In the early 1990's, the Federal Communications Commission (FCC) attempted to deregulate providers of telecom services under its jurisdiction who were not dominant in the market, i.e., they lacked market power. Under the agency's own deregulatory initiatives, the FCC "detariffed" long distance service providers like MCI, while continuing to regulate the dominant provider, AT&T.
In a court challenge to the agency's claim of power to deregulate providers who lack market power, the Supreme Court held that for better or worse, the statutes written by congress had created a filed rate regulation system that did not give the agency power to modify filing requirements by abolishing them. See MCI v. AT&T. This Supreme Court reminder that only Congress can change statutory rate filing requirements added pressure on Congress to revise the basic laws under which interstate telecom services are provided and regulated.
In 1996, a new regulatory platform was created by Congress when it enacted the Telecommunications Act of 1996. In addition to spelling out criteria and procedures for the FCC to follow before deregulating services, the new law added important new universal service initiatives, such as mandating Lifeline and Linkup services (which previously depended on state initiatives), and providing for broadband access to schools and libraries.
The Telecommunications Act of 1996 requires the FCC to "forbear" from enforcement of statutes and regulations if it determines that the regulation is not needed to protect consumers or to ensure just and reasonable rates and practices by carriers. This reflects the dubious assumption that a competitive market necessarily produces reasonable rates. In an extremely unusual provision, if a telecom company files a "forbearance petition" the 1996 Telecom Act requires the FCC to determine whether forbearance will promote competitive markets and is in the public interest. Unless the Commission responds to petitions for forbearance within one year – a deadline which can be extended by only 90 days – the relief sought by the utility is "deemed granted" by operation of law. Thus, without any action by congress or the regulatory agency, a telecom utility is allowed to trigger its own deregulation and to achieve that if its forbearance petition is not rejected by the FCC within the statutory period .
In 2006, Verizon filed petitions for regulatory forbearance in six large metropolitan areas, including New York, the nation's largest area. With forbearance, Verizon rates under FCC jurisdiction would have been deregulated, and rate increases could take effect without adequate public notice or any opportunity for prior agency review for reasonableness.
Consumer groups, including the National Association of State Utility Consumer Advocates (NASUCA) and PULP, opposed the request for deregulation, filed initial comments objecting to Verizon's request for regulatory forbearance, arguing that the competition tests had not been met, and filed reply comments in response to Verizon's answering papers.
On November 2007, the FCC rejected Verizon's request. According to the FCC Press Release, "The Commission found that the current evidence of competition does not satisfy the
section 10 forbearance standard with respect to any of the forbearance Verizon requests.
Accordingly, the Commission denied the requested relief in all six MSAs." In a subsequent order, the FCC detailed its reasons for rejecting the Verizon request for deregulation.