Here we go again. Late last month, the Supreme Court heard arguments in a case involving a key provision in the Telecommunications Act of 1996 (FCC v. Brand X Internet Services). This will be, depending on how you count, the 15th time the court has weighed in on what Congress did or didn’t do when it passed the law nearly ten years ago.
The 1996 act was supposed to deregulate the telecom industry once and for all by, among other things, opening local and long-distance provisioning to competition, and removing the artificial line that separated voice from data communications (and determined who could offer which). The Federal Communications Commission was given the authority to implement these sweeping changes and then, or so it seemed at the time, go out of business.
I was working in Europe when President Clinton signed the 1996 act, and I remember laughing when my European colleagues expressed shock at such a bold solution. Even my client, a German telecommunications start-up, couldn’t imagine how its own markets could be deregulated without at least a five-year transition.
The joke was on us. Before the ink was dry, dozens of lawsuits were filed challenging the act and, later, the efforts of the FCC to implement it. Most of these lawsuits were initiated by the same industry leaders who had called for and endorsed the legislation up to the very last minute. Today the FCC is bigger than ever.
Meanwhile, European countries have made significant progress at privatizing and deregulating their telecommunications.
Rather than a golden age for information services, the act has given us little more than stories of ill-fated mergers, bankruptcies, accounting scandals and the collapse of brands as venerable as AT&T. Even as human beings continue to demonstrate an unlimited capacity to interact with each other using whatever technology comes along—high-speed Internet, WiFi, cell phones with instant messaging and video, data over power lines, Voice over IP, e-mail everywhere, multiuser gaming environments, peer-to-peer networks—providers of communications equipment and services continue to struggle for their very economic survival.
This dichotomy manifests itself as a painful problem for business users. Suppliers, customers, employees and other stakeholders want to interact with us in nearly every new way we can think of (and many we can’t). According to Moore’s Law, they should all be able to do so more cheaply and easily all the time. Instead, CIOs spend an inordinate amount of their lives trying to integrate data communications systems from warring vendors, making sense of artificially high prices, and struggling to identify and resolve delays in deploying new services to internal and external users.
What went wrong? Ironically, the real problem with the 1996 act was that it didn’t go far enough. In particular, it failed to undo damage done during the 1980s, when U.S. District Judge Harold Greene tried to supervise the government’s breakup of AT&T. Part of the deal struck by the parties was to draw a line between voice and data. AT&T and the RBOCs retained a monopoly on voice while staying out of the data business.
This was an arbitrary and fuzzy distinction even 25 years ago; today, it is simply impossible to see where telephone service ends and information service begins. The increasingly contorted efforts to make this distinction are some of the main sources of our communications malaise.
In the Brand X case, for example, the question before the court is whether companies that sell Internet access are offering what the act defines as a “telecommunications service” or an “information service.” This may sound like one of those “angels on the head of a pin” arguments you had in college, but unfortunately there’s a lot at stake. Companies that provide “telecommunications services” are subject to a wide range of special regulations—the “common-carrier” rules. Of these, the most contentious requires that common carriers lease their infrastructure to any and all competitors, at rates that are subject to detailed review by the FCC for “fairness.”
So far, the FCC has ruled that ISPs offering access through the telephone network (dial-up or DSL) are “telecommunications services,” while ISPs that go through the cable system (including the cable companies themselves) are “information services.”
The distinction makes no sense. Businesses and consumers alike have long since ceased to think about voice and data as separate services, based largely on their experiences with the Internet, a multimedia channel offering data, text, sound and video. The Internet is also an interactive channel, offering users the ability to connect via e-mail, instant messages, chat rooms, real-time video and multiuser gaming environments. Are Internet users telecommunicating or using an information service? Are Internet providers hosting conversations or providing content?
Technology convergence has made it impossible to answer these questions. The cable infrastructure can carry television, data and even voice; the phone network can transmit telephone calls and host Internet services. Even power lines have been adapted to carry information.
There is no rational way to distinguish what a company does based solely on the infrastructure technology it utilizes. As Nicholas Negroponte famously said a decade ago, “Bits are bits.”
Though consumer groups are arguing in the Brand X case that all “bit” transporters should be subject to common-carrier rules, I propose a much simpler solution, one that might actually save the U.S. telecommunications industry and put us back on the road to global competitiveness: Eliminate the whole common-carrier category. End FCC oversight of rates. Stop the lawsuits that otherwise plague us every time we invent new media, new protocols and new infrastructure technology (there are many on the way). Say goodbye to common carriers.
Can we really do that? Sure we can. The economic theory behind common carriage (which originated in the 19th century for stagecoaches and steamships) is that the high cost of building a transportation infrastructure will create a “natural” monopoly for one or a few providers. In the absence of regulation, the theory goes, those providers will charge unfair prices for the use of their infrastructure, a problem the market can’t fix.
The telephone industry in the days of AT&T’s dominance might have needed common-carrier rules, but where’s the risk now? Bits don’t care how they get transported, or by whom, and interconnection is as easy as following Internet protocols—protocols that aren’t owned by anybody. Bandwidth gets wider, networks grow faster, costs go down. Dominance by dial-up providers gave way to broadband, broadband to wireless, wireless to who-knows-what. Satellite? Cellular? Even the water system can carry data. Nobody owns the “last mile” and no one ever will.
The stakes here for CIOs are higher than just bad service and high prices. Devices that communicate maintenance problems to manufacturers over RFID, Web sites that offer live customer-service voice and video, the continued convergence of computers, telephones and consumer electronics—many of these and other improvements soon to come may one day slam into a wall of regulation that was supposed to make it easier, not harder, to interact. As the yawning chasm between the FCC’s view of the world and reality deepens, you may one day find that you have become a provider, rather than a customer, of telecommunications services. We may each of us become common carriers.
Better to take the cure now, while you’re still healthy.
Larry Downes is Adjunct Professor at the University of California at Berkeley School of Information Management and Systems. He is the author of Unleashing the Killer App: Digital Strategies for Market Dominance (HBSP, 1998). His next column will appear in July.