325. Todd Telecommunications Consortium argues that, in fact, the provision of residential local services is not a loss-making activity in New Zealand and that, on the contrary, it generates monopoly profits. See generally TODD TELECOMMUNICATIONS CONSORTIUM, NEW ZEALAND TELECOMMUNICATIONS: THE STATE OF COMPETITION 46 (1998).

326. The study was conducted in 1997, and used OECD power purchasing parity methodology. See RESOURCES AND NETWORKS BRANCH, supra note , at 32.

327. See id. at 44.

328. See, e.g., Mueller, supra note , at 126-129.

329. See id. at 129.

330. See supra notes -.

331. See Hay, supra note , at 240; Pengilley, supra note , at 29.

332. In order to promote effective competition in the sector, the Electricity Industry Reform Act adopted in July 1998 mandates, inter alia, structural reforms such as a separation of natural monopoly components from competitive activities (transmission and distribution on the one hand and generation and trading on the other), as well as substantially increased information disclosure requirements. See generally Electricity Industry Reform Act, 1998, pts. 2-5 (N.Z.).

333. See supra text accompanying notes -.

334. See supra text accompanying note .

335. See supra text accompanying note .

336. See supra text accompanying note .

337. See Hay, supra note , at 242-43.

338. See supra note 283.

339. See Mueller, supra note , at 124-25.

340. See supra text accompanying notes and .

341. See supra text accompanying note .

342. See discussion supra Part II.D.3.

343. This was the case in the "Cellular Frequency Cases." See Ahdar, supra note , at 86; Telecom Corp. of New Zealand Ltd./The Crown, Commerce Comm'n Decision No. 254 (Oct. 17, 1990); Telecom Corp. of New Zealand Ltd. v. Commerce Comm'n [1991] 3 N.Z.B.L.C. 102, 340 (N.Z.); Telecom Corp. of New Zealand Ltd. v. Commerce Comm'n [1992] 3 N.Z.L.R. 429 (N.Z.). This was also the case in the "Access to local loop cases" described in Part IV.D, supra.

344. See supra Part IV.B.

345. See supra text accompanying note .

346. See Commerce Act, § 70.

347. See supra text accompanying notes and .

348. See supra text accompanying note .

349. See, e.g., supra text accompanying notes and .

350. See John P. Small, Light Handed Regulation of Network Industries in New Zealand 9 (Apr. 7-8, 1998) (unpublished manuscript distributed at the TUANZ Competition Symposium, Wellington, New Zealand, on file with authors).

351. See supra text accompanying notes -.

352. The Commission's budget is determined by Parliament, its members must possess minimum competencies and experience, and they can only be dismissed on grounds restrictively enumerated in the Commerce Act, three elements which somewhat protect the Commission's autonomy vis-à-vis the Executive. On the other hand, other factors might, at times, constitute a threat to the Commission's autonomy: for example, the Executive alone is responsible for designating the commissioners and the Commission must have regards to the economic policies of the government.

353. See supra note 246.

354. See Roger Kerr and Bryce Wilkinson, The Regulation of Monopoly in New Zealand 36-39 (Apr. 7-8, 1998) (unpublished manuscript distributed at the TUANZ Competition Symposium, Wellington, New Zealand, on file with authors); see also John Belgrave, The Regulatory Environment 8 (Mar. 14, 1965) (unpublished manuscript distributed at the Economist Conference, on file with authors).

355. See SUSAN LOJKINE, COMPETITION LAW AND POLICY INSTITUTE OF NEW ZEALAND, COMPETITION LITIGATION IN THE HIGH COURT, VOL. II, 10 (1991). See also Webb & Taylor, supra note , at 6-7.

356. See Telecom Corp. of New Zealand Ltd. v. Commerce Comm'n, [1992] 3 N.Z.L.R. 429, 439.

357. See Ahdar, supra note , at 102; Hay, supra note , at 243-44, .

358. See Bollard & Pickford, Institute of Economic Affairs, Utility Regulation in New Zealand 52 (unpublished lectures, London, 1996, on file with authors); see also David Harmer & Grant Hannis, The Commerce Act-What Must Change? 3 (Apr. 7-8, 1998) (unpublished manuscript distributed at the TUANZ Competition Symposium, Wellington, New Zealand, on file with authors).

359. See supra text accompanying notes and .

360. See supra note 283.

361. See MINISTRY OF COMMERCE AND COMMUNICATIONS, supra note , at 44; see also Joseph, supra note , at 32.

362. See supra text accompanying note .

363. See Belgrave, supra note , at 6.

364. See Biggar, supra note , at 20.

365. Clear estimated that it had spent $NZ 8 to 10 million for the High Court trial alone of the Clear v. Telecom local access case. See Ahdar, supra note , at 106.

366. See supra text accompanying notes and .

367. The only market segments open to competition were the marketing of some terminal equipment and the provision of some services, such as radio paging, unrelated to traditional voice telephony. In addition, the scope for effective competition was limited by Telecom's regulatory functions which gave it the right to approve all equipment attaching to the network. See Department for Communications and the Arts, Liberalization of the Telecommunications Sector: Australia's Experience 3-4 (1997), available at <http://www.dca.gov.au/nsapi-graphics/?Mlval=dca_dispdo>.

368. See STEPHEN KING & RODNEY MADDOCK, UNLOCKING THE INFRASTRUCTURE-THE REFORM OF PUBLIC UTILITIES IN AUSTRALIA 137 (1996).

369. See Henry Ergas, Telecommunications Across the Tasman: A Comparison of Economic Approaches and Economic Outcomes in Australia and New Zealand 4 (unpublished manuscript prepared for the International Institute of Communications, May 1996, on file with authors).

370. Marina C. van der Vlies, The Transition from Monopoly to Competition in Australian Telecommunications, 20 TELECOM. POL'Y 323 (1996).

371. Optus also bought Aussat.

372. See OECD, supra note , at 7.

373. See Peter G. Leonard, Australia, in TELECOMMUNICATIONS LAW AND PRACTICE 300 (Colin D. Long ed., 1995).

374. See id.

375. See Telecommunications Act, 1991, § 137(3)(b) (Austl.).

376. See Ergas, supra note , at 6, 23. Some argued that a regime of administered competition such as the one established in 1991 carried the risk that regulatory authorities would focus too much on the protection of competitors rather than on the promotion of competition itself. See van der Vlies, supra note , at 323.

377. See FREDERICK G. HIMLER ET AL., NATIONAL COMPETITION POLICY-REPORT BY THE INDEPENDENT COMMITTEE ON INQUIRY (1993).

378. See id. at 325-28.

379. See id. at 242-49. For a description of the access regime proposed in the Himler Report, see Warren Pengilley, Himler and Essential Facilities, 17 UNIV. NEW S. WALES L.J. 1 (1994).

380. The Himler Report, for example, bases its recommendations for the regulation of infrastructure sectors partly on an analysis of the New Zealand experience in telecommunications. See HIMLER ET AL., supra note , at 245.

381. See Pengilley, supra note , at 525.

382. The privatization took place in accordance with the Telstra (Dilution of Public Ownership) Act 1996 which allowed for the sale of one third of the State's equity in Telstra in 1997. See OECD, COMMUNICATIONS OUTLOOK 1999-TELECOMMUNICATIONS REGULATORY ISSUES: AUSTRALIA (1998).

383. DEPARTMENT OF COMMUNICATIONS AND THE ARTS, AUSTRALIA'S OPEN TELECOMMUNICATIONS MARKET: THE NEW FRAMEWORK 25 (1998). See also Trade Practices Act, 1974, Part IV (Austl.).

384. Such arrangements include contracts which contain exclusionary provisions, fix price, or limit the supply or acquisition of goods or services. See Trade Practices Act, 1974, § 45(1)(b) (Austl.).

385. See id. § 47. Exclusive dealing is defined by reference to specific vertical restraint practices such as supplying goods or services on condition that the purchaser does not acquire goods or services from a competitor of the supplier. See RUSSELL V. MILLER, ANNOTATED TRADE PRACTICES ACT 141 (13th ed. 1992).

386. See Trade Practices Act, 1974, § 48 (Austl.). Retail price maintenance refers to practices such as attempting to induce a person not to sell a supplier's products at less than a price specified by the supplier. See MILLER, supra note , at 150.

387. See Trade Practices Act, 1974, § 49 (Austl.).

388. See id. § 46.

389. See id. § 50.

390. See id. §§ 44G(2)(c) and 44H(4)(c).

391. For an excellent description of the workings of Part IIIA provisions, see Warren Pengilley, Access to Essential Facilities: A Unique Antitrust Experiment in Australia, 43 ANTITRUST BULL. 528-36 (1998).

392. See Trade Practices Amendment (Telecommunications) Act, 1997, Part XIB & XIC (Austl.). The explanatory memorandum to the draft text states: