Business Abhors a Regulatory Vacuum

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A breakdown of law is roiling telecommunications. A three-judge panel of the federal Appeals Court in Washington, D.C. struck down rules that the Federal Communications Commission uses to transition local telecommunications monopolies to competitive markets.

The FCC is seeking an extension on the court’s order and asking incumbents and competitors to take another stab at negotiating commercial agreements regarding network access. The task is likely to be difficult, for the Bells are sole suppliers of critical wires that competitive carriers must access. The leverage at the table is all on their side. Still, all parties are vowing to talk in good faith. The acid test is whether any agreements that may result will preserve the benefits that consumers are now enjoying from competition.

In this latest dust-up over competition and oligopoly, an earlier “breakdown of law” offers some lessons.

In the 1920s, a “breakdown of law” created commercial broadcasting. A court ruled that the Commerce Department, which gave out licenses, lacked authority to assign frequencies. In other words, government could not stop one broadcaster from interfering with another. A mass market could not develop, because people refused to purchase radios that received garbled programming.

During the breakdown, then-Secretary of Commerce Herbert Hoover pushed for a federal law that granted virtually all the strong frequencies to commercial broadcasters, save some for amateurs; guaranteed plenty for the military; and cut off religious, labor, university and farm broadcasters. Commercial broadcasters were to carry a balance of programs, so these groups would get airtime.

Although the federal law never authorized networks, they immediately appeared. Interconnections among individual, commercial broadcasters from city to city made it possible to produce national programming, supported by national advertising and transmitted by local broadcasters.

Scholars weigh the merits of this outcome. On the one hand, national networks stimulated a national culture. Commercial broadcasters enjoyed what amounted to licenses to print money, reaping 33% returns annually for decades.

On the other, citizens lost in terms of the variety of programming they heard. Meaningful public service did not emerge until the 1960s, when PBS came into existence, and in the 1970s, with National Public Radio. Only by the late 1990s did cable offer impelling programming.

Fast-forward to today’s “breakdown” of telecom law, and outcomes are pretty clear to foresee. Should negotiations fail or robust competition be vitiated, the Bells could well emerge as the oligarchs of wireline and wireless communications. Vendors would find they face the dictates of the Bells, rather than the demands of many buyers. Consumers will face fewer choices and higher prices.

Surely the public deserves better than electronic stove pipes with early 20th century broadcast technology models restricting 21st century telecommunications.

Citizens will not tolerate losing the telecom choices and services they are just beginning to enjoy. People expect more, not less, as the future unfolds. The pervasive use of cell phones and the excitement generated by phone calls over the Internet visibly and audibly attest to the appeal of new technology. Consumers don’t want to lose them and know immediately, due to the technology, when they can’t connect.

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