BlogPart 2: Net Neutrality – How Regulation and Deregulation Have Shaped the Telecom Industry

Part 2: Net Neutrality - How Regulation and Deregulation Have Shaped the Telecom Industry

januari 18, 2018, Communications Lifecycle Management

By Larry Foster

Regulation within the telecommunications sector is a mixed bag of sorts. Telecom has long been subjected to heavy regulation simply because market forces aren’t able to maintain practical competition. It’s the capital-intensive nature of the industry – which is also restricted by “last-mile-segments” and wireless access points owned by incumbent service providers. The challenge for legislators is to strike an effective balance, one that ensures appropriate regulatory governance but does not affect the timely delivery of technological advancements and innovations. Legislators must also take into account the fact that legislative actions are slow by design, as they require extensive congressional deliberation. Considering the telecommunications industry is the most dynamic industry among those subject to sector-specific regulations, only adds to the challenge.

In this blog, I’ll explore different aspects of the various regulations and the impact to the industry itself — and how it affects consumers like you and me.

The Original Network Monopoly

In 1982, a federal judge ruled that AT&T would relinquish control of all the eight local Bell Operating Companies. Prior to 1982, consumers had very limited methods to access a telecommunications network. In the earliest stages of telecommunications monopoly, consumers were even restricted from connecting personal devices like telephones and fax machines to the telecommunications network. Ironically many of the eight Bell Operating Companies that stemmed from the breakup are now all rolled back into AT&T — the current autonomous exceptions being Verizon and CenturyLink. The breakup of AT&T spawned market competition over the next two decades and dramatically reduced the cost of network access, becoming the genesis for many of the modern day communication conveniences we take for granted today. These three companies now represent the majority of private and public broadband service.

The Current Network Monopolies

The cable industry is another example of an established monopoly. The vast majority of cable TV customers in the United States do not have a choice of providers. The sheer cost of physically putting in new cable lines has kept new competitors out of mature markets. For decades, cable operators were able to set up exclusive regional franchises, but that ended in 1992 with the Cable Television Consumer Protection and Competition Act.

In adopting the Telecommunications Act of 1996, Congress noted that it wanted to provide a pro-competitive, de-regulatory national policy framework designed to allow advanced telecommunications and information technologies and services into the marketplace. This enabled cable companies to offer telecommunication services and telecommunication carriers to provide data services. Thus, this led to the market share of leading providers growing in major cities. Unfortunately, the 1996 Act did not address broadband services.

The Emergence of Network Oligopolies

Unlike a monopoly, where one corporation dominates a certain market, an oligopoly consists of a select few companies having significant influence over an industry. We are experiencing this phenomenon across cable, cellular, broadband, search and media industries. For example, cell phone service providers that tend to dominate the industry are Verizon, Sprint, AT&T and T-Mobile.

Through years of corporate mergers, acquisitions and even the emergence of the internet, there is a fundamental fear that high-bandwidth broadband providers may now have too much collective power over American cable, internet, media and phone consumption. This is the primary reason large mergers (e.g. AT&T seeking to acquire Time Warner) must be approved by Congress. In 2011, the FCC blocked the proposed merger of T-Mobile and AT&T – it was not clear how consumers would benefit.

Content is Now King

To add fuel to the fire, the lines between media, telecommunications and technology are increasingly blurred as more telecom companies focus on growing their content inventory. Starting in 2007, U.S. consumers were spending more on wireless than landline services. Today, practically every American is now a wireless customer. With high-speed wireless data delivered to touch-screen devices, it makes sense for those companies to expand into the media business.

Remember, high-profile acquisitions like Comcast’s purchase of NBC Universal in 2013 or Verizon Communications’ acquisition of AOL and AT&T’s acquisition of DIRECTV both in 2015 that gave it access to media content like The Huffington Post, TechCrunch, Entertainment and news media. The speed and breadth of these acquisitions are largely due to recent FCC deregulation of merger/acquisition talks along with market determinism.

Regulated Landline vs Non-regulated Mobile

It’s no secret that broadband providers have been trying to do away with old landline technology in favor of high-speed wireless and broadband networks. From the provider’s standpoint, there’s no economic incentive to maintain low-bandwidth legacy copper networks. In fact, the retirement of copper networks was happening so quickly that the FCC issued a ruling requiring phone companies to provide ample notice to customers. As a side note, many of the large carriers circumvented this requirement by selling off segments of their legacy copper networks to smaller carriers.

Unlike landline, mobile data and broadband services are not regulated under Title II of the Communications Act, which has been used for 80 years to govern the traditional telephone system. Net Neutrality reclassified broadband service, including mobile broadband, to expose home internet service and cellular data to common carrier rules.

2015 Open Internet Order

The 2015 Open Internet Order imposed the new net neutrality rules on old public utility laws originally written to regulate the former Bell telephone monopoly. This order addressed a policy shift from competing private networks to public utility treatment for broadband or “reclassification” with authority to enforce net neutrality. Broadband providers were concerned that the FCC would use the broad public utility powers it granted itself without official legislative oversight to regulate the internet well beyond enforcing net neutrality. During the short tenure of net neutrality, (November 2014 to December 2017), broadband providers weren’t able to provide different access services or charge different fees to users or publishers of web content.

Necessity is the Mother of Innovation

In a post-net-neutrality world, it will be interesting to see how new technologies and behaviors will continue to shape the industry and the laws that will govern it. No doubt, there has been a lot of attention recently in the economic, political and consumer front. My prediction for the next few years is that we will see more horizontal and vertical consolidation with key players across the media, cloud infrastructure and telecom service providers. Will we witness a formation of companies that are too big to fail? The question that remains, though, is how the government plans to keep the consumers’ best interest in mind…only time will tell.

In part three of our Net Neutrality series, we’ll talk about the transition to PAYGO subscriptions and its impact on managing expenses.

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