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Thursday, August 26, 2004

Regulatory Freedom of Speech -- And Commerce
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A U.S. District Court has preliminarily enjoined the Kansas Corporation Commission from enforcing its "winback" prohibitions against SBC on First Amendment grounds. [Opinion available on Westlaw with subscription.] The KCC passed rules forbidding the incumbent, SBC, from attempting to "win back" customers migrating to other carriers for 30 days. The court wrote:

Southwestern Bell has demonstrated a likelihood of success on the merits because the Commission has failed to present evidence that the thirty-day restriction will directly and materially advance the Commission's substantial interest in fostering a competitive climate in the local exchange carrier (LEC) market in Kansas or that the restriction is narrowly tailored given the fact that there are obvious, non-speech-infringing alternatives to advance the Commission's asserted interest. Further, Southwestern Bell is faced with the threat of irreparable harm if the injunction is not issued by virtue of the loss of its First Amendment rights as well as the fact that it probably would not have an effective remedy after a full trial on the merits.

Because the court relied on commercial speech grounds, it did not need to delve too deeply into the economic analysis of the effect of the winback rule. Interestingly, the KCC asserted "assuring a climate of competition" as the compelling state interest justifying the winback rules' prohibition on contact. The court found this reason legitimate, but not enough to overcome the First Amendment's Central Hudson commercial speech test.

What pervades the opinion, though, is the KCC's -- and even the court's -- presumption that you can manage competition by creating market rules so CLECs can survive in the market. To quote a famous wordsmith, it is surpassing strange that to create competition you have to forbid a party from competing, as the KCC rules required SBC to do.

The court's commercial speech rationale is a victory not just for free speech but for free commerce (they, of course, go together). Given the variety of legacy regulatory rules that touch on regulated companies' speech rights, I would guess this rationale might have some utility in escaping the old regulatory world.

posted by Ray Gifford @ 4:19 PM | General

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