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Was the 1996 Telecommunications Act successful in promoting competition?

Stuart N. Brotman

Evaluating legislative success is more art than science. Today our nation commemorates the 20th anniversary of the Telecommunications Act of 1996 becoming law, and there is now a sufficient period to evaluate whether the act has achieved what it was intended to accomplish.

The law was designed in part to support technology and service innovation by allowing the Regional Bell Operating Companies (aka “Baby Bells”) to enter new markets, including long-distance telephone and information services. These had been prohibited by court oversight of the 1981 consent decree of AT&T and the Department of Justice. The resulting divestiture of AT&T created seven Baby Bells that were severely constrained from operating in a manner that best capitalized on their business strategies and assets.

Competing in the marketplace was also an essential part of tearing down the so-called Berlin Wall of telecommunications. Local telephone companies were prohibited by the Federal Communications Commission from offering cable television service. The same prohibition applied to local cable television systems being able to offer telephone service. Until the Telecommunications Act of 1996, regulation ensured that these industries could not go head-to-head against each other for customers.

Lacking that incentive, both players did not place a high priority on upgrading their network infrastructures in any comprehensive way. As Chairman of the House Commerce Committee Thomas J. Bliley Jr. (R-VA) noted when the telecommunications reform legislation was being introduced, “it is imperative that the statutory guidelines be put in place so that companies can make business plans as we enter the information age…the federal government should not be in the business of refereeing among competitors through regulation.”

Perhaps Clay T. Whitehead, founding director of the White House Office of Telecommunications Policy, best summarized what the 1996 Telecommunications Act tried to achieve: “set a framework based on those enduring principles of competition and open entry, allow a little time for the industry to get used to the ideas, and get out of the way.”

One of the clear legislative targets was to have competition serve as a force for broadband network development nationwide. The act’s legislative history reflects the goal of Congress “to  accelerate the deployment of an advanced capability that will enable subscribers in all parts of the United States to send and receive information in all its forms—voice, data, graphics, and video— over a high-speed switched, interactive, broadband, transmission capability.”

It’s fair to say that the law did not achieve immediate success. Five years after its enactment, only New York and Texas had determined that there was sufficient competition in the local telephone market to enable the Baby Bells operating there to also offer long-distance telephone service. By 2001, concentration within the industry actually increased, with only four companies in the United States handling 95 percent of local telecommunications service: Verizon, SBC, BellSouth and Qwest.

Fast forward to today’s telecommunications environment, where permitting both local telephone and cable companies to offer broadband service (including video) has been a powerful driver for new investment to facilities upgrades or new construction. According to the United States Telecom Association, broadband providers have made $1.4 trillion in capital investments from 1996 through 2014.

And the National Broadband Map shows that all parts of the country (50 states along with all U.S. territories) now have broadband service, as the law intended. Competition from new entrants, notably Google, has provided competitive incentives for upgrading the speed of fixed broadband even further. Today, fixed broadband at 100 mbps download or greater is available to 65 percent of Americans, up from only 11 percent in 2010.

Competition remains vigorous in mobile broadband, which has virtually universal availability with 97 percent of Americans able to choose among three or more mobile providers. These metrics do not demonstrate that the Telecommunications Act of 1996 was an unqualified success, but they are evidence of the law’s real economic and consumer benefits. We can only hope that the additional passage of time will continue to support what Congress admirably set in motion two decades ago.

Author

Stuart N. Brotman

Howard Distinguished Endowed Professor of Media Management and Law and Beaman Professor of Communication - University of Tennessee, Knoxville

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