Regulating the Communications Industry: From Bells to Bandwidth

The government has repeatedly had difficulty regulating telecommunications, and the current controversy over net neutrality is no exception. It is a battle pitting telecommunications titans AT&T, Comcast and Verizon against virtually everyone else who uses the Internet — which is virtually everyone else. The titans appear to have prevailed, and Internet users, including The Philadelphia Jewish Voice, are seriously worried.

Put simply, the concept of net neutrality calls on the major carriers to give everyone equal service. In contrast, the major carriers would prefer to be able to offer Internet service of different quality to different users. Put another way, under the regime of neutrality, carriers can set their own rates, but must treat the largest and smallest users similarly in regard to network access and speed. Without net neutrality, carriers could discriminate in both rates and service, not just rates. After years of debate on this issue, the Federal Communications Commission (FCC) during the Obama administration adopted a rule requiring net neutrality.

The current White House and the FCC chairman, Ajit Pai, have indicated that the rule of net neutrality will be revoked when the FCC meets on December 14. Buzzwords on the side of the victors are deregulation, and the charge that the neutrality rule has turned telecommunications carriers into public utilities. The attempted parallel with regulated public utilities is not an appropriate comparison. The FCC never undertook to regulate Internet carrier rates or service in any manner at all like the regulation of electric or gas service. The tie to deregulation, however, is a bellwether for the future of regulation under the Trump administration and the present FCC Republican majority.

The impact of the end of net neutrality remains to be seen. However, the fear for websites, like The Philadelphia Jewish Voice, is that unregulated Internet service providers could potentially block them, silently slow them down or require them to make additional payments to continue to have full and equal access to the Internet. Protests against the impending end of net neutrality have been held throughout the country.

Ever since the epochal Federal Communications Act of 1934, concentration of power in the communications industry has been a major problem. Conceptually, the unbridled duplication of communication facilities is economically inefficient. Moreover, the company with the largest network can usually offer better and cheaper service, gradually gobbling up competitors or driving them out of business. For most of the last century, AT&T, formerly called American Telephone and Telegraph Company, served essentially all the large metropolitan areas of the country. “Ma Bell,” as AT&T was known, defined telephone service as we knew it.

Two developments changed that. The first was a ruling by the FCC that permitted devices made by independent manufacturers to be attached to regulated public utility phone lines. In other words, just because AT&T dominated telephone service did not mean it could control the telephone hardware industry as well. As a result of the FCC’s ruling, that industry mushroomed. The second development was a 10-year antitrust case that forced AT&T to divest its local telephone subsidiaries. Landline telephone service was geographically divided into regional Bells. But over time, four of the regional Bell companies were rejoined into AT&T, and others were absorbed by Verizon.

In short, when it comes to communication networks, pure economic “survival of the fittest” leads to concentration of power, and ultimately, stifling of innovation. The danger today is an FCC majority that believes that deregulation is the antidote. How they expand on that viewpoint in their future regulation of the industry is a key question.


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