The 2005 communications act of unintended consequences.

• Author: Brenner, Daniel

Communications policy has been a parade of grand themes. At the start of the last century, universal affordable service by AT&T, the dominant provider, became the overriding theme in telephony. It led eventually to the demise of competition from numerous local urban exchanges, creating a vast monopoly network and independent companies dependent on AT&T long lines for intercity and international connections.

Broadcasters, whose issues would generate the lion's share of federal regulatory attention for the Federal Communications Commission's ("FCC") first forty years, initially sought government intervention to eliminate the chaos of interference supposedly ungovernable by market forces. (1) Intervention arose in the form of limited-term licensing using the standard of the public interest. (2) The FCC generally defined this broad term through compliance with content-based rules such as the fairness doctrine, fines on offensive speech, and structural limits on local, national, and cross-media ownership. Your experience may differ, but the greatest moments in broadcast programming don't seem to have been connected to these behavioral and structural efforts. Rather, artistic creativity and editorial courage can make a difference, and government intervention may do more harm than good in these areas.

The 1970s saw the start of a revolution in communications regulation. Most of the new thinking can be tied to regulators addressing the demands of new competitors. But other developments resulted from regulator dissatisfaction with both the process and results of the earlier regimes. These two strains are interrelated because new competitors made regulators think hard about why rules were in place and whether their application made any sense to newcomers. Then the regulator could consider whether the status quo made sense, even in the absence of a competitor.

For instance, price caps, which look at the price paid by the customer and not the rate of return earned by the provider, arose not because of competition but because of dissatisfaction with the rate of return process. (3) Deregulation of commercial time limits and deletion of minimum percentages of public affairs programming in radio (and later TV) resulted from recognition that existing competition--to say nothing of new competitors--would suffice to address market failures better than FCC rules.

Technology was changing nearly every assumption and inducing more competition. Long distance competitors had cheaper microwave facilities which formed a facilities-based challenge to AT&T's high quality but more expensive wires. Non-Bell equipment came onto the market, lower-cost and feature-rich. The Commission tried to accommodate the competition eventually, despite the monopolists' resistance.

Meanwhile, cable television, once a mere repeater of hard-to-receive TV stations, began in 1975 to offer satellite-delivered networks that competed for viewers and induced viewers with perfectly fine off-air reception to subscribe.

To skip a whole lot of history, by the 1996 Act, Congress was convinced more than ever that inducing competition, not perfecting regulation, best served the public. The success of long distance and customer-premises equipment (e.g., handsets and answering machines) competition could, it was hoped, be extended to local telephone exchange service. More choice and lower prices would result in the last remaining monopoly redoubt of the residential market.

Incumbent phone companies could themselves be incipient competitors elsewhere. The Act anticipated that competition from telco video service could exercise a restraint on cable prices and provide service competition. Congress, in 1996, partially deregulated cable prices and changed the definition of effective competition. (4) Broadcast ownership was freed up to strengthen that industry's competitive stance.

Today, some of the results that Congress anticipated have occurred, but the path has not been exactly as the Act foretold. Local telephone service, the most hotly fought battleground in the Act, emerged from some...