The 1996 Telecommunications Act (the “Act”) promised deregulation.
As the conference report then stated, the Act was to “provide for a pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to competition, and for other purposes.”
Though slowly, it initially appeared to work. Within a few years, there was little distinction between local and long distance telephone companies; competitive entry was evident from cable operators and other competitors; and rivals began to focus on the intersection between voice, video and data services.
In these early years, wireless services were largely unregulated and, by no coincidence, proved to be among the fastest growing services in the information technology sector. Since 1996, the number of wireless subscribers grew eight-fold, and today, after adjusting for inflation, a wireless minute costs less than one-tenth of its 1996 price. Compared to its European counterparts, the US wireless market leads the world in usage and speed, has more competitors and devices for sale, and offers the lowest usage prices. Today, consumers can browse the Internet, watch videos, use apps like free navigation, make phone calls and send messages with a handheld device. All of these consumer benefits were achieved without the help of onerous regulations.
A similar explosion occurred with the Internet. At the time, then-FCC Chairman Kennard argued for a “hands off” regulatory approach, warning that regulations would impede Internet investment. The facts show that the Internet speeds have increased by more than 100-fold, as services went from dialup to broadband speeds. Excluding satellite and mobile services, fixed broadband services are now available to households in more than 99% of US census tracts, and its prices are lower today than they were in 1996, after adjusting for inflation. Like wireless services, broadband consumers have benefited from this “hands off” approach.
With the Act’s specific road map complete and competition apparently working, there is one problem for the FCC – there is little left to regulate in the world of copper telephony. The old telephone industry, the main focus at the FCC, is quickly vanishing. The number of telephone lines have decreased by 5% to 10% percent each year for the last dozen years, and the volume of calls now stand at less than half of its historical peak. Today, there are more broadband lines and three times more wireless subscribers than traditional telephone lines. Since the passage of the Act, the universal service tax rates imposed on telephone companies have increased several-fold, because of the base of revenues had so diminished. With little else to regulate, the FCC began looking at regulating the new growth markets.
History shows that deregulation has produced immense consumer benefits. Economic studies show that deregulation of the transportation, brokerage and long distance markets provide about $100 billion in annual consumer welfare benefits. In many cases, legislation was needed to put these agencies out of business or curtail their roles. Not surprisingly, this is where the Act has failed. By putting a bureaucracy in charge of deregulation, that bureaucracy has proved unwilling to deregulate itself, instead opting to reinvent itself as master of the Internet and wireless services.
The proof of this is in the FCC’s historical budget, which has not decreased despite the Act’s deregulatory framework. As shown below, since passage of the Act, FCC spending has increased by more than three times the rate of inflation, as measured by the GDP implicit price deflator. The unfortunate reality is that bureaucrats operate to perpetuate their own existence. It is “mission creep.”
Image Courtesy of American Consumer Institute
The fact is that the Act did not foresee that instilling a competitive framework also required replacing the old regulatory one. That shortfall allowed the FCC a lot of leeway to initiate regulations of evolving markets and manage competitors, which it has.
As a result of this shortfall, gains in competition are being lost. In the last few years, the FCC has focused its attention on fast growing wireless and broadband services. Its decision to require some wireless providers to give its wireless competitors favorably priced services is anticompetitive and has already led to less investment. Its recent conclusion that broadband is not being deployed fast enough is counter to the empirical evidence and appears to be “cover” for increasing regulation.
The FCC’s recent decision to re-regulate special access services (even before it collects the data to find just cause) should provide pause that this FCC is serious about growing its regulatory role, including the pre-divestiture concept of price regulation.
The FCC’s net neutrality ruling – according to numerous studies and experts – is predicted to lead to less investment and higher consumer prices. Its suggestion of wireless “price shock” and broadband affordability could be spun as market failures, which would serve to justify FCC price regulation. Like the old copper regulatory framework, the FCC is currently in the process of raising Internet prices for some consumers in order to subsidize prices for others.
Some conclusions can be drawn here. The Act’s deregulatory intent has failed, and it has failed because a regulatory agency will not – by its own doing – deregulate itself. As a result, the market forces that created the wireless and broadband boom are being subjugated by costly regulatory controls and spending increases. In the end, consumers will face higher prices.
If Congress is serious about regulatory reforms, it is time to revisit the Telecommunications Act, reduce the FCC’s mission creep and make sure that budgets are trimmed accordingly.
Steve Pociask is president of the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. He is also a member of the Federal Communications Commission’s Consumer Advisory Committee.