Feature:Opinion

The Top 10 Failures of FCC Title II Utility Regulation

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Scott Cleland
Chairman, NetCompetition
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      Scott Cleland

      Scott Cleland is Chairman of NetCompetition® a pro-competition e-forum supported by broadband interests and President of Precursor LLC, a research consultancy for Fortune 500 companies. He is author of the book: Search & Destroy Why You Can’t Trust Google Inc.

Who wants to repeat mistakes and failures?

Proponents of net neutrality now claim broadband utility regulation under Title II of the 1934 Communications Act is better than competition in serving consumers and the “public interest.” The FCC’s history teaches exactly the opposite.

For seventy years, FCC telephone utility regulation was replete with sweeping and unnecessary failures because it presumed telephone technology and service would harm consumers and the public interest if the FCC did not control and decide, in advance, most everything about its construction, use, price, terms and conditions.

The FCC’s hard-to-deny 70-year track record of Title II regulatory failures is in stark contrast to the last decade of phenomenal broadband competition success based on the FCC’s classification of broadband as an unregulated information service.

To prevent history from repeating itself, consider this top-ten list of FCC Title II utility-regulation failures.

Telephone service changed little in fifty years (1934-1984). The mandated focus on providing the same telephone service universally to all Americans created a strong FCC aversion to anything new or different, e.g. wireless, digital, or other voice communication innovations.

Achieving 94 percent telephone universal service took sixty years (1934-1994). In just ten years of no broadband utility regulation overhang, 98 percent of Americans enjoy availability of broadband service and most all enjoy broadband service availability from multiple broadband technologies.

Commercial availability of mobile phone service took thirty-five years (1947-1982). AT&T first offered a mobile telephony service in 1946.  Bell Labs invented cell-phone networking in 1947. AT&T requested mobile spectrum for mobile telephony in 1947 and 1968. Not until 1982 did the FCC approve commercial mobile phone service. Japan first commercialized mobile phone service in 1979.

Commercial availability of data service took forty years (mid-1950s-mid-1990s). Bell Labs invented the computer modem for the U.S. military in the mid-1950s. 56k dial-up computer modems were not broadly commercially available until late-1990s, and broadband modems were not until after 2000.

Commercial availability of Internet access took twenty years (1969-early-1990s). While U.S. military researchers invented the original Internet in 1969, this packet-switching technology was used primarily by researchers until the National Science Foundation commercialized the Internet backbone in the early 1990s, and until public use was allowed in 1995.

The DOJ sued FCC Title II-regulated AT&T for illegal monopolization. FCC Title II common carrier regulation proved hostile to competition triggering the DOJ to sue AT&T in 1977 for monopolization. In 1984 a federal court settlement broke up the company.

The DOJ/court largely replaced the FCC as telephone regulator from 1984-1992. Judge Harold Greene, not the FCC, made most all major telephone regulatory decisions to promote telephone services competition.

FCC Title II regulation delayed telephone competition legislation ~twenty years. Since the FCC’s Title II regulation required the DOJ to intervene in the sector in 1977, telephone service became the only U.S. common carrier-regulated service to not be deregulated and replaced with competition policy in the 1970’s and 1980’s.

The need for DOJ/court involvement then also gave the House and Senate Judiciary Committees jurisdiction over telecommunications in addition to the normal congressional committees, which further complicated and delayed passage of the ultimate Telecom Act by several years.

Meanwhile, Congress deregulated all other common carrier regulated industries including railroads in 1976, trucking and bus-lines in 1980 and airlines in 1984.

The FCC’s Telecom Act implementation bankrupted the entire CLEC industry. The FCC’s attempt to regulate virtually every aspect of local phone competition to advantage competitors and disadvantage incumbents resulted in huge regulatory arbitrage, uneconomic CLEC business models, and an unsustainable industry that could not exist without enormous FCC price subsidies.

When capital dried up when the tech bubble burst in 2001 and the CLECs regulation-dependent models were exposed, the entire CLEC industry quickly went bankrupt.

The FCC’s Title II excesses delayed sustainable facility-based competition for several years. The FCC’s Title II implementation of the 1996 Telecom Act aggressively favored resale competition over facilities-based competition.

In particular, the FCC imagined it could bypass Congress’ mandated 15-20 percent wholesale resale discount for incumbents’ local phone services, with an aggressively creative Unbundled Network Element Platform (UNEP) scheme that could generate as much as a 50-60 percent wholesale discount.

After seven years of court cases and appeals, the FCC’s huge “UNE-P” Title II legal gambit was overturned as illegal. The de facto market result was an artificial and illegal multi-hundred billion dollar misdirection of capital toward FCC-favored, economically unsustainable resale models and away from economically sustainable facilities-based competition models that would require minimal FCC oversight.

In sum, the burden of proof is on proponents of Title II reclassification of broadband to show how it will better serve consumers going forward than what consumers have enjoyed the last ten years under the FCC’s current “light touch” policy.

Proponents of Title II utility regulation of broadband not only have rose-colored glasses, apparently they also have amnesia about the FCC’s long history of Title II regulatory failure.

Those who do not learn from the past really are doomed to repeat it.

Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.