The Telecommunications Act of 1996 Turns Seventeen with No Future Plans

Posted by | February 08, 2013 | Broadband Internet, Regulatory State | 2 Comments

Today marks the seventeenth birthday of the Telecommunications Act of 1996. Since it became law nearly two decades ago, the 1996 Act has largely succeeded in meeting its principal goals. Ironically, its success is becoming its potential failure.

By the time most teenagers turn seventeen, they have already begun planning their future after high school. Their primary school achievements are only a beginning in a lifetime of future possibilities. For most legislation, however, there is no future after the initial goals of Congress are achieved. Fortunately, the seventeen year-old 1996 Act isn’t like most legislation.

Congress recognized that when the goals of the 1996 Act were achieved, many of its regulations would no longer be necessary. In its wisdom, Congress provided the FCC with statutory authority to adapt our communications laws to future changes in the communications market. This authority includes the ability for the FCC to forbear from applying an unnecessary or outdated law.

Unfortunately, the FCC has been very reluctant to exercise this authority. It has instead preferred to remain within the familiar walls of stagnant regulations while the opportunity of Internet transformation knocks on the door. If the FCC refuses to use its forbearance authority, the only future for the 1996 Act is to live in the proverbial parents’ basement and eat 20th Century leftovers. If the FCC instead chooses to act, it could accelerate investment in new broadband infrastructure and the transition to an all-Internet future.

Looking Back: The 1996 Act Changed the Economic Model

Ironically, the 1996 Act was intended to prevent its older sibling, the Communications Act of 1934, from facing a similarly bleak future. The 1934 Act was premised on the theory that communications networks are natural monopolies. That theory began eroding in the 1960s when competitors to the old telephone monopoly began providing “long distance” and “competitive access services” (e.g., “special access”), which proved that facilities-based competition among multiple communications networks was sustainable. Although competition had developed in the long distance and special access markets, restrictions on competition in the 1934 Act, antitrust judgments, and state laws ensured that local markets remained closed to new entrants.

The 1996 Act was intended to transition our communications laws and regulations from the era of natural monopoly to an era of market competition by eliminating barriers to entry at the local level. At the signing ceremony, former President Clinton recognized that the “information revolution” was changing the old economic model and required a new regulatory approach:

But this revolution has been held back by outdated laws, designed for a time when there was one phone company, three TV networks, no such thing as a personal computer. Today, with the stroke of a pen, our laws will catch up with our future. We will help to create an open marketplace where competition and innovation can move as quick as light.

Ironically, the changes wrought by the 1996 Act and Internet transformation are now threatening its legacy.

Looking Today: The 1996 Act Has Largely Met Its Principal Goals

The transition from natural monopoly to market competition envisioned by the 1996 Act is now largely complete. In its initial order implementing the Act, the FCC summarized the 1996 Act’s three principal goals for competition as follows:

(1) opening the local exchange and exchange access markets to competitive entry; (2) promoting increased competition in telecommunications markets that are already open to competition, including the long distance services market; and (3) reforming our system of universal service so that universal service is preserved and advanced as the local exchange and exchange access markets move from monopoly to competition.

These goals have largely been met.

  • Opening Local Markets: In 1996, many Americans had access to only one (1) local telephone network. Today, the FCC reports that more than 90% of residential Americans have access to at least six (6) facilities-based networks that provide affordable local voice services (a “telephone” company, a “cable operator”, and at least 4 mobile providers). Multiplying consumer choice by six is more than enough to conclude that local markets have been opened to competition.
  • Increasing Competition in Long Distance: In 1996, there were four (4) facilities-based nationwide long distance networks: AT&T, MCI, Sprint, and WorldCom. Today, there are at least eleven (11) Tier 1 backbone providers (three more than in 2005). Though this market has been largely unregulated since the FCC completed its Section 271 market-opening proceedings in the early 2000s, the increase in facilities-based nationwide networks from four to eleven demonstrates increased competition in non-local markets since 1996.
  • Universal Service: The FCC initiated a comprehensive overhaul of its universal service and intercarrier compensation mechanisms in 2011. Though the USF/ICC Transformation Order is an important step in reforming these policies, the process of achieving this goal of the 1996 Act is still ongoing. (Ironically, progress in achieving this goal may have been hindered by other outdated assumptions in the Act.)

Looking Forward: The 1996 Act’s Forgotten Future

The world envisioned by the 1996 Act is one in which all providers will have new competitive opportunities as well as new competitive challenges.” In its initial order implementing the Act, the FCC recognized that opening all communications markets to all providers would “blur traditional industry distinctions.” It also recognized that, “given the dynamic nature of telecommunications technology and markets, it will be necessary over time to review proactively and adjust these rules to ensure both that the statute’s mandate of competition is effectuated and enforced, and that regulatory burdens are lifted as soon as competition eliminates the need for them.”

At times it seems the FCC has forgotten these words and the future Congress had envisioned. Seventeen years later competition has clearly eliminated the need for scores of regulatory burdens, yet those burdens remain in place. Rather than embrace ongoing market changes, the FCC has relied on sophistry to deny reality. For example, in a 2010 order denying a forbearance petition filed by Qwest, the FCC concluded that mobile consumers that have “cut the cord” shouldn’t be counted when calculating residential voice market shares absent an economic analysis showing that mobile service “constrains the price of residential wireline service.” With approximately 40% of U.S. households relying entirely on mobile for their voice service, a better question may be whether wireless-only consumers would be willing to purchase Qwest’s plain old telephone service at any price.

It’s time to stop moving the goal posts. With the exception of universal service (a work in progress), the competitive goals of the 1996 Act have already been met. Before the 1996 Act turns eighteen and finds itself stuck in the proverbial basement, the FCC should establish new goals for the Internet era and use its statutory authority, including forbearance, to start achieving those goals. If the FCC’s Technology Transitions Policy Task Force moves quickly, we might have something to celebrate on the 1996 Act’s eighteenth birthday.

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