A consumer-welfare approach to the mandatory unbundling of telecommunications networks

In this Article, Professors Hausman and Sidak propose a consumer-welfare mo del for the mandatory unbundling of telecommunications networks. Their appr oach, responsive to both the Supreme Court's 1999 decision in AT&T Corp. v. Iowa Utilities Board and the Federal Communications Commission's Second Fu rther Notice of Proposed Rulemaking later the same year, reconciles the "ne cessary" and "impair" standards of 251(d)(2) of the Telecommunications Act with the economic analysis of antitrust law. The essential facilities doctr ine in antitrust law provides four necessary, but not sufficient conditions for finding impairment The authors add a fifth condition, responsive to th e explicit text of 251(d)(2) which addresses whether an incumbent local exc hange carrier could exercise market power over end-users by restricting com petitors' access to a requested telecommunications network element in a par ticular geographical market. The authors also recommend that "necessary" be interpreted to mean that competition in end-user services would be impossi ble unless the requested element were unbundled at a cost-based regulated p rice. This heightened standard, they argue, will protect the economic incen tives to create the intellectual property embodied in elements that are pro prietary in nature. The authors' proposed interpretation of 251(d)(2) focus es on the effectiveness of competition in the end-user services market, rat her than on the ability of a particular competitor to earn profits. Thus th e test adopts consumer welfare, rather than competitor welfare, as its touc hstone.