The FCC’s 1887 Railroad Regulation Mindset

Scott Cleland Contributor
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1887. No one alive remembers that year. Nonetheless, today’s 21st century Federal Communications Commission (FCC) is regulating high-tech broadband networks much like they were 1887 railroad networks regulated by the Interstate Commerce Commission (ICC), the progenitor of the FCC, which long ago became obsolete and is now defunct.

Fortunately, the 2012 Republican platform recognizes the FCC’s obsolete approach of “trying to micromanage telecom as if it were a railroad network” circa 1887.

The FCC views communications companies of today the same way that Federal regulators viewed railroad companies in 1887 — as de facto “common carriers” that require regulation of rates, terms and conditions to protect the “public interest” — despite the fact that mobile, digital, and Internet communications in 2012 are vastly different from railroad networks or telegraph communications of 125 years ago.

Never mind that the 1996 Telecom Act transformed communications policy from the monopoly common carrier regulation of the past to competition and de-regulation policy of the future. In ignoring that central fact over the last few years, the FCC has repeatedly shown its regressive common carrier regulatory mindset in multiple high-profile decisions.

Just last week the FCC retrogressed in resuscitating moribund special access price regulation of copper wire networks generally, and specifically, in mandating that Verizon must offer common carrier data roaming as part of the regulatory ransom paid to get the FCC to approve Verizon’s purchase of the Cable industry’s fallow spectrum.

Ominously over the last year, the FCC has refused Congressional requests to close its “Title II” proceeding, where with the stroke of a pen, the FCC unilaterally could deem unregulated broadband providers to be common carrier regulated like telephone companies were in the 1930’s and railroads were in 1887.

Last year, the FCC mandated data roaming, i.e. de facto common carrier price regulation, for wireless broadband providers. And the year before, the FCC mandated preemptive common-carrier-like net neutrality regulations of broadband providers, despite presenting no persuasive evidence of a problem to solve.

Why is 1887 common carrier regulation so nonsensical in 2012?

Over a century ago, common carrier railroad regulation may have been appropriate because railroads required both massive fixed investment and extensive public rights of way in order to operate, and because redundant competitive railroad lines were not feasible or economic, which resulted in railroad companies enjoying substantial market power that could be abused.  Moreover, in 1887, railroads were the only combustion-engine form of long-haul transportation available; this means that American common carrier regulatory thinking preceded the advent of transportation competition from cars, buses, trucks, or aircraft.

In 1887, Congress created the Interstate Commerce Commission to regulate rates and prevent rate discrimination for railroads and later it expanded it in 1910 to regulate telegraph and telephone, and again in 1935 to regulate interstate bus lines and trucking. In 1934, Congress created the FCC to consolidate the ICC’s telecom jurisdiction and the 1927 Federal Radio Commission into one Federal communications regulator. Then Congress largely deregulated railroads in 1976, and buses and trucking in 1980. In 1995, Congress abolished the ICC and transferred its residual functions to the Surface Transportation Board.

The similar history of airline regulation/de-regulation is relevant here as well. In 1938, Congress created the Civil Aeronautics Board (CAB) to regulate airlines as common carriers, and then in 1984 deregulated airlines, by abolishing the CAB and transferring the residual functions to the Transportation Department.

So by comparison, there was common carrier regulation of: railroads for 89 years from 1887-1976; bus lines and trucking for 45 years from 1935-1980; and airlines for 46 years from 1938-1984. In stark contrast, common carrier regulation of telecommunications has lasted 102 years and continues unabated to this day, despite the fact that the case for communications deregulation is as strong, or stronger, than it was for transportation deregulation decades ago.

Transportation technology change and innovation enabled railroads, buses, trucks, and aircraft to all compete against one another obviating the need for common carrier regulation.  Communications technology change and innovation has enabled broadcast, cable, mobile, satellite, computer, smart-phone, and Internet technologies to compete against one another obviating the need for common carrier regulation of communications.

Digital technology brings competition-enhancing economics because: Moore’s Law makes computing successively more efficient; Cooper’s Law makes spectrum successively more efficient, and algorithmic compression successively increases the capacity of bandwidth and computer processing. Digital and Internet technology has transformed a one-time monopoly telecommunications network and service into just another free Internet app today.

The 1934-era, analog copper-wire, public-switched-network the FCC wants to regulate today as a common carrier has lost half of its users — of American households: 32% are wireless only, and 20% use cable phones. That staggering loss of market share does not even include the plethora of other ways Americans communicate rather than via common carrier regulated voice service — for example: text, email, chat, instant message, voicemail, video chat, video call, video conference, VoIP, Skype, BBM, AIM, iChat, FaceTime, Twitter, Facebook messaging, Google Hangout, etc.

In sum, 1887 may have been a great year for whisky, bourbon or wine because those things all get better with age, but 1887 is no vintage year for technology regulation mindsets, because technology-specific regulation only increases in obsolescence over time.

Mandating obsolete regulation of modern technology is nonsensical and a self-defeating public policy. When will Washington wake up and realize the problem is not companies, competition, innovation or market forces, but obsolete law and nonsensical Federal regulation of digital communications technologies.

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.

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Scott Cleland