Ethical and Regulatory Issues Paper

Ethical and Regulatory Issues Paper

President Clinton signed the Telecommunications Act of 1996 into law in February 1996. The law modified earlier legislation, primarily the Communications Act of 1934. The legislation regulates broadcasting by over-the-air television and radio stations, cable television operators, satellite broadcasters, wireline telephone companies (local and long distance) and wireless telephone companies. The general intention of the Act was deregulation and competition. The Act removed barriers between telecommunications companies, thus fostering competition. The deregulation was also intended to offer consumers a choice in local phone service. By 1999, 98% of homes had no choice in local service (Wikipedia, 2005). Passage of the Act resulted in several mergers including AT&T's purchase of TCI Corporation, the merger between Bell Atlantic and NYNEX, the merger between Qwest and US West, the merger between SBC and AT&T, and the merger between Sprint and Nextel. The purpose of this document is to discuss regulatory issues facing the telecommunications industry. In this document, we will discuss a list of best practices in the telecommunications industry used to address regulatory issues, best practices used in other industries to address regulatory issues and how best practices are adjustable to solve regulatory issues other industries.

Regulatory Issues

The goals of the Telecommunications Act of 1996 included deregulation of the telecommunications sector and increased competition. The Act did deregulate the sector and increase competition, but the Act created regulatory issues. The regulatory issues include but are not limited to compliance issues, organizational issues and liability issues. For the purpose of discussion, we will focus on the recent merger between Sprint and Nextel.

Compliance Issues

In December 2004, Sprint and Nextel agreed to merge in a $35 billion deal that would create the nation's third largest wireless telephone service provider (CBS News, 2004). The Federal Communications Commission (FCC) approved the merger in August 2005. The approval of the merger is contingent on the company's compliance to FCC conditions.

The first condition involves the FCC analysis of the impact of the merger on roaming. The FCC specified that Sprint Nextel may not prevent its subscribers from reaching another carrier and completing calls via manual roaming, unless specifically requested to do so by a subscriber. The FCC plans to hold a separate proceeding to examine whether the current roaming requirements applicable to mobile telephone carriers address current market conditions and developments in technology.

The second condition involves Sprint Nextel's voluntary commitment to meet certain milestones for offering service in the 2.5 GHz band, unless circumstances beyond its control prevent the merged entity from reaching those milestones. The first milestone requires the company to offer services using BRS/EBS spectrum to at least 15 million Americans within four years of the effective date of the order consenting to the merger. The second milestone requires the company to serve an additional 15 million Americans within six years.

The third condition involves Sprint's spin-off of local wireline business, Sprint Local Division. The interests in the local wireline business will be transferred to a new local wireline company that will receive an equitable debt and asset allocation at the time of its proposed spin-off so that the company will be a financially secure, Fortune 500 company. This effectively removes Sprint Nextel from the local wireline business.

Organizational Issues

The financial aspects of a merger are not the only considerations that make a transaction successful. Organizational issues including "people issues" can make the difference between realized opportunities and meeting unfulfilled expectations. The merger between Sprint and Nextel involve two companies in the same industry meaning many functions in the new Sprint Nextel will overlap. Because mergers setup off rapid change, the company must address organizational issues up front in order to gain a competitive advantage and enhance shareholder value. The organizational issues facing Sprint Nextel include identification of risks, development of measurement tools for use during the transition, development of a long-term human resources (HR) strategy including organization structure, processes, employees and technology.

Liability Issues

The Sprint Nextel merger has liabilities including substantial financial liabilities. Although the transaction was titled as a merger of equals, Sprint Nextel was created by Sprint's purchase of NEXTEL Communications. Through its purchase of NEXTEL, Sprint assumes all debts and outstanding legal claims against the former NEXTEL Communications brand. The total debt of Sprint Nextel after the merger is $17.4 billion (CWA, 2005). The company plans to associate $7.25 billion debt to the newly created local wireline company created because of the FCC condition to spin-off local services in all states.

Best Industry Practices

In order to survive in a competitive telecommunications service environment with regulatory issues, telecommunications companies are interconnecting networks. Interconnection allows communications to occur across networks, linking competitors so customers of different networks can communicate with one another (FCC, 2005). For example, when a T-mobile customer from Oklahoma crosses to Kansas, Westlink Communications takes over, and when he reaches Colorado, he will pick up Cingular wireless, and then T-mobile again. The deployment of advanced wireless services complies with the FCC condition involving roaming. Based on the conditions associated with the approval of the Sprint Nextel merger, we can expect pending mergers between AT&T and SBC, and Verizon and MCI to follow the groundwork laid by the FCC. The Sprint Nextel merger was the first between inter-exchange communication carriers (IXC). Industry watchers believe the pending mergers will ultimately receive regulatory approval, but with more conditions from the FCC (Networkworld, 2005).

To address organizational and liability issues associated with a merger or acquisition, companies often use an outside consulting firm, such as Mercer Human Resources Consulting and Accenture. Mercer's clients include British Telecom, Cisco Systems, Nortel Networks Corporation and many others. Accenture's clients include Cingular Wireless and BT Telecom. By working with Accenture, Cingular and AT&T Wireless achieved accelerated achievement