The Need for Speed: A New Framework for Telecommunications Policy for the 21st Century

Twentieth-Century Telecommunications Policy

2 Twentieth-Century Telecommunications Policy 13 The modern communications industry has its roots in a series of technological innovations that over time have radically changed the way that people communicate with one another. The nineteenth century saw the development and widespread use of the telegraph and the beginning of the telephone industry. Toward the end of the century, radio was invented, but it was not commercialized on a broad scale until early in the twentieth century, when telecommunications innovations began to appear at a rapid clip. As radio became the predominant means of mass communication in the 1920s and 1930s, telephones took their place as the primary means of personal communication. Television was invented in the 1920s, but it did not take off commercially until after World War II. Picture quality improved, especially with the introduction of color in the late 1950s, while programming choices began to proliferate with the development of cable television and later with the delivery of television signals through satellites. From the early decades of the twentieth century, the various forms of communications have been subject to some type of government regulation or intervention. The regulatory system has been administered, for the most part, by the Federal Communications Commission, its counterparts at the state level (and, in certain respects, by local governments), and the Antitrust Division of the Justice Department (whose involvement may not be readily apparent at first but will become more evident shortly). The rationales for government intervention are best illustrated by briefly summarizing the background and nature of the regulation of each technology. The first technology, basic telephone service, grew out of the inventions of Alexander Graham Bell in the late nineteenth century . Once the kinks were worked out, many companies began providing telephone service; while most limited their activities to connecting calls made within specific cities, some connected calls between cities and across state lines. Eventually, given the economies of scale associated with the business and what economists now call network externalities, one company—AT&T— grew to have a dominant position through mergers and its refusal to interconnect rival companies to its network. Early in the twentieth century, AT&T’s tactics caught the attention of the Justice Department. After some vigorous legal give-and-take, the federal authorities and AT&T eventually struck a deal, the Kingsbury Commitment , named after the AT&T vice president who helped negotiate the agreement. The grand bargain legalized a major trade-off. AT&T won a legal monopoly over telephone service in most of the United States (service in some rural areas and certain cities remained in other hands). In return, AT&T agreed that its rates on interstate calls would be subject to price regulation by the federal government; rates for calls made within states would be subject to state regulation. The overall system of rate regulation kept 14 Twentieth-Century Telecommunications Policy the prices of interstate calls high so that revenues from interstate calls could be used to subsidize local calls, thereby helping to ensure that almost everyone could afford basic telephone service. By the early 1980s, more than 90 percent of American households had basic telephone service.3 Radio was invented shortly after the telephone, but it took nearly two decades before the first radio station, KDKA Radio, went on the air, in Pittsburgh. Other stations in other cities followed . Each radio broadcast used some of the electromagnetic spectrum, meaning that no two stations could transmit radio signals in the same geographic area without interfering with one another. Although in principle common law property rights could have been developed and enforced by the courts—most likely on a first-come, first-served basis—Congress stepped in several years later (in 1926), creating the Federal Radio Commission (FRC) to allocate frequencies among licensees upon proof that the chosen applicants would best serve the public interest. The FCC, which assumed the duties of the FRC in the landmark Telecommunications Act of 1934, applied the same licensing regime when television was developed commercially after World War II. In short, two very different forms of regulation arose for two very different forms of communication. Telephone service, which was provided through a network of copper wires and which permitted individual two-way communication, was thought to be a natural monopoly, requiring price regulation to protect consumers and help ensure universal adoption. Mass communication technologies that transmitted signals from one point to many— radio and television—made use of the electromagnetic spectrum, which Congress deemed to be a public...