Highway cops - how federal regulation of the telecommunication industry limits potential growth for the information superhighway

National Review, August 15, 1994 by Robert Stowe England

There is one superglitch to all this euphoria about universal access to cyberspace. The capital for the information superhighway has to come largely, if not entirely, from the private sector; but that capital will not be unleashed unless the regulatory straitjackets on the communications industry are dismantled. The principal barriers are the woefully outdated Communications Act of 1934, which set the rules for the AT&T monopoly on telephone service, and the 1982 consent decree by know-it-all Judge Harold Greene, at once breaking up AT&T and creating straitjackets for the regional Bell operating companies that it forced Ma Bell to toss out on their own.

Al Gore can take credit for getting Congress finally to address the deregulation of the communications industry. Unfortunately, Congress is erecting new barriers even as it tears down old ones. The voices for micromanagement are triumphing over the advocates of free markets.

Notably missing in any bill so far proposed is Gore's own proposal to add a new Title VII to the Communications Act. Title VII that would largely deregulate communications companies that offer a two-way broadband of services (not just telephone or cable-television programming alone). The unwillingness to sponsor Title VII suggests that the Administration's on-ramp to the information superhighway does not go as far as Capitol Hill.

The final House version of the Communications Act of 1994, which recently passed on a nearly unanimous vote in the House, combines a bill sponsored by arch-Luddites Edward J. Markey (D., Mass.) and Jack Fields (D., Tex.) and another sponsored by neo-Luddites Jack Brooks (D., Tex.) and John Dingell (D., Mich.). The Markey-Fields part of the bill would allow regional Bells to offer cable service in their own regions, but not without some onerous restrictions. Video programming would have to be provided through a separate subsidiary, thanks to the misguided notion that local telephone service, whose price is controlled by state authorities, could subsidize cable programming. In fact, it is local service that is being subsidized by long-distance access charges. The Dingell-Brooks part of the bill requires Bell regional companies to wait five years before applying to the FCC to offer long-distance service in their own regions.

The Senate bill, which remains bottled up in the Commerce Committee, is sponsored by Ernest F. Hollings (D., S.C.) and John C. Danforth (R., Mo.). It would prevent local companies from providing long-distance service in their own regions until the FCC found that they actually faced competition for the provision of local-exchange services. The standard for proving that local competition exists, however, is more stringent than the one currently allowed by Judge Greene.

There is a free-market alternative to the Hollings bill offered by Senators John B. Breaux (D., La.) and Bob Packwood (R., Ore.); it would remove all restrictions on telephone, cable, and long-distance service one year after the bill was passed. States would continue to have the right to ensure universal access for telephone service and presumably could end all subsidies if they chose to do so. This approach is simple and sensible and likely to accelerate the development of the information superhighway while preserving universal access to telephone service.

Beyond the continuing restrictions on the Bell companies is the even more controversial matter of universal access to the rest of the information superhighway. "Just as every home in America is now linked to the rest of the country by a driveway that goes to a street, that goes to a highway, that goes to an interstate, we want every home and business in America to be linked by an information highway," Al Gore gushed during the 1992 campaign.

While the Hollings bill leaves this up to the states, the Markey-Fields bill establishes a new Federal-State Joint Board. This board would have the authority to recommend funding mechanisms for universal access, indicating what types of subsidies states should adopt. It would also recommend what services should be universally accessible, and could conceivably decide that the whole range of available services should be offered to every household in America.

Since the Markey-Fields bill prohibits racial discrimination and redlining and objects to anything that would impede anyone's educational and economic opportunities, it would give the Joint Board enough sway to attempt to micromanage every electronic impulse of the firms involved, including choice of technology and pricing for different neighborhoods.

While the bill also requires that a market test be applied before recommending that a particular service or technology be universally available, in practice the Joint Board could minimize this test for a host of socially redeeming reasons. Already the NAACP is demanding that Congress ensure that future information-superhighway services be accessible to low-income neighborhoods. The bidding war for new mandates has begun.